<PAGE>
As Filed with the Securities and Exchange Commission on March 26, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UGI CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 6719 23-2668356
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification Number)
jurisdiction of Classification Number)
incorporation or
organization)
460 North Gulph Road, King of Prussia, PA 19406; (610) 337-1000
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
Brendan P. Bovaird
Vice President, General Counsel and Secretary
UGI Corporation
460 North Gulph Road
King of Prussia, PA 19406
(610) 337-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Carole Schiffman, Esq. Thomas A. Decker Stephen M. Besen, Esq.
Davis Polk & Wardwell Senior Vice President, Weil, Gotshal & Manges
450 Lexington Avenue General Counsel and LLP
New York, NY 10017 Secretary 767 Fifth Avenue
(212) 450-4000 Unisource Worldwide, New York, NY 10153
Inc. (212) 310-8000
1100 Cassatt Road
Berwyn, PA 19312
(610) 296-4470
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement and the
effective time of the merger (the "Merger") of Vulcan Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of UGI Corporation ("UGI"),
with and into Unisource Worldwide, Inc., a Delaware corporation ("Unisource"),
as described in the Agreement and Plan of Merger (the "Merger Agreement") dated
as of February 28, 1999 and attached as Annex A to the Joint Proxy
Statement/Prospectus forming part of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Amount Maximum
Title of Each Class of to be Aggregate Amount of
Securities to be Registered Registered(1) Offering Price(2) Registration Fee(3)
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<S> <C> <C> <C>
Common Stock, no par
value.................... 40,624,414 $484,478,429.00 $134,685.00
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</TABLE>
(1) This Registration Statement relates to the number of shares of Common
Stock, no par value, of UGI (the "UGI Common Stock") to be issued in
exchange for all outstanding shares of Common Stock, par value $0.001 per
share, of Unisource ("Unisource Common Stock"), in connection with the
Merger.
(2) Calculated pursuant to Rule 457(f)(1) of the Securities Act of 1933, as
amended (the "Securities Act"), based upon the market value of the UGI
Common Stock. The proposed maximum aggregate offering price was determined
as follows: (i) $6.75, i.e. the average of the high and low sale prices per
share of Unisource Common Stock as reported on the New York Stock Exchange
Composite Tape on March 23, 1999, multiplied by (ii) 71,774,582 shares of
Unisource Common Stock pursuant to Section 2 of the Merger Agreement.
(3) The registration fee for shares of UGI Common Stock registered hereby,
$131,783.00, has been calculated pursuant to Section 6(b) of, and Rules
457(c) and 457(f)(1) under, the Securities Act, as follows: .0278% of the
product of the proposed maximum aggregate offering price.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
[UGI Logo] [UWW Logo]
PRELIMINARY JOINT PROXY STATEMENT/PROSPECTUS
SUBJECT TO COMPLETION, , 1999
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
, 1999
Dear Stockholder:
This Joint Proxy Statement/Prospectus provides a detailed explanation of the
proposed merger of UGI Corporation and Unisource Worldwide, Inc. We would like
to take this opportunity to highlight some of the reasons we are so
enthusiastic about this combination.
The merger of Unisource and UGI will create one nationwide, multi-product
distribution company with combined sales of approximately $8 billion. We will
operate in four core distribution businesses: Propane, Printing and Imaging
Paper, Packaging and Maintenance Supplies. Each of our businesses will be a
market leader, and we believe the combined company will provide an excellent
platform from which we can create a formidable, national distributor with the
potential for substantial earnings growth.
Simply stated, we believe this merger will maximize long term value for
stockholders of both companies through:
. Strong earnings per share growth
. Significant cash flow generation
. A strengthened balance sheet for Unisource
. An annual dividend rate of $0.75 per share, which provides a yield that
is competitive with other industrial growth companies
The assumptions on which we base our conclusions are discussed in detail on
pages .
To realize this value, our goal is to combine best practices in distribution,
customer service and information systems and leverage operational strengths and
management expertise in distribution and logistics. In connection with the
merger, we also announced that UGI intends to divest UGI Utilities, Inc. We
believe our stockholders are better served by redeploying those assets from the
lower-growth utility operations into this higher-growth distribution
opportunity.
This is truly a winning combination. Each board of directors has approved the
merger and recommends that you vote in favor of the transaction.
We have scheduled special meetings for our respective stockholders to vote on
matters necessary to complete the merger. The dates, times and places of the
meetings are as follows:
For UGI stockholders: For Unisource stockholders:
[ ], 1999 [ ], 1999
[ ] (local time) 10:00 a.m. (local time)
UGI Corporation Unisource Worldwide, Inc.
460 North Gulph Road 1100 Cassatt Road
King of Prussia, PA 19406 Berwyn, PA 19312
Your vote is very important. Please sign, date and return the enclosed proxy
form with your vote FOR the proposed merger today. We appreciate your support.
<TABLE>
<S> <C>
Lon R. Greenberg Ray B. Mundt
Chairman, President and Chief Executive
Officer Chairman and Chief Executive Officer
UGI Corporation Unisource Worldwide, Inc.
</TABLE>
See "Risk Factors" beginning on page as well as other risks included
in "Disclosure Regarding Forward-Looking Statements" on page for a
discussion of risks which should be considered by stockholders with
respect to the merger. Neither the SEC nor any state securities
regulators have approved the shares of UGI common stock to be issued
under this document or determined if this document is accurate or
adequate. Any representation to the contrary is a criminal offense.
Joint Proxy Statement/Prospectus dated March , 1999, and first mailed to
stockholders on , 1999.
<PAGE>
UGI CORPORATION
460 North Gulph Road
King of Prussia, PA 19406
----------------
Notice of Special Meeting
to be held on , 1999
----------------
To the Stockholders of UGI Corporation:
You are cordially invited to attend a special meeting of stockholders of UGI
Corporation to be held on , 1999 at , local time, at UGI
Corporation, 460 North Gulph Road, King of Prussia, Pennsylvania for the
following purposes:
1. To consider and vote on a proposal recommended by the board of
directors of UGI to approve the issuance of UGI common stock in connection
with the merger contemplated by the Agreement and Plan of Merger, dated as
of February 28, 1999, among Unisource Worldwide, Inc., UGI Corporation and
Vulcan Acquisition Corp., a wholly-owned subsidiary of UGI; and
2. To transact such other business incident to the conduct of the
meeting that is properly raised at the meeting or any adjournments or
postponements thereof.
Only stockholders of record at the close of business on , 1999
are entitled to notice of and to vote at the special meeting or any
adjournments or postponements of the special meeting.
To ensure your representation at the special meeting, please sign, date and
promptly return your proxy card in the enclosed envelope whether or not you
plan to attend the special meeting. If you do attend the special meeting, you
may vote in person if you wish, whether or not you have already signed and
returned your proxy card. You may revoke your proxy at any time, before it is
voted. To do so, you must give written notice to the Corporate Secretary and
mail a later dated signed proxy card to the address printed on the enclosed
envelope or vote in person at the special meeting. Please review the Joint
Proxy Statement/Prospectus accompanying this notice for more complete
information regarding the matters proposed for your consideration at the
special meeting.
By Order of the Board of Directors
Brendan P. Bovaird
Vice President, General Counsel and
Secretary
, 1999
The board of directors of UGI recommends that you vote "FOR" approval of the
share issuance in connection with the merger. We appreciate your support.
<PAGE>
UNISOURCE WORLDWIDE, INC.
1100 Cassatt Road
Berwyn, PA 19312
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Notice of Special Meeting
to be held on , 1999
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To the Stockholders of Unisource Worldwide, Inc.:
You are cordially invited to attend a special meeting of stockholders of
Unisource Worldwide, Inc. to be held on , 1999, at 10:00 a.m., local
time, at Unisource Worldwide, Inc., 1100 Cassatt Road, Berwyn, Pennsylvania for
the following purposes:
1. To consider and vote on a proposal recommended by the board of
directors of Unisource to approve and adopt the Agreement and Plan of
Merger, dated as of February 28, 1999, among Unisource, UGI Corporation and
Vulcan Acquisition Corp., a wholly-owned subsidiary of UGI Corporation; and
2. To transact such other business incident to the conduct of the
meeting that is properly raised at the meeting or any adjournments or
postponements thereof.
Only stockholders of record at the close of business on , 1999 are
entitled to notice of and to vote at the special meeting or any adjournments or
postponements of the special meeting.
To ensure your representation at the special meeting, please sign, date and
promptly return your proxy card in the enclosed envelope whether or not you
plan to attend the special meeting. If you do attend the special meeting, you
may vote in person if you wish, whether or not you have already signed and
returned your proxy card. You may revoke your proxy at any time before it is
voted by mailing a later dated signed proxy card to the address printed on the
enclosed envelope or by voting in person at the special meeting. Please review
the Joint Proxy Statement/Prospectus accompanying this notice for more complete
information regarding the matters proposed for your consideration at the
special meeting.
By Order of the Board of Directors
Thomas A. Decker
Senior Vice President, General
Counsel and Secretary
, 1999
The board of directors of Unisource recommends that you vote "FOR" approval
and adoption of the merger agreement. We appreciate your support.
<PAGE>
WHERE TO FIND MORE INFORMATION
UGI and Unisource file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy reports,
statements or other information filed by UGI and Unisource at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. The filings of UGI and Unisource with the SEC are also
available to the public from commercial document retrieval services and at the
worldwide web site maintained by the SEC at "http://www.sec.gov."
UGI filed a Registration Statement on Form S-4 to register with the SEC the
shares of UGI common stock to be issued in connection with the merger. This
Joint Proxy Statement/Prospectus is a part of that Registration Statement and
constitutes a prospectus of UGI in addition to being a proxy statement of UGI
and Unisource for the special meetings. As allowed by SEC 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 SEC allows 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 SEC. The information incorporated by reference is deemed to be part of this
Joint Proxy Statement/Prospectus, except for any information superseded by
information contained in or incorporated by reference into this Joint Proxy
Statement/Prospectus. This Joint Proxy Statement/Prospectus incorporates by
reference the documents set forth below that we have previously filed with the
SEC. These documents contain important information about our companies and
their finances.
<TABLE>
<CAPTION>
UGI Commission Filings
(File No. 1-11071) Period
---------------------- ------
<C> <S>
Annual Report on Form 10-K....... Fiscal year ended September 30, 1998
Quarterly Report on Form 10-Q.... Quarter ended December 31, 1998
Current Report on Form 8-K....... Filed on March 2, 1999
Form 8-B......................... Filed on March 23, 1992
Forms 8-B/A...................... Filed on April 10, 1992
Filed on April 19, 1996
<CAPTION>
Unisource Commission Filings
(File No. 1-14482) Period
---------------------------- ------
<C> <S>
Annual Report on Form 10-K....... Fiscal year ended September 30, 1998
Quarterly Report on Form 10-Q.... Quarter ended December 31, 1998
Current Reports on Form 8-K...... Filed on March 2, 1999
Filed on January 27, 1999
Filed on November 19, 1998
Filed on October 29, 1998
Filed on October 27, 1998
Filed on October 1, 1998
Form 10.......................... Filed on November 26, 1996
Form 10/A........................ Filed on December 11, 1996
</TABLE>
We are also incorporating by reference additional documents that we file
with the SEC between the date of this document and the date of the special
meetings.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus to vote your shares at the
special meeting. We have not authorized anyone to provide you with information
that is different from what is contained in this Joint Proxy
Statement/Prospectus. This Joint Proxy Statement/Prospectus is dated ,
1999. You should not assume the information contained in this Joint Proxy
Statement/Prospectus is accurate as of any date other than that date or such
other date as this Joint Proxy Statement/Prospectus indicates.
Stockholders may obtain, without charge, documents incorporated by reference
in this document by requesting them in writing or by telephone from the
appropriate party at the following address:
<TABLE>
<S> <C>
UGI Corporation Unisource Worldwide, Inc.
460 North Gulph Road 1100 Cassatt Road
King of Prussia, Pennsylvania 19406 Berwyn, Pennsylvania 19312
Robert W. Krick JoAnn P. Huston
Treasurer Director, Investor Relations
(610) 337-1000, extension 3141 (610) 722-3513
or by calling 1-800-UGI-9435 http://www.unisourcelink.com
http://www.ugicorp.com
</TABLE>
If you would like to request documents from UGI or Unisource, please do so
by , 1999 to receive them before the special meetings.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE UNISOURCE/UGI MERGER...................... 1
SUMMARY................................................................... 3
Comparative Per Share Information......................................... 7
Unisource Summary Selected Historical Consolidated Financial Information.. 8
UGI Summary Selected Historical Consolidated Financial Information........ 10
Summary Unaudited Pro Forma Condensed Combined Financial Information of
UGI and Unisource........................................................ 11
Comparative Market Price and Dividend Data................................ 12
RISK FACTORS.............................................................. 14
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS........................... 15
UNISOURCE SPECIAL MEETING................................................. 16
Purpose of the Unisource Special Meeting................................ 16
Solicitation of Proxies................................................. 16
Record Date; Voting Rights.............................................. 16
Proxies................................................................. 16
Required Vote........................................................... 17
Quorum.................................................................. 17
Other Information....................................................... 17
UGI SPECIAL MEETING....................................................... 18
Purpose of the UGI Special Meeting...................................... 18
Solicitation of Proxies................................................. 18
Record Date; Voting Rights.............................................. 18
Proxies................................................................. 18
Required Vote........................................................... 19
Quorum.................................................................. 19
Other Information....................................................... 19
THE PARTIES TO THE MERGER................................................. 20
Unisource Worldwide, Inc................................................ 20
UGI Corporation......................................................... 20
Vulcan Acquisition Corp................................................. 21
THE MERGER................................................................ 22
Background of the Merger................................................ 22
Recommendation of the Board of Directors of Unisource and Reasons of
Unisource for the Merger............................................... 25
Opinion of Unisource's Financial Advisor................................ 27
Recommendation of the Board of Directors of UGI and Reasons of UGI for
the Merger............................................................. 36
Opinion of UGI's Financial Advisor...................................... 37
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Exchange of Financial Forecasts........................................ 42
Interests of Officers and Directors in the Merger...................... 44
Accounting Treatment................................................... 46
Federal Income Tax Consequences of the Merger.......................... 46
Regulatory Filings and Approvals....................................... 48
Restrictions on Sales of Shares of UGI Common Stock by Affiliates of
Unisource............................................................. 48
Dissenters Rights...................................................... 48
Stock Exchange Listing................................................. 48
THE MERGER AGREEMENT..................................................... 49
Effective Time......................................................... 49
Merger Consideration................................................... 49
Unisource Stock Options and Restricted Stock........................... 49
Exchange of Unisource Common Stock..................................... 49
Representations and Warranties and Covenants........................... 49
Conditions to the Merger............................................... 51
Termination............................................................ 52
Amendments............................................................. 52
UNISOURCE SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION......... 53
UGI SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION............... 55
BOARD OF DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER................... 57
Board of Directors..................................................... 57
Committees of the Board of Directors................................... 58
Chief Executive Officer................................................ 58
COMPARISON OF STOCKHOLDER RIGHTS......................................... 59
Dividend Rights........................................................ 60
Fiduciary Duties of Directors.......................................... 60
Liability of Directors................................................. 61
Indemnification of Directors and Officers.............................. 61
Anti-Takeover Provisions............................................... 62
LEGAL MATTERS............................................................ 63
EXPERTS.................................................................. 64
STOCKHOLDER PROPOSALS.................................................... 64
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF UGI AND
UNISOURCE............................................................... F-1
</TABLE>
<TABLE>
<C> <S> <C>
ANNEXES
Annex A Agreement and Plan of Merger, dated as of February 28, 1999,
among Unisource, UGI and Vulcan Acquisition Corp. ...........
Annex B-1 Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation, dated February 28, 1999. .......................
Annex B-2 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated,
dated February 28, 1999. ....................................
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. Why are Unisource and UGI proposing to merge?
A. We believe this merger will maximize long term value for stockholders
of both companies through:
. Strong earnings per share growth
. Significant cash flow generation
. A strengthened balance sheet for Unisource
. An annual dividend rate of $0.75 per share, which provides a yield that
is competitive with other industrial growth companies
Q. What is the "combined company"?
A. When we refer to the "combined company," we mean the combined businesses
of Unisource and UGI after the merger. Although Unisource and UGI will not be
legally combined into a single entity, Unisource will operate as a wholly-owned
subsidiary of UGI and UGI's consolidated financial statements will include both
UGI and Unisource financial results.
Q. What will Unisource stockholders receive in the merger?
A. Unisource stockholders will receive 0.566 shares of UGI common stock in
exchange for each of their shares of Unisource common stock. This exchange
ratio will not change even if the market price of UGI or Unisource common stock
increases or decreases between now and the date the merger is completed.
Accordingly, Unisource stockholders will not be able to determine the value of
the shares of UGI common stock that they will receive in the merger until the
merger is completed.
UGI will not issue any fractional shares in the merger. Unisource
stockholders who would otherwise be entitled to receive a fractional share of
UGI common stock upon conversion of their Unisource common stock at the
effective time of the merger instead will receive cash based on the market
value of the fractional share of UGI stock.
Example: If you currently own 100 shares of Unisource stock, after the
merger you will be entitled to receive 56 shares of UGI stock and a check for
the market value of the .6 fractional share.
Q. Will UGI stockholders receive any shares as a result of the merger?
A. No. UGI stockholders will continue to hold the shares of UGI common stock
they own at the effective time of the merger. After the merger, these shares
will represent an ownership interest in the combined businesses of Unisource
and UGI.
Q. When do you expect the merger to be completed?
A. We are working towards completing the merger as quickly as possible and
expect to complete it by June 30, 1999.
Q. What should stockholders do now?
A. Stockholders should complete, sign, date and mail their proxy card in the
enclosed postage paid envelope as soon as possible so that their shares will be
voted at the meetings.
Unisource stockholders should not send in their share certificates now.
After the merger is completed, we will send Unisource stockholders written
instructions for exchanging their share certificates.
Q. Can stockholders change their vote?
A. Yes. Stockholders can change their vote at any time prior to the special
meetings by mailing a later dated signed proxy card to us or by attending their
meeting and voting in person. In addition, a UGI stockholder must send a
written notice of revocation of his or her initial vote to the corporate
secretary.
1
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A. Your broker will vote your shares only if you provide instructions on how
to vote. You should instruct your broker to vote your shares in accordance with
the directions provided by your broker.
Q. What should stockholders do if they have questions?
A. Unisource stockholders should call at (toll free in
the United States) or (call collect).
UGI stockholders should call at (toll free in the
United States) or (call collect).
2
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. For more detailed
information about the proposed merger, we encourage you to read the entire
merger agreement attached to this document as Annex A and the documents to
which we have referred you. See "Where To Find More Information" on page .
Unisource Worldwide, Inc.
1100 Cassatt Road
Berwyn, PA 19312
(610) 296-4470
Unisource is one of the leading marketers and distributors of printing and
imaging papers, packaging products and maintenance supplies in North America,
with nearly 400 locations throughout the United States and Canada. Fiscal year
1998 revenues were $7.4 billion. Unisource operates the following primary
businesses:
. Printing & Imaging, which distributes printing, publishing and business
papers to commercial printers, publishers, business forms manufacturers,
in-plant printers, corporate customers and redistributors. Fiscal year
1998 revenues for Printing & Imaging were $4.7 billion, which represents
an estimated market share of approximately 18% in the U.S. and 42% in
Canada; and
. Supply Systems, which is comprised of the Packaging and Maintenance
Supplies businesses, distributes a wide array of packaging products,
equipment and services and a comprehensive line of top quality towels,
tissues and cleaning supplies and equipment. Fiscal year 1998 revenues
for Supply Systems were $2.7 billion, which represents an estimated
market share of approximately 8% in the U.S. and 12% in Canada.
For further information on Unisource, see "The Parties to the Merger"
beginning on page .
UGI Corporation
<TABLE>
<S> <C>
460 North Gulph Road
King of Prussia, PA 19406
(610) 337-1000
</TABLE>
UGI is a holding company with three principal subsidiaries:
. AmeriGas Partners, L.P. is the nation's largest retail propane
distribution business with over 600 locations in 46 states. Fiscal year
1998 revenues were $914 million. Retail volume in fiscal year 1998
represented approximately 8% of the U.S. retail propane distribution
market;
. UGI Utilities, Inc. operates a natural gas distribution utility with
258,000 customers and an electric utility in eastern Pennsylvania with
61,000 customers. Fiscal year 1998 revenues were $422 million; and
. UGI Enterprises, Inc., conducts an energy marketing business and is
engaged in two international propane distribution joint ventures; fiscal
year 1998 revenues were $103 million.
For further information on UGI, see "The Parties to the Merger" beginning on
page .
The Meetings (pages and )
The meeting of the Unisource stockholders will be held on , 1999
at 10:00 a.m. local time. The meeting of UGI stockholders will be held on
, 1999 at p.m. local time.
The record date for Unisource stockholders entitled to receive notice of and
to vote at the Unisource special meeting is the close of business on ,
1999. On that date, there were shares of Unisource common stock
outstanding.
3
<PAGE>
The record date for UGI stockholders entitled to receive notice of and to
vote at the UGI special meeting is the close of business on , 1999. On
that date, there were shares of UGI common stock outstanding.
Our Recommendations to Stockholders
The Unisource board of directors believes that the merger is in the best
interest of its stockholders and recommends that they vote FOR the proposal to
adopt the merger agreement.
The UGI board of directors believes that the merger is in the best interest
of its stockholders and recommends that they vote FOR the proposal to issue
shares of UGI common stock in connection with the merger.
Ownership of the Combined Company
Following the Merger
Based on the number of Unisource shares and UGI shares outstanding as of the
record dates for the special meetings, we anticipate that UGI will issue
approximately shares of UGI common stock to Unisource stockholders
in connection with the merger and that such shares will constitute
approximately % of the outstanding shares of UGI common stock after the
merger.
Sale of Subsidiaries
The board of directors of UGI has determined that, in connection with the
merger, UGI will sell its utility subsidiary, UGI Utilities, Inc., and its
unregulated energy marketing subsidiary, UGI Energy Services, Inc. After the
merger, the combined company plans to use the proceeds from the proposed sales
to retire debt, pursue investments with greater growth opportunities or further
expand core distribution businesses.
Dividend Policy
The board of directors of UGI has decided to reduce the combined company's
annual dividend to $0.75 from $1.46, a decrease of 49%, in order to enable the
combined company to devote more of its capital resources to the pursuit of
growth opportunities. The new dividend will be effective for dividends declared
after the closing of the merger. Taking into account the 0.566 exchange ratio
in the merger, the new dividend will represent an increase of 112% for
Unisource stockholders over Unisource's current dividend rate.
The Merger (page )
What You Will Receive in the Merger (page )
Unisource Stockholders
In connection with the merger, Unisource stockholders will be entitled to
receive 0.566 shares of UGI common stock in exchange for each share of
Unisource common stock that they own at the effective time of the merger. This
exchange ratio will not change even if the market price of UGI or Unisource
common stock increases or decreases between now and the date the merger is
completed. Accordingly, Unisource stockholders will not be able to determine
the value of the shares of UGI common stock that they will receive in the
merger until the merger has occurred.
Because the merger agreement provides that UGI will not issue fractional
shares in connection with the merger, Unisource stockholders will receive a
cash payment for the value of the fraction of a share of UGI common stock that
they would otherwise receive upon conversion of your Unisource common stock at
the effective time of the merger.
UGI Stockholders
After the merger, each share of UGI common stock will remain outstanding and
will represent one share of the combined company's common stock.
Stockholder Votes Required (page )
The favorable vote of a majority of the outstanding shares of Unisource
common stock is required to adopt the merger agreement.
The favorable vote of a majority of the votes cast by the UGI stockholders
is required to approve the issuance of the shares of UGI common stock in
connection with the merger, as long as at least a majority of the outstanding
shares of UGI common stock vote on this proposal.
4
<PAGE>
Tax Treatment (page )
The merger is intended to be tax free to UGI, Unisource and their respective
stockholders for United States federal income tax purposes, except with respect
to cash received by Unisource stockholders for fractional shares.
Conditions to the Merger (page )
The consummation of the merger depends upon satisfaction of a number of
conditions, including:
. adoption by the Unisource stockholders of the merger agreement;
. approval by the UGI stockholders of the issuance of UGI common stock in
connection with the merger;
. no law or court order prohibits the closing of the merger; and
. delivery of legal opinions with respect to the tax-free nature of the
merger.
Termination of the Merger Agreement (page )
Either Unisource or UGI may call off the merger if, among other things:
. the merger is not completed by September 30, 1999;
. the Unisource stockholders reject the merger or the UGI stockholders
reject the issuance of the shares of UGI common stock in connection with
the merger;
. the board of directors of the other party withdraws or modifies its
recommendation of the merger in any way adverse to the party seeking to
call off the merger; or
. prior to approval of the merger or share issuance by its stockholders,
the board of directors of either company, as required by its fiduciary
duties, decides to accept an acquisition proposal made by a third party
that offers its stockholders greater value than the merger.
Termination Fees (page )
The merger agreement requires Unisource and UGI each to pay the other party
a $25,000,000 fee if the merger agreement is terminated because:
. prior to approval of the merger or share issuance by its stockholders,
its board of directors decides to accept an acquisition proposal made by
a third party that offers its stockholders greater value than the
merger;
. its board of directors withdraws or adversely modifies its approval or
recommendation of the merger or share issuance; or
. its stockholders reject the merger or share issuance or it willfully
breaches the merger agreement, and
a competing acquisition proposal for it exists at the time of its
stockholder meeting or at the time the merger agreement is terminated,
and
it agrees to an acquisition proposal with any party within 6 months of
the termination of the merger agreement or with the party which made the
competing acquisition proposal within 9 months of the termination of the
merger agreement.
The merger agreement also provides that if the merger agreement is
terminated because of breaches by Unisource or UGI, the breaching party will
reimburse the other party for all expenses incurred by the other party in
connection with the merger agreement in an amount not to exceed $5,000,000. In
no event will either party be required to pay the other party more than
$25,000,000 as a result of termination of the merger agreement.
Interests of Officers and Directors in the Merger (page )
In considering the recommendation of the Unisource board of directors in
favor of the merger and the UGI board of directors in favor of the share
issuance, Unisource and UGI stockholders should be aware that members of each
company's board of directors and management have interests as a result of the
merger in addition to or different from the interests of the company's
stockholders generally.
5
<PAGE>
Directors and Management of the Combined Company following the Merger (page
)
Following the merger, the combined company's board of directors will consist
of ten directors: five current UGI directors, four current Unisource directors,
and James W. Stratton, who currently serves on both boards. Additionally, at
least one of the Unisource directors will serve on each of the combined
company's board committees. Following the merger, Lon R. Greenberg will serve
as chairman, president and chief executive officer of the combined company.
Regulatory Filings (page )
We cannot close the merger until we satisfy the applicable requirements of
United States, Canadian and Mexican antitrust laws. We expect to satisfy these
regulatory requirements prior to our stockholder meetings.
Name of the Combined Company
At the closing of the merger, UGI will change its name. UGI's new name will
be mutually agreed upon by UGI and Unisource and will include the word
"Unisource" but not the initials "UGI."
Dissenters' Rights (page )
Neither Unisource stockholders nor UGI stockholders have dissenters' rights
of appraisal or other rights to demand the fair value of their shares in cash
because of the merger.
Opinion of Unisource's Financial Advisor (page )
Donaldson, Lufkin & Jenrette Securities Corporation, Unisource's financial
advisor, has delivered a written opinion to the board of directors of Unisource
as to the fairness to Unisource stockholders, from a financial point of view,
of the exchange ratio set forth in the merger agreement. The full text of the
written opinion of Donaldson, Lufkin & Jenrette, dated February 28, 1999, is
attached to the back of this document as Annex B-1 and should be read carefully
in its entirety. The opinion of Donaldson, Lufkin & Jenrette is directed to the
Unisource board of directors and is not a recommendation to any stockholder as
to how to vote on the merger.
Opinion of UGI's Financial Advisor (page )
Merrill Lynch, Pierce, Fenner & Smith Incorporated, UGI's financial advisor,
has delivered a written opinion to the board of directors of UGI as to the
fairness to UGI, from a financial point of view, of the exchange ratio set
forth in the merger agreement. The full text of the written opinion of Merrill
Lynch, dated February 28, 1999, is attached to the back of this document as
Annex B-2 and should be read carefully in its entirety. The opinion of Merrill
Lynch is directed to the UGI board of directors and is not a recommendation to
any stockholder as to how to vote on the issuance of the UGI common stock in
connection with the merger.
Accounting Treatment (page )
The merger will be accounted for under the purchase method of accounting.
For accounting purposes, Unisource will be the acquiring company and UGI will
be the acquired company.
Listing of UGI Common Stock
UGI will list the shares of UGI common stock to be issued in connection with
the merger on the New York Stock Exchange and the Philadelphia Stock Exchange.
6
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The table below provides you with historical per share information of UGI
and Unisource along with pro forma combined per share information as if the
merger had occurred as of October 1, 1997 for the income from continuing
operations information and December 31, 1998 for the book value per share
information. The table also presents Unisource's equivalent pro forma per share
information. See "UGI Selected Historical Consolidated Financial Information,"
"Unisource Selected Historical Consolidated Financial Information," and
"Summary Unaudited Selected Pro Forma Condensed Combined Financial Information
of UGI and Unisource" for additional information. The pro forma per share
information is intended for informational purposes only and does not purport to
represent what the combined entity's results of continuing operations would
actually have been had the transaction occurred as of October 1, 1997 or
project the results for any future period.
<TABLE>
<CAPTION>
UGI Unisource UGI and Unisource Unisource
Historical Historical Combined Equivalent
Per Share Per Share Pro Forma Pro Forma
Data Data Per Share Data(a) Per Share Data(b)
---------- ---------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended
December 31, 1998
Income from continuing
operations per share:
Basic................. $ 0.55 $ 0.07 $ 0.16(c) $ 0.09
Diluted............... 0.55 0.07 0.16(c) 0.09
Cash dividends per
share.................. 0.365 0.05 0.1875 0.106
Book value per share (at
period end)............ 11.38 9.97 17.58 9.95
Year Ended September 30,
1998
Income (loss) from
continuing operations
per share:
Basic................. $ 1.22 $(3.36)(d) $ (3.46)(c)(d) $(1.96)
Diluted............... 1.22 (3.36)(d) (3.46)(c)(d) (1.96)
Cash dividends per
share.................. 1.45 0.80 0.75 0.425
Book value per share (at
period end)............ 11.18 9.94 N.C. N.C.
</TABLE>
- --------
N.C.--not computed.
(a) See "Unaudited Pro Forma Condensed Combined Financial Information of UGI
and Unisource."
(b) Unisource's pro forma equivalent per share information represents the pro
forma combined per share information multiplied by an exchange ratio of
0.566.
(c) Excludes the results of UGI's gas and electric utility operations and
energy marketing businesses which will be sold in connection with the
merger. In addition, the after-tax proceeds from the sale of these
businesses (estimated to be $390 million) and the impact of the potential
uses of these proceeds have been excluded from these per share amounts.
(d) The loss per common share for Unisource and the pro forma combined loss per
share for the year ended September 30, 1998 include the impact of the
following special charges:
<TABLE>
<CAPTION>
Loss Per Share
------------------
Pre-Tax After-Tax Pro
Charge Charge Historical Forma
------- --------- ---------- -------
(Millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Charges related to
streamlining Unisource's
organizational structure:
Severance and facility
closures................. $108.5 $ 69.7 $(1.00) $(1.07)
Inventory write-downs
(included in cost of
sales)................... 23.0 14.9 (0.22) (0.23)
Valuation charge related to
Unisource's Mexico
operations................. 70.0 70.0 (1.01) (1.08)
Write-off of Unisource's
capitalized information
technology development and
related costs.............. 168.0 109.2 (1.60) (1.68)
Tax charge associated with
the sale of a significant
portion of Unisource's
U.S.-based grocery supply
systems business........... -- 5.7 (0.08) (0.09)
------ ------ ------- -------
Total....................... $369.5 $269.5 $(3.91) $(4.15)
====== ====== ======= =======
</TABLE>
7
<PAGE>
UNISOURCE SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The table below provides you with summary selected historical consolidated
financial information of Unisource. Unisource has prepared this information
using the consolidated financial statements of Unisource for each of the fiscal
years in the five-year period ended September 30, 1998 and for the three-month
periods ended December 31, 1997 and 1998. The financial statements for each of
the fiscal years in the five-year period ended September 30, 1998 and as of
September 30, 1995, 1996, 1997 and 1998 have been audited by Ernst & Young LLP,
independent auditors. The balance sheet information as of September 30, 1994 is
derived from unaudited financial statements. The financial statements for the
three-month periods ended December 31, 1997 and 1998 have not been audited.
When you read the summary selected historical consolidated financial
information of Unisource, you should consider reading along with it the
historical consolidated financial statements and related notes in Unisource's
annual and quarterly reports as filed with the Securities and Exchange
Commission. See "Where To Find More Information" on page .
<TABLE>
<CAPTION>
Three Months
Ended
Fiscal Year Ended September 30,(1) December 31,
--------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- --------
(Millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Information:
Revenues................ $5,756.5 $6,987.3 $7,022.8 $7,108.4 $7,417.3 $1,869.1 $1,680.5
Cost of goods sold...... 4,825.7 5,925.2 5,896.2 5,911.8 6,149.3 1,546.1 1,376.1
Inventory writedown
(2).................... -- -- -- -- 23.0 -- --
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 930.8 1,062.1 1,126.6 1,196.6 1,245.0 323.0 304.4
Selling and
administrative
expenses............... 782.3 855.8 942.1 1,051.9 1,156.0 286.3 281.1
Special charges (2):
Information technology
write-off............. -- -- -- -- 168.0 168.0 --
Restructuring and
implementation costs.. -- -- 50.0 -- 108.5 -- 3.0
Mexico valuation
charge................ -- -- -- -- 70.0 -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations............. 148.5 206.3 134.5 144.7 (257.5) (131.3) 20.3
Interest expense........ 26.2 33.6 31.5 41.6 45.5 12.1 11.4
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
cumulative effect of
accounting change...... 122.3 172.7 103.0 103.1 (303.0) (143.4) 8.9
Provision (benefit) for
income taxes........... 47.8 67.5 43.0 44.4 (71.2) (42.8) 3.8
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of
accounting change...... 74.5 105.2 60.0 58.7 (231.8) (100.6) 5.1
Cumulative effect of
change in method of
accounting for taxes... 14.0 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 88.5 $ 105.2 $ 60.0 $ 58.7 $ (231.8) $ (100.6) $ 5.1
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
share--basic (3)....... -- -- -- $ 0.88 $ (3.36)(2) $ (1.47)(2) $ 0.07(2)
Earnings (loss) per
share--diluted (3)..... -- -- -- $ 0.87 $ (3.36)(2) $ (1.47)(2) $ 0.07(2)
Weighted average shares
outstanding--basic..... -- -- -- 67.0 68.9 68.6 69.9
Weighted average shares
outstanding--diluted... -- -- -- 67.6 68.9 68.6 70.0
Balance Sheet
Information:
Working capital......... $ 549.8 $ 815.1 $ 750.8 $ 667.4 $ 446.0 $ 679.5 $ 467.2
Total assets............ 1,720.0 2,019.0 2,191.7 2,558.8 1,966.7 2,206.8 1,861.8
Total debt.............. 75.2 71.0 60.3 806.9 510.0 708.8 504.2
Total stockholders'
equity................. 353.5 415.9 935.5 984.4 698.4 860.3 699.9
Other Financial
Information:
EBITDA before special
charges (4)............ $ 181.0 $ 239.7 $ 224.5 $ 191.5 $ 170.2 $ 50.8 $ 36.9
Net cash provided by
(used in) operating
activities............. 94.5 (66.6) 205.9 161.1 201.3(5) (33.6)(5) (17.9)
Capital expenditures.... 33.9 50.1 35.8 25.3 29.7 8.6 2.7
Depreciation and
amortization........... 32.5 33.4 40.0 46.8 58.2 14.1 13.6
Selling and
administrative expenses
(excluding special
charges) - % of gross
profit................. 84.0 80.6 83.6 87.9 91.2 88.6 92.3
</TABLE>
- --------
(1) The financial statements and notes for periods prior to fiscal year 1998
are not strictly comparable to those subsequent to fiscal year 1997 because
prior to December 31, 1996, the consolidated financial statements include
the assets, liabilities, revenues and expenses of Unisource as a wholly-
owned subsidiary of IKON Office Solutions Inc. ("IKON"), and the assets,
liabilities, revenues and expenses of certain operations that were
contributed to Unisource by IKON on October 1, 1995.
8
<PAGE>
(2) The loss per common share for Unisource for the year ended September 30,
1998 includes the impact of the following special charges:
<TABLE>
<CAPTION>
Pre-Tax After-Tax Loss Per
Charge Charge Share
----------- ------------- ------------
(Millions, except per share amounts)
<S> <C> <C> <C>
Charges related to streamlining
Unisource's organizational
structure:
Severance and facility closures... $ 108.5 $ 69.7 $ (1.00)
Inventory write-downs (included in
cost of sales)................... 23.0 14.9 (0.22)
Valuation charge related to
Unisource's Mexico operations...... 70.0 70.0 (1.01)
Write-off of Unisource's capitalized
information technology development
and related costs.................. 168.0 109.2 (1.60)
Tax charge associated with the sale
of a significant portion of
Unisource's U.S.-based grocery
supply systems business............ -- 5.7 (0.08)
----------- ----------- ------------
Total............................... $ 369.5 $ 269.5 $ (3.91)
=========== =========== ============
</TABLE>
Special charges include the information technology write off of $168.0
($109.2 after-tax and $(1.60) per share) for the three months ended December
31, 1997 and implementation costs associated with the restructuring plan of
$3.0 ($1.7 after-tax and $(0.03) per share) for the three months ended
December 31, 1998. Unisource also recorded a $50.0 restructuring charge,
$32.5 after-tax, in 1996.
(3) Historical net income (loss) per share is not presented before fiscal year
1997 since Unisource became a separate publicly-owned company effective
December 31, 1996.
(4) EBITDA before special charges represents earnings before interest, income
taxes, depreciation, amortization, special charges, inventory writedown and
cumulative effect of accounting change. EBITDA before special charges is
provided because it is a measure commonly used by analysts and investors to
determine a company's ability to incur and service its debt. EBITDA before
special charges is not a measurement of financial performance under
generally accepted accounting principles and should not be considered an
alternative to net income as a measure of performance or to cash flow as a
measure of liquidity. EBITDA before special charges is not necessarily
comparable with similarly titled measures for other companies.
(5) Excludes $150.0 provided by the sale of accounts receivable under the
domestic securitization program.
9
<PAGE>
UGI SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The table below provides you with summary selected historical consolidated
financial information of UGI. UGI prepared this information using the
consolidated financial statements of UGI for each of the fiscal years in the
five-year period ended September 30, 1998 and for the three-month periods ended
December 31, 1997 and 1998. UGI has derived the consolidated income statement
and balance sheet information below as of and for each of the years in the
five-year period ended September 30, 1998 from financial statements audited by
independent public accountants. UGI has derived the remaining information from
unaudited consolidated financial statements. When you read the summary selected
historical financial information of UGI, you should consider reading along with
it the historical consolidated financial statements and related notes in UGI's
annual and quarterly reports as filed with the Securities and Exchange
Commission. See "Where To Find More Information" on page .
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended September 30, December 31,
-------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1997 1998
------- -------- -------- -------- -------- -------- --------
(Millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement
Information:
Revenues................ $ 762.2 $ 877.6 $1,557.6 $1,642.0 $1,439.7 $ 471.2 $ 373.7
Gross profit............ $ 379.8 $ 438.9 $ 670.5 $ 703.2 $ 683.0 $ 203.9 $ 192.1
Operating income........ $ 116.4 $ 78.3 $ 159.7 $ 199.9 $ 170.2 $ 77.6 $ 61.5
Interest expense........ (43.3) (59.3) (79.5) (83.1) (84.4) (21.4) (21.2)
Minority interest in
AmeriGas Partners...... -- 19.7 (4.3) (18.3) (8.9) (11.1) (7.4)
Equity in Petrolane
(1).................... (1.0) (5.3) -- -- -- -- --
Income tax expense...... (33.4) (22.7) (33.6) (43.6) (34.4) (19.6) (14.5)
Dividends on UGI
Utilities preferred
stock.................. (1.3) (2.8) (2.8) (2.8) (2.2) (0.7) (0.4)
------- -------- -------- -------- -------- -------- --------
Income from continuing
operations............. $ 37.4 $ 7.9 $ 39.5 $ 52.1 $ 40.3 $ 24.8 $ 18.0
Income from discontinued
operations............. $ 7.6 $ -- $ -- $ -- $ -- $ -- $ --
Net income (loss)....... $ 45.0 $ (8.4)(2) $ 39.5 $ 52.1 $ 40.3 $ 24.8 $ 18.0
Basic earnings (loss)
per share:
Continuing operations.. $ 1.16 $ 0.24 $ 1.19 $ 1.58 $ 1.22 $ 0.75 $ 0.55
Discontinued
operations............ $ 0.24 $ -- $ -- $ -- $ -- $ -- $ --
Net income (loss)...... $ 1.40 $ (0.26)(2) $ 1.19 $ 1.58 $ 1.22 $ 0.75 $ 0.55
Diluted earnings (loss)
per share:
Continuing operations.. $ 1.16 $ 0.24 $ 1.19 $ 1.57 $ 1.22 $ 0.75 $ 0.55
Discontinued
operations............ $ 0.23 $ -- $ -- $ -- $ -- $ -- $ --
Net income (loss)...... $ 1.39 $ (0.26)(2) $ 1.19 $ 1.57 $ 1.22 $ 0.75 $ 0.55
Average shares
outstanding--basic..... 32.186 32.694 33.058 33.049 32.971 32.927 32.855
Average shares
outstanding--diluted .. 32.274 32.710 33.142 33.132 33.123 33.081 32.939
Cash dividends declared
per share.............. $ 1.36 $ 1.39 $ 1.41 $ 1.43 $ 1.45 $ 0.36 $ 0.365
Balance Sheet
Information:
Cash and short-term
investments............ $ 77.4 $ 132.7 $ 97.1 $ 129.4 $ 148.4 $ 152.5 $ 150.7
Total assets............ 1,182.2 2,152.3 2,133.0 2,151.7 2,074.6 2,244.0 2,127.5
Capitalization:
Total debt............. $ 412.5 $ 916.1 $ 941.8 $ 964.0 $ 982.8 $1,038.6 $1,027.3
Minority interest in
AmeriGas Partners..... -- 318.9 284.4 266.5 236.5 267.9 234.2
UGI Utilities preferred
stock................. 35.2 35.2 35.2 35.2 20.0 35.2 20.0
Common stockholders'
equity................ 424.3 380.5 377.6 376.1 367.1 393.6 374.1
------- -------- -------- -------- -------- -------- --------
Total capitalization... $ 872.0 $1,650.7 $1,639.0 $1,641.8 $1,606.4 $1,735.3 $1,655.6
======= ======== ======== ======== ======== ======== ========
Other Financial
Information:
EBITDA (3).............. $ 158.2 $ 139.2 $ 245.7 $ 286.0 $ 258.0 $ 99.2 $ 83.2
Capital expenditures.... 50.1 68.8 62.7 68.8 69.2 15.6 16.2
</TABLE>
- --------
(1) Represents UGI's 35% equity interest in Petrolane Incorporated (Petrolane)
prior to UGI's April 19, 1995 acquisition of the approximately 65% of
Petrolane common shares outstanding not already owned by UGI. On April 19,
1995, UGI combined the propane distribution businesses of Petrolane and
AmeriGas Propane into AmeriGas Partners, L.P.
(2) Includes extraordinary loss from debt restructuring and loss from
cumulative effect of change in accounting for postemployment benefits of
$(13.2) and $(3.1), or $(0.40) and $(0.10) per share, respectively.
(3) EBITDA (earnings before interest expense, income taxes, depreciation and
amortization) should not be considered as an alternative to net income (as
an indicator of operating performance) or as an alternative to cash flow
(as a measure of liquidity or ability to service debt obligations) and is
not a measure of performance or financial condition under generally
accepted accounting principles.
10
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION OF UGI AND UNISOURCE
The following table presents summary unaudited pro forma condensed combined
statement of continuing operations information, balance sheet information and
other financial information. The information is presented as if the merger had
occurred on October 1, 1997 for statement of continuing operations and other
financial information and December 31, 1998 for balance sheet information. The
statement of continuing operations information below excludes the results of
UGI's gas and electric utility operations and its energy marketing businesses
which will be sold in connection with the merger. When you read the Summary
Unaudited Selected Pro Forma Condensed Combined Financial Information of UGI
and Unisource, you should consider reading along with it the "Unaudited Pro
Forma Condensed Combined Financial Information of UGI and Unisource" included
elsewhere in this Joint Proxy Statement/Prospectus. See "Where To Find More
Information" on page .
<TABLE>
<CAPTION>
Year Ended Three Months Ended
September 30, 1998 December 31, 1998
------------------ ------------------
(Millions, except per share amounts)
<S> <C> <C>
Statement of Continuing Operations
Information:
Revenues................................ $8,331.7 $1,918.3
Cost of goods sold (a).................. 6,616.1 1,480.6
-------- --------
Gross profit............................ 1,715.6 437.7
Selling, general and administrative
expenses............................... 1,423.1 353.1
Special charges (a)..................... 346.5 3.0
Depreciation and amortization........... 119.6 28.7
Other (income), net..................... (2.3) (1.1)
-------- --------
Operating income (loss)................. (171.3) 54.0
Interest expense........................ (105.5) (26.5)
Minority interest in AmeriGas Partners.. (8.9) (7.4)
-------- --------
Income (loss) from continuing operations
before income taxes.................... (285.7) 20.1
Income tax (expense) benefit............ 61.0 (9.8)
-------- --------
Income (loss) from continuing
operations............................. $ (224.7) $ 10.3
======== ========
Income (loss) from continuing operations
per share:
Basic................................. $ (3.46) $ 0.16
Diluted............................... $ (3.46) $ 0.16
Weighted average number of shares:
Basic................................. 64.9 65.4
Diluted............................... 64.9 65.4
Cash dividends declared per share (b)... $ 0.75 $ 0.1875
Balance Sheet Information (at period
end):
Total assets............................ -- $3,814.1
Capitalization:
Total debt............................ -- $1,311.1
Minority interest in AmerGas
Partners............................. -- 234.2
Common stockholders' equity........... -- 1,160.6
--------
Total capitalization.................. -- $2,705.9
========
Other Financial Information:
Operating income before special
charges................................ $ 198.2 $ 57.0
EBITDA before special charges (c)....... 317.8 85.7
</TABLE>
- --------
11
<PAGE>
(a) The pro forma statement of continuing operations information for the year
ended September 30, 1998 includes the impact of the following Unisource
special charges:
<TABLE>
<CAPTION>
Pro Forma
Pre-Tax After-Tax Loss Per
Charge Charge Share
------- --------- ---------
(Millions, except per
share amounts)
<S> <C> <C> <C>
Charges related to streamlining Unisource's
organizational structure:
Severance and facility closures.............. $108.5 $ 69.7 $(1.07)
Inventory write-downs (included in cost of
sales)...................................... 23.0 14.9 (0.23)
Valuation charge related to Unisource's Mexico
operations.................................... 70.0 70.0 (1.08)
Write-off of Unisource's capitalized
information technology development and related
costs......................................... 168.0 109.2 (1.68)
Tax charge associated with the sale of a
significant portion of Unisource's U.S.-based
grocery supply systems business............... -- 5.7 (0.09)
------ ------ -------
Total.......................................... $369.5 $269.5 $(4.15)
====== ====== =======
</TABLE>
The three months ended December 31, 1998 include $3.0 of implementation
costs ($1.7 after-tax and ($0.03) per share) associated with the
restructuring plan.
(b) UGI paid quarterly dividends of $0.365 per share for the fiscal quarters
ended September 30, 1998 and December 31, 1998 and $0.36 per share for the
fiscal quarters ended December 31, 1997, March 31, 1998 and June 30, 1998.
Unisource paid quarterly dividends of $0.05 per share for the fiscal
quarter ended December 31, 1998 and $0.20 per share for the fiscal quarters
ended December 31, 1997, March 31, 1998, June 30, 1998 and September 30,
1998.
(c) EBITDA before special charges (earnings before interest expense, income
taxes, depreciation, amortization and special charges) should not be
considered as an alternative to net income (as an indicator of operating
performance) or as an alternative to cash flow (as a measure of liquidity
or ability to service debt obligations) and is not a measure of performance
or financial condition under generally accepted accounting principles.
COMPARATIVE MARKET PRICE AND DIVIDEND DATA
UGI
The common stock of UGI is listed and traded on the New York Stock Exchange
("NYSE") and the Philadelphia Stock Exchange under the symbol "UGI." The
following table sets forth, for the fiscal quarters indicated, the high and low
sales prices per share of UGI common stock as reported on the NYSE, based on
published financial sources, and the dividends paid on such shares, for the
periods indicated.
High and Low Sales Prices
<TABLE>
<CAPTION>
Fiscal Year High Low Dividends
----------- ------- ------- ---------
<S> <C> <C> <C>
1999
Second Quarter (through March 24, 1999).......... $24.375 $15.000 $0.365
First Quarter.................................... $25.750 $21.625 $0.365
1998
Fourth Quarter................................... $25.813 $20.500 $0.365
Third Quarter.................................... $28.750 $23.750 $0.360
Second Quarter................................... $29.750 $27.000 $0.360
First Quarter.................................... $30.125 $25.125 $0.360
1997
Fourth Quarter................................... $28.000 $22.125 $0.360
Third Quarter.................................... $24.375 $21.625 $0.355
Second Quarter................................... $25.375 $21.750 $0.355
First Quarter.................................... $24.125 $20.875 $0.355
</TABLE>
12
<PAGE>
Unisource
The common stock of Unisource is listed and traded on the NYSE, the
Philadelphia Stock Exchange and the Chicago Stock Exchange under the symbol
"UWW." The following table sets forth, for the fiscal quarters indicated, the
high and low closing sale prices per share of Unisource common stock as
reported on the NYSE, based on published financial sources, and the dividends
paid on such shares, for the periods indicated.
Closing Sales Price
<TABLE>
<CAPTION>
Fiscal Year High Low Dividends
----------- ------- ------- ---------
<S> <C> <C> <C>
1999
Second Quarter (through March 24, 1999).......... $12.000 $ 6.375 $0.05
First Quarter.................................... $10.125 $ 6.250 $0.05
1998
Fourth Quarter................................... $11.500 $ 5.625 $0.20
Third Quarter.................................... $14.188 $10.500 $0.20
Second Quarter................................... $15.938 $12.125 $0.20
First Quarter.................................... $20.125 $13.625 $0.20
1997
Fourth Quarter................................... $19.750 $16.438 $0.20
Third Quarter.................................... $17.750 $13.750 $0.20
Second Quarter................................... $22.625 $15.375 $0.20
First Quarter.................................... $22.125 $18.625 --
</TABLE>
On February 26, 1999, the last trading day immediately preceding the public
announcement of the proposed merger, the closing sales prices on the NYSE per
share of Unisource common stock and UGI common stock were $7.00 and $20.31,
respectively. On , 1999, the last trading day prior to the printing of
this Joint Proxy Statement/Prospectus, the closing sales prices on the NYSE per
share of Unisource common stock and UGI common stock were $ and $ ,
respectively.
Because the market price of UGI common stock is subject to fluctuation, the
market value of the shares of UGI common stock that holders of shares of
Unisource common stock will receive in connection with the merger will vary
before the proposed merger is closed. Stockholders are encouraged to obtain
current quotations for shares of UGI common stock and Unisource common stock.
In connection with the merger, the board of directors of UGI has decided to
reduce the combined company's annual dividend to $0.75 from $1.46. The new
dividend will be effective for dividends declared after the closing of the
merger.
13
<PAGE>
RISK FACTORS
In evaluating the merger and the merger agreement, stockholders should take
into account the following risks, as well as other risks included in
"Disclosure Regarding Forward-Looking Statements" or elsewhere in this Joint
Proxy Statement/Prospectus or incorporated by reference in this Joint Proxy
Statement/Prospectus:
Fixed Exchange Ratio Despite Changes in Our Respective Stock Prices
The ratio at which Unisource common stock will be exchanged for UGI common
stock is fixed and will not be adjusted as a result of any increase or decrease
in the price of either UGI common stock or Unisource common stock. The price of
UGI common stock at the time the merger is completed may be higher or lower
than its price on the date of this Joint Proxy Statement/Prospectus or on the
date of the special meetings of stockholders. Changes in the business,
operations or prospects of UGI or Unisource, regulatory considerations, general
market and economic conditions, and other factors may affect the prices of UGI
common stock, Unisource common stock or both. Most of those factors are beyond
our control. Because the merger will be completed only after all the conditions
to the merger are satisfied, including the holding of the special meetings of
our stockholders, there is no way to be sure that the price of UGI common stock
or Unisource common stock on the date of the special meetings will be the same
as its price at the time the merger is completed. You are encouraged to obtain
current market quotations for both UGI common stock and Unisource common stock.
Expected Benefits of the Merger Depend on Certain Assumptions
The benefits to stockholders after the merger are based on the assumption,
among others, that the merger will increase UGI's earnings per share and
provide Unisource stockholders with a higher dividend. These benefits are
dependent, in part, on the combined company's ability to achieve the expected
results of Unisource's on-going restructuring plan by successfully managing its
operations, as well as UGI's ability to sell UGI Utilities on favorable terms
and successfully implement a share repurchase program. If we are unsuccessful
in these efforts, stockholders may not realize the expected benefits of the
merger.
Ability to Refinance Unisource's Credit Facility
Unisource currently has a $725,000,000 revolving credit facility with a
group of lenders led by The Chase Manhattan Bank and The Toronto-Dominion Bank,
of which approximately $465,000,000 was outstanding on February 28, 1999. The
credit facility will terminate at the closing of the merger and Unisource will
be required to repay all outstanding loans under the facility on that date. We
intend to request a waiver from the lenders under the credit facility to allow
the facility to remain in place after the merger or to refinance the facility
simultaneously with the closing of the merger. There is no assurance that we
will be able to obtain a waiver to extend Unisource's existing facility or to
refinance the facility on favorable terms or at all.
Ability to Sell UGI Utilities on Favorable Terms
UGI expects to sell UGI Utilities in connection with the merger and to use
the proceeds from the sale to retire debt, pursue investments with greater
growth opportunities or further expand its core distribution businesses. Any
such sale will require the approval of the Pennsylvania Public Utility
Commission, which regulates UGI Utilities. We cannot predict the price at which
UGI Utilities may be sold or if UGI will be able to obtain the necessary
approvals to sell UGI Utilities on acceptable terms. As a result, UGI may not
receive the proceeds it expects from the sale or may not be able to complete
the sale as expected.
14
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The information in this Joint Proxy Statement/Prospectus about expected
financial results and future events is forward-looking, based on our estimates
and assumptions and subject to risks and uncertainties. For those statements,
we claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
In addition to the risk factors described in the preceding section, the
following important factors could affect the future results of the combined
company causing the results to differ materially from those expressed in our
forward-looking statements:
. delays, difficulties or increased costs associated with the
implementation of Unisource's restructuring plan;
. adverse weather conditions resulting in reduced demand for propane;
. price volatility and the availability of propane, and the capacity to
transport product to market areas;
. changes or volatility in pulp and paper prices;
. changes in laws and regulations, including those relating to safety, tax,
environmental and accounting matters;
. competitive pressures from the same and alternative energy sources;
. increased competition from other participants or reduced demand from
customers in the paper, packaging and maintenance supply markets;
. liability for environmental claims;
. improvements in energy efficiency and technology resulting in reduced
demand;
. labor relations;
. a significant delay in completing the sale of UGI Utilities;
. the success of UGI in completing its repurchase program of up to 6.6
million shares;
. large customer defaults;
. operating hazards and risks incidental to generating and distributing
electricity and transporting, storing and distributing propane and
natural gas, including the risk of explosions and fires resulting in
personal injury and property damage;
. the success of UGI, AmeriGas Partners and Unisource and their suppliers
and customers in achieving Year 2000 compliance and, in the case of
Unisource, in consolidating its information technology systems;
. economic and political conditions, on a national or regional basis;
. interest rate fluctuations and other capital market conditions, including
foreign currency rate fluctuations; and
. reduced distributions from subsidiaries.
These factors and the risk factors described in the preceding section are
not necessarily all of the important facts that could cause actual results to
differ materially from those expressed in any of our forward-looking
statements. Other unknown or unpredictable factors could also have material
adverse effects on our future results. We undertake no obligation to update
publicly any forward-looking statement, whether as a result of new information
or future events.
15
<PAGE>
UNISOURCE SPECIAL MEETING
Purpose of the Unisource Special Meeting
At the Unisource special meeting to be held at 10:00 a.m. on , 1999 at
Unisource Worldwide, Inc., 1100 Cassatt Road, Berwyn, Pennsylvania, Unisource
stockholders will consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of February 28, 1999, among Unisource,
UGI and Vulcan Acquisition Corp.
The board of directors of Unisource has approved the merger and the merger
agreement and recommends that Unisource stockholders vote "FOR" approval and
adoption of the merger agreement. See "Recommendation of the Board of Directors
of Unisource and Reasons of Unisource for the Merger" beginning on page for
additional information on the recommendation of the Unisource board of
directors.
Solicitation of Proxies
The solicitation of the enclosed proxy is made on behalf of the board of
directors of Unisource. The expenses of the solicitation of proxies, including
preparing, handling, printing and mailing the proxy soliciting materials, will
be borne by Unisource. Solicitation will be made by mail, by electronic
telecommunications or in person. Unisource has retained the services of
ChaseMellon Shareholder Services to assist in the solicitation of proxies for a
fee of $9,000 plus out-of-pocket expenses. In soliciting proxies, management of
Unisource may also use the services of its directors, officers and employees,
who will not receive any additional compensation for such services but who will
be reimbursed for their out-of-pocket expenses. In addition, directors,
officers and employees of UGI may assist Unisource in soliciting proxies, but
will not receive any compensation for it. Unisource will reimburse banks,
brokers, nominees, custodians and fiduciaries for their expenses in forwarding
copies of the proxy soliciting materials to the beneficial owners of the stock
held of record by such persons and in requesting authority for the execution of
proxies.
Record Date; Voting Rights
Only holders of record of shares of Unisource common stock on , 1999
are entitled to notice of and to vote at the Unisource special meeting.
As of the Unisource record date, there were outstanding shares of
Unisource common stock held by approximately holders of record. Each
holder is entitled to one vote per share on any matter brought before the
Unisource special meeting. All shares of Unisource common stock represented by
properly executed proxies will be voted in accordance with the instructions
indicated in such proxies unless such proxies have been previously revoked. If
no instructions are indicated, such shares of Unisource common stock will be
voted in favor of adoption of the merger agreement.
Unisource is not proposing any matters other than adoption of the merger
agreement to come before the Unisource special meeting, and Unisource has not
received notice of other proposals to be considered at the meeting. However, if
any other matters incidental to adoption of the merger agreement or conduct of
the meeting are properly presented for action at the Unisource special meeting,
including a motion to adjourn the meeting to another time or place, the persons
named in the enclosed form of proxy will have the discretion to vote on such
matters in accordance with their best judgment, unless such authorization is
withheld by notation on the proxy. However, no proxy which is voted against the
proposal to adopt the merger agreement will be voted in favor of any
adjournment of the Unisource special meeting and such discretionary authority
will only be exercised to the extent permitted by applicable federal and state
securities and corporate law.
Proxies
Unisource stockholders can vote by mailing a completed and signed proxy card
to . Unisource stockholders can change their vote prior to the Unisource
special meeting by mailing a later dated signed proxy
16
<PAGE>
card to the same address. A stockholder who has given a proxy may revoke it at
any time prior to its exercise by signing and returning a later dated proxy or
by voting in person at the Unisource special meeting. However, mere attendance
at the Unisource special meeting will not, in and of itself, have the effect of
revoking the proxy.
Required Vote
The affirmative vote of the holders of a majority of the outstanding shares
of Unisource common stock is required to adopt the merger agreement.
Accordingly, abstentions and "broker non-votes" will have the effect of a vote
against the merger. "Broker non-votes" are shares held by brokers or nominees
which are represented at a meeting but as to which the broker or nominee is not
empowered to vote on a particular proposal. Failure to vote will have the
effect of a vote against the merger.
Quorum
The presence in person or by proxy of holders of a majority of the shares of
Unisource common stock entitled to vote is necessary to constitute a quorum for
the transaction of business at the Unisource special meeting. Abstentions and
"broker non-votes" are counted for purposes of determining whether there is a
quorum at the Unisource special meeting.
Other Information
On , the executive officers and directors of Unisource, including
their affiliates, had voting power with respect to an aggregate of shares
of Unisource common stock, or approximately % of the shares of Unisource
common stock then outstanding. Unisource currently expects that these
directors, officers and their affiliates will vote all of such shares in favor
of the approval and adoption of the merger agreement.
17
<PAGE>
UGI SPECIAL MEETING
Purpose of the UGI Special Meeting
At the UGI special meeting to be held at on , 1999 at UGI
Corporation, 460 North Gulph Road, King of Prussia, Pennsylvania, UGI
stockholders will consider and vote upon a proposal to approve the issuance of
shares of UGI common stock in connection with the merger contemplated by the
Agreement and Plan of Merger, dated as of February 28, 1999, among Unisource,
UGI and Vulcan Acquisition Corp.
The board of directors of UGI has approved the merger and the merger
agreement and recommends that UGI stockholders vote "FOR" the issuance of UGI
common stock in the merger. See "Recommendation of the Board of Directors of
UGI and Reasons of UGI for the Merger" beginning on page for additional
information on the recommendation of the UGI board of directors.
Solicitation of Proxies
The solicitation of the enclosed proxy is made on behalf of the board of
directors of UGI. The expenses of the solicitation of proxies, including
preparing, handling, printing and mailing the proxy soliciting materials, will
be borne by UGI. Solicitation will be made by mail, by electronic
telecommunications or in person. UGI has retained the services of MacKenzie
Partners, Inc. to assist in the solicitation of proxies for a fee of $12,500
plus out-of-pocket expenses. In soliciting proxies, management of UGI may also
use the services of its directors, officers and employees, who will not receive
any additional compensation for such services but who will be reimbursed for
their out-of-pocket expenses. In addition, directors, officers and employees of
Unisource may assist UGI in soliciting proxies, but will not receive any
compensation for it. UGI will reimburse banks, brokers, nominees, custodians
and fiduciaries for their expenses in forwarding copies of the proxy soliciting
materials to the beneficial owners of the stock held of record by such persons
and in requesting authority for the execution of proxies.
Record Date; Voting Rights
Only holders of record of shares of UGI common stock on , 1999 are
entitled to notice of and to vote at the UGI special meeting.
As of the UGI record date, there were outstanding shares of UGI
common stock held by approximately holders of record. Each holder
is entitled to one vote per share on any matter brought before the UGI special
meeting. All shares of UGI common stock represented by properly executed
proxies will be voted in accordance with the instructions indicated in such
proxies, unless such proxies have been previously revoked. If no instructions
are indicated, such shares of UGI common stock will be voted in favor of
approval of the issuance of UGI common stock in connection with the merger.
UGI is not proposing any matters other than approval of the issuance of UGI
common stock to come before the UGI special meeting, and UGI has not received
notice of other proposals to be considered at the meeting. However, if any
other matters incidental to the approval of the issuance of UGI common stock or
conduct of the meeting are properly presented for action at the UGI special
meeting, including a motion to adjourn the meeting to another time or place,
the persons named in the enclosed form of proxy will have the discretion to
vote on such matters in accordance with their best judgment, unless such
authorization is withheld by notation on the proxy. However, no proxy which is
voted against the proposal to approve the issuance of shares of UGI common
stock in connection with the merger will be voted in favor of any adjournment
of the UGI special meeting and such discretionary authority will only be
exercised to the extent permitted by applicable federal and state securities
and corporate law.
Proxies
UGI stockholders can vote by mailing a completed and signed proxy card to
. UGI stockholders can change their vote prior to the UGI
special meeting by mailing a later dated signed proxy card
18
<PAGE>
to the same address. A stockholder who has given a proxy may revoke it at any
time prior to its exercise. To do so you must give written notice to the
corporate secretary and mail a later dated proxy or vote in person at the UGI
special meeting. However, mere attendance at the UGI special meeting will not,
in and of itself, have the effect of revoking the proxy.
Required Vote
Under the rules of the NYSE, the approval of the issuance of the shares of
UGI common stock in connection with the merger requires the affirmative vote of
a majority of votes cast on the proposal, provided that the total number of
votes cast on the proposal represents a majority of the outstanding shares of
UGI common stock. Under NYSE requirements, abstentions are counted as votes
cast and, accordingly, will have the effect of a vote against the share
issuance. However, "broker non-votes" are not counted as votes cast and,
accordingly, will have the effect of a vote against the share issuance only if,
as a result of excluding such broker non-votes, a majority of the outstanding
shares of UGI common stock would not have voted on the share issuance. Failure
to return a signed proxy card or to attend the UGI special meeting and vote in
person will have the effect of a vote against the share issuance only if, as a
result of the exclusion of the shares not voted, a quorum for the transaction
of business at the UGI special meeting would not be present.
Quorum
The presence in person or by proxy of holders of a majority of the shares of
UGI common stock entitled to vote is necessary to constitute a quorum for the
transaction of business at the UGI special meeting. Abstentions and "broker
non-votes" are counted for purposes of determining whether there is a quorum at
the UGI special meeting.
Other Information
On , the executive officers and directors of UGI, including
their affiliates, had voting power with respect to an aggregate of
shares of UGI common stock, or approximately % of the shares of UGI common
stock then outstanding. UGI currently expects that these directors and officers
and their affiliates will vote all of such shares in favor of the issuance of
the shares of UGI common stock in connection with the merger.
19
<PAGE>
THE PARTIES TO THE MERGER
Unisource Worldwide, Inc.
Unisource Worldwide, Inc., a Delaware corporation, is the leading
distributor of printing and imaging paper and supply systems in North America.
Prior to December 31, 1996, Unisource was owned by Alco Standard Corporation,
now known as IKON Office Solutions, Inc. On December 31, 1996, Unisource was
spun off from Alco and became a separate public company. In fiscal year 1998,
Unisource generated $7.4 billion in revenues and $170.2 million in earnings
before interest, income taxes, depreciation, amortization, special charges and
an inventory writedown.
Unisource's primary businesses are:
Printing and Imaging. This business involves marketing and distributing
high-quality printing, writing and copying papers to printers, publishers,
business forms manufacturers and direct mail firms, as well as to corporate and
retail copy centers, in-plant print facilities, government institutions and
other paper-intensive businesses. These products are used in catalogs,
brochures, advertising supplements, annual reports, business forms and other
publications. Unisource has a leading position in the North American printing
and imaging market with an estimated 18% share in the U.S. and a 42% share in
Canada. Fiscal year 1998 revenues for Printing and Imaging were $4.7 billion.
Supply Systems. This business is comprised of packaging and maintenance
supplies. Unisource has a leading share of the highly fragmented North American
supply systems market with an estimated 8% share in the U.S. and 12% share in
Canada. Fiscal year 1998 revenues for Supply Systems were $2.7 billion.
. Packaging. Unisource's packaging business provides a wide array of
packaging products, equipment and services to a broad base of customers,
including general manufacturers, food processors and commercial
printers.
. Maintenance Supplies. Unisource distributes a comprehensive line of top-
quality towels, tissues and cleaning supplies and equipment to a broad
variety of customers, including general manufacturers, food processors
and building service contractors.
UGI Corporation
UGI Corporation is a holding company that operates propane distribution,
natural gas and electric utility and energy marketing businesses through
subsidiaries.
UGI's majority-owned subsidiary AmeriGas Partners, L.P., a Delaware limited
partnership, conducts the nation's largest retail propane distribution business
through its 98.99% owned subsidiary, AmeriGas Propane, L.P. UGI has been in the
retail propane distribution business for 40 years, operating through various
subsidiaries. AmeriGas Partners' sole general partner is UGI's wholly-owned
subsidiary, AmeriGas Propane, Inc. The common units of AmeriGas Partners, which
represent limited partner interests, are traded on the New York Stock Exchange
under the symbol "APU." UGI has a 58.6% combined ownership interest in AmeriGas
Partners and AmeriGas Propane, L.P. Fiscal year 1998 revenues for AmeriGas
Partners were $914 million.
UGI's wholly-owned subsidiary UGI Utilities, Inc. owns and operates a
natural gas distribution utility and an electric generation and distribution
utility in eastern Pennsylvania. UGI Utilities is the successor to a business
founded in 1882. UGI Utilities supplies 258,000 natural gas customers and
61,000 electric customers. UGI's wholly-owned subsidiary, UGI Energy Services,
Inc., conducts an energy marketing business with fiscal year 1998 revenues of
$103 million. In connection with the merger, UGI intends to sell UGI Utilities
and UGI Energy Services, Inc. because it believes it is in the best interests
of stockholders to redeploy its assets from lower growth utility operations to
higher growth distribution businesses.
20
<PAGE>
UGI Enterprises Inc., another wholly-owned subsidiary, is currently engaged
in two international propane-related joint ventures through subsidiaries. Black
Sea LPG, L.P. is developing an energy import and distribution business in
Romania. ChinaGas Partners, L.P. is developing an integrated propane import,
storage and distribution business in China. UGI's subsidiary Hearth USA, Inc.
is currently developing a retail business selling hearth products, spas, grills
and patio accessories, with the first Hearth USA(TM) superstore scheduled to
open in the Summer of 1999.
UGI was incorporated in Pennsylvania in 1991 as part of the reorganization
of UGI Utilities into a holding company. UGI is not subject to regulation by
the Pennsylvania Public Utility Commission. It is also exempt from registration
as a holding company and not otherwise subject to the Public Utility Holding
Company Act of 1935, except for Section 9(a)(2), which regulates the
acquisition of voting securities of an electric or gas utility company.
Vulcan Acquisition Corp.
Vulcan Acquisition Corp. is a direct, wholly-owned subsidiary of UGI that
was incorporated in February 1999 in the State of Delaware for the purpose of
consummating the merger. Vulcan Acquisition Corp. has conducted no operations
other than those related to the transactions contemplated by the merger
agreement.
21
<PAGE>
THE MERGER
Portions of this section of this document as well as the section entitled
"The Merger Agreement" describe the material aspects of the proposed merger.
These discussions are qualified in their entirety by reference to the merger
agreement, which is attached as Annex A to this document. You should read the
merger agreement in its entirety because it is the legal document that governs
the merger.
Background of the Merger
In fiscal year 1998, Unisource announced an extensive restructuring program
designed to improve service to customers, decrease costs, increase financial
flexibility and grow profitable market segments. The objective of the
restructuring was to create an efficient "hub and spoke" distribution network;
centralize procurement, marketing and other support functions; integrate
previously-acquired companies; create a common information technology system
across the company; and substantially reduce operating and administrative
costs. While Unisource has made significant progress in its restructuring
program, there is still a great deal of work to be done in order to fully
realize the planned restructuring benefits.
UGI had recently completed a successful restructuring of its largest
operating subsidiary, AmeriGas Partners. That restructuring included many of
the same elements that Unisource sought to accomplish in its own
restructuring--including integration of a major acquisition; substantial
reduction of operating and administrative costs; implementation of improvements
in procurement and logistics; and design and installation of new information
technology to support the restructured organization.
At the same time, UGI was considering its strategies for the future. As part
of that evaluation, UGI was reviewing the role of its utility subsidiary within
its strategic plan and examining whether its stockholders would be better
served by redeploying the capital currently invested in UGI Utilities into
higher-growth businesses. Although UGI believes that UGI Utilities has
performed well in terms of total return on investment, the utility industry has
been highly regulated and UGI believes it presents only limited opportunities
for growth. As deregulation of many aspects of the industry evolved, UGI
focused on its place in a newly deregulated environment and recognized that the
ability of a mid-sized utility, such as UGI Utilities, to maintain its high
level of financial performance was less certain.
As the UGI and Unisource boards of directors each reviewed strategic
possibilities during the fall of 1998, James W. Stratton, a director of both
UGI and Unisource, noted the similarity of issues being faced by Unisource and
AmeriGas. He raised the idea to the UGI board of directors that a discussion of
strategic issues by representatives of both companies would be mutually
beneficial.
On December 14, 1998, Richard C. Gozon, executive vice president of
Weyerhaeuser Company and a director of UGI, met with Ray B. Mundt, chairman and
chief executive officer of Unisource, to discuss a number of matters between
Weyerhaeuser and Unisource. During that discussion, the two executives also
explored potential business opportunities between UGI and Unisource.
On December 15, 1998, at UGI's regular board of directors meeting, Lon R.
Greenberg, chairman, president and chief executive officer of UGI, advised the
UGI directors that he would seek to meet with Mr. Mundt to discuss a variety of
strategic issues faced by UGI and Unisource.
On December 22, 1998, Mr. Greenberg and Mr. Mundt met to discuss strategic
issues confronting UGI and Unisource, including a possible business combination
between the two companies. Both chief executive officers were encouraged by the
similarity of the views they held about the distribution industry, the
strategic directions open to their companies and the potential for a mutually
beneficial alliance of some kind and decided to continue discussions.
22
<PAGE>
Later in December 1998, UGI asked Merrill Lynch, Pierce, Fenner & Smith
Incorporated to advise it about the feasibility of some form of business
combination or other coordinated activity between UGI and Unisource.
In early January 1999, Mr. Greenberg and Mr. Mundt had several additional
conversations regarding the possibility of exploring a business combination of
UGI and Unisource.
In the middle of January 1999, Unisource retained Donaldson, Lufkin &
Jenrette to serve as its financial advisor in connection with a possible
combination of UGI and Unisource.
On January 22, 1999, representatives of Unisource and UGI met along with
their respective financial advisors. Mr. Mundt attended the meeting with
Richard H. Bogan, president and chief financial officer of Unisource, Thomas A.
Decker, senior vice president, general counsel and secretary of Unisource, and
Kenneth F. Vuylsteke, senior vice president--sales of Unisource. Mr. Greenberg
attended the meeting with Anthony J. Mendicino, vice president--finance and
chief financial officer of UGI, Michael J. Cuzzolina, vice president--
accounting and financial control of UGI, and Robert W. Krick, treasurer of UGI.
At the meeting, each side presented summary information concerning its own
company. The Unisource and UGI executives then considered the potential for a
merger or business combination. As a result of the meeting, UGI and Unisource
executed a confidentiality agreement. Thereafter, the two parties and their
respective financial advisors began to exchange information and commenced the
parties' business and financial due diligence investigations.
On January 26, 1999, at a regularly scheduled meeting, the UGI board of
directors had an extensive discussion of a possible merger or other business
combination with Unisource. As a result of this meeting, the UGI board
authorized UGI's management to engage in further due diligence investigations
and discussions with Unisource.
On January 27, 1999, at a regularly scheduled meeting, the Unisource board
of directors engaged in a comprehensive discussion of a possible merger with
UGI. At this meeting, Unisource management made a presentation to its board of
directors regarding the potential merger transaction with UGI, including a
review of the strategic rationale for the merger as well as information
regarding UGI. As a result of this meeting, the Unisource board of directors
authorized Unisource management to engage in a further due diligence
investigation and discussions with UGI.
On February 1, 1999, representatives of Unisource and UGI met along with
their respective financial advisors. Mr. Mundt, Mr. Bogan, Mr. Decker and Mr.
Vuylsteke attended the meeting with Hugh G. Moulton, executive vice president
and chief administrative officer of Unisource, and George D. Timchal, senior
vice president--procurement of Unisource. Mr. Mendicino, Mr. Cuzzolina and Mr.
Krick attended the meeting with Martha B. Lindsay, vice president-finance and
chief financial officer of AmeriGas Propane, Inc., the general partner of
AmeriGas Partners, and R. Paul Grady, vice president--sales & operations of
AmeriGas Propane. At this meeting, the representatives of UGI and AmeriGas
Propane made a presentation to the Unisource representatives on the financial
condition and business outlook of the AmeriGas business and reviewed the
successful restructuring of UGI's propane business by the management of
AmeriGas Propane.
During early February 1999, Mr. Mundt and Mr. Greenberg met a number of
times to discuss the possible merger. During these meetings, the two chief
executive officers began to discuss the specific terms of a merger.
On February 10, 1999, representatives of UGI, Unisource, Donaldson, Lufkin &
Jenrette and Merrill Lynch met to continue their business and financial due
diligence investigations. These investigations continued throughout February.
On February 15, 1999, Weil, Gotshal and Manges LLP, UGI's legal counsel,
distributed a first draft of the merger agreement to Unisource and Davis Polk &
Wardwell, Unisource's legal counsel. Over the next two weeks, representatives
of UGI and Unisource, including Messrs. Greenberg and Mundt, and their
respective legal counsel negotiated the terms of the merger agreement.
23
<PAGE>
On February 16, 1999, representatives of UGI, Unisource, Merrill Lynch,
Donaldson, Lufkin & Jenrette, Weil, Gotshal & Manges and Davis Polk & Wardwell
participated in a conference call during which the parties discussed continuing
business and legal due diligence investigations and a schedule for moving
forward with a potential merger transaction.
On February 17, 1999, Unisource held a telephonic meeting of its board of
directors. At the meeting, Unisource management updated the directors on the
status of the merger negotiations with UGI and the continuing business and
legal due diligence investigation. Based on this update, the Unisource board of
directors authorized Unisource management to continue the merger negotiations
and due diligence investigation.
On February 22, 1999, UGI held a meeting of its board of directors. At the
meeting:
. UGI management updated the directors on the status of merger negotiations
with Unisource, discussed the potential sale of UGI's utility operations
and considered the need for a dividend reduction and share repurchase
program in connection with the proposed merger;
. UGI management made a presentation to the board of directors regarding
the proposed merger transaction with Unisource, including the strategic
rationale for the proposed merger and other information regarding
Unisource and its restructuring efforts;
. representatives of Merrill Lynch reviewed certain financial aspects of
the proposed merger, including the potential consequences of a dividend
reduction and share repurchase program; and
. representatives of Weil, Gotshal & Manges reviewed the duties and
responsibilities of the board of directors in connection with its
consideration of the proposed merger.
The UGI directors then discussed the proposed merger and associated
transactions, including the sale of UGI's utility operations, the dividend
reduction and the share repurchase program. The UGI board of directors took no
formal action but authorized UGI management to continue merger negotiations
with Unisource.
During the week following the UGI board meeting, the parties continued to
negotiate the terms of a definitive merger agreement and to exchange due
diligence information. Representatives of UGI and its counsel also engaged in
discussions with representatives of Merrill Lynch Capital Corporation
concerning the provision of a $100 million credit arrangement to fund UGI's
possible share repurchase program.
On February 26, 1999, Mr. Mendicino, Mr. Bogan, Kathleen M. Burns, vice
president and treasurer of Unisource, and representatives of Merrill Lynch and
Donaldson, Lufkin & Jenrette met with representatives of several lenders who
are parties to Unisource's credit agreement. At the meeting, Mr. Bogan and Mr.
Mendicino introduced the subject of the proposed merger in anticipation of a
conference call with the full bank group on March 1, 1999. The meeting was
intended to facilitate a request by Unisource and UGI to obtain the bank
group's waiver of the change of control provision of the credit agreement which
would be triggered by the proposed combination of UGI and Unisource and to
relieve Unisource of its obligations to use best efforts to issue debt or
equity in the aggregate amount of $225 million by March 31, 1999. Unisource and
the bank group subsequently executed an amendment to the credit agreement
extending the March 31, 1999 deadline to the earlier of September 30, 1999 or
90 days after the termination of the merger agreement and providing that the
credit agreement would terminate upon completion of the merger. See "Risk
Factors," p. .
On the evening of February 26, 1999, Mr. Greenberg and Mr. Mundt met and
agreed on an exchange ratio for the merger of 0.566 UGI shares for each share
of Unisource common stock. Over the next two days, representatives of UGI and
Unisource and their respective legal counsel finalized the merger agreement.
On February 28, 1999, the Unisource board of directors met to consider the
merger. At the meeting:
. Unisource management and representatives of Davis Polk & Wardwell
reviewed the final terms of the merger agreement and updated the board of
directors on the negotiations between UGI and Unisource since their prior
meeting;
24
<PAGE>
. representatives of Davis Polk & Wardwell reviewed the duties and
responsibilities of the board of directors in connection with its
consideration of the proposed merger; and
. representatives of Donaldson, Lufkin & Jenrette reviewed the financial
terms of the transaction and rendered their opinion, that, as of such
date, the exchange ratio in the merger agreement was fair, from a
financial point of view, to Unisource stockholders.
After further discussion, the Unisource board of directors unanimously (with
the one director who is also a UGI director absent):
. approved the merger and the merger agreement and authorized the execution
of the merger agreement; and
. authorized submission of the merger agreement to Unisource stockholders
for their adoption.
Later on February 28, 1999, the UGI board of directors met to consider the
merger. At the meeting:
. UGI management and representatives of Weil, Gotshal & Manges reviewed the
final terms of the merger agreement and updated the board on the
negotiations between UGI and Unisource since its prior meeting;
. UGI management sought approval to repurchase up to 6.6 million shares of
UGI common stock and to enter into a credit facility with Merrill Lynch
Capital to partially fund the repurchases; and
. Merrill Lynch representatives reviewed the financial terms of the
transaction and delivered the oral opinion of Merrill Lynch, subsequently
confirmed in writing as of such date, to the effect that, as of such
date, the exchange ratio in the merger agreement was fair, from a
financial point of view, to UGI.
After further discussion, the UGI board of directors unanimously (with one
director who is also a Unisource director abstaining):
. approved the merger and authorized the execution of the merger agreement;
. authorized submission of the share issuance proposal to UGI stockholders
for their approval;
. authorized UGI management to purchase up to 6.6 million shares of UGI
common stock;
. authorized the $100 million credit facility with Merrill Lynch Capital;
. authorized management to seek purchasers for UGI's utility operation and
energy marketing business in connection with the merger; and
. authorized the reduction of UGI's annual dividend to $0.75 from $1.46,
effective after completion of the merger.
On the evening of February 28, 1999, UGI and Unisource executed the merger
agreement.
Recommendation of the Board of Directors of Unisource and Reasons of Unisource
for the Merger
At a meeting of the Unisource board of directors held on February 28, 1999,
after careful consideration, the Unisource board of directors:
. determined that the merger is fair and in the best interests of Unisource
and its stockholders;
. approved the merger and merger agreement; and
. recommended that the Unisource stockholders adopt the merger agreement.
The Unisource board of directors believes the merger will:
. Increase the dividend rate to current stockholders;
25
<PAGE>
. Strengthen its balance sheet and increase its financial flexibility;
. Provide smooth management succession through an identified, proven leader
with successful restructuring experience;
. Increase its earnings potential and generate cash flow to support greater
growth opportunities;
. Make the best use of operational strengths and management expertise in
distribution and logistics to benefit customers and suppliers of both
companies; and
. Combine best practices in distribution, customer service and information
systems to improve service and reduce costs.
In reaching its decision to approve the merger and the merger agreement and
recommend that stockholders adopt the merger agreement, the Unisource board of
directors considered a number of factors, including the following:
. The value of the shares of UGI common stock to be received in the merger
for each share of Unisource common stock represented a premium of
approximately 65% for the Unisource stockholders, based on each stock's
respective closing price on February 26, 1999, the last trading day prior
to the execution of the merger agreement.
. The merger is expected to be tax-free to both UGI and Unisource
stockholders, except with respect to cash received by Unisource
stockholders in lieu of fractional shares.
. The financial and other analyses presented by Donaldson, Lufkin &
Jenrette, including their opinion delivered to the Unisource board of
directors at its meeting on February 28, 1999 that, as of such date, the
exchange ratio was fair to Unisource stockholders from a financial point
of view. See "Opinion of Unisource's Financial Advisor" below.
. The results of Unisource's due diligence investigation of UGI and other
information concerning the business, assets, capital structure, financial
performance and prospects of Unisource and UGI.
. Lon R. Greenberg, UGI's current chairman, president and chief executive
officer, will be the chairman, president and chief executive officer of
the combined company.
. The corporate cultures of UGI and Unisource are similar.
. Based upon the number of shares of UGI and Unisource common stock
outstanding on February 28, 1999, the common stockholders of Unisource
immediately prior to the merger would hold approximately % of the total
shares of UGI common stock outstanding immediately after the merger.
. The number of shares of UGI common stock to be issued to Unisource
stockholders in the merger is fixed and will not change, even if
Unisource's stock price falls relative to UGI's stock price prior to the
closing of the merger.
. Stockholders of the combined company are expected to receive an annual
dividend of $0.75 per share, which, taking into account the exchange
ratio, represents an increase of approximately 112% over Unisource's
current dividend rate.
. Unisource will designate four of the initial ten members of the combined
company's board of directors at least one of the Unisource director
designees will serve on each of the combined company's board committees
and a Unisource director designee will chair each of the compensation and
audit committees of the combined company's board of directors.
. The financial condition and business reputation of UGI and the ability of
UGI and Unisource to complete the merger in a timely manner.
26
<PAGE>
The Unisource board of directors also considered the following risks
inherent in proceeding with the merger:
. The risk that the benefits sought in the merger would not be obtained.
. The effect of the public announcement of the merger on Unisource's sales,
customer and supplier relationships, its ability to retain employees and
the trading price of Unisource common stock.
. The number of shares of UGI common stock to be issued to Unisource
stockholders in the merger is fixed and will not change even if UGI's
stock price falls relative to Unisource's stock price prior to the
closing of the merger.
. The Unisource board of directors has no ability to terminate the merger
agreement based on the value of the merger consideration to be received
by Unisource stockholders.
. The risk of the merger consideration losing value is particularly acute
in the case of this merger where, due to UGI's sale of its utility
business and the corresponding reduction of its annual dividend, there is
an anticipated turnover of existing UGI stockholders as utility investors
focused on steady dividends sell their UGI shares to investors more
interested in long-term growth.
. The challenges of combining the businesses of two corporations of this
size and the attendant risk of not achieving an improvement in earnings
and of diverting management focus and resources from other strategic
opportunities and from operational matters.
. The challenges of countering and eventually overcoming any skepticism or
disinterest of potential investors in the combined company.
. The possibility that certain provisions of the merger agreement,
including the $25 million termination fee payable to UGI in the event the
Unisource board of directors decides to accept an acquisition proposal
made by a third party that is superior to the merger, might have the
effect of discouraging other persons interested in merging with or
acquiring Unisource from making an acquisition proposal.
. The effect of the potential merger on both companies' ability to retain
key employees and to continue to operate without disruption or loss of
key customers or suppliers.
The discussion of the information and factors considered and weight given to
such factors by the Unisource board is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
merger the Unisource 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 determination. In addition, individual members of
the Unisource board of directors may have given different weights to different
factors.
The Unisource board of directors recommends that the Unisource stockholders
vote FOR adoption of the merger agreement.
Opinion of Unisource's Financial Advisor
On February 28, 1999, Donaldson, Lufkin & Jenrette delivered its opinion to
the Unisource board of directors that, as of such date, the exchange ratio of
0.566 shares of UGI common stock for each share of Unisource common stock was
fair, from a financial point of view, to the holders of Unisource common stock.
A copy of the Donaldson, Lufkin & Jenrette opinion is included as Annex B-1 to
this document. Unisource stockholders are urged to read the Donaldson, Lufkin &
Jenrette opinion carefully in its entirety for the assumptions made, the
procedures followed, the matters considered and the limits of the review made
by Donaldson, Lufkin & Jenrette in connection with its opinion.
Donaldson, Lufkin & Jenrette prepared its opinion for the Unisource Board of
Directors. The opinion addresses only the fairness of the exchange ratio to the
holders of Unisource common stock from a financial point of view. Donaldson,
Lufkin & Jenrette was not retained as an advisor or agent to Unisource's
27
<PAGE>
stockholders or any person other than Unisource. Unisource and UGI determined
the exchange ratio in arm's length negotiations. Donaldson, Lufkin & Jenrette
advised Unisource in the negotiations. Unisource did not impose any
restrictions or limitations upon Donaldson, Lufkin & Jenrette regarding the
investigations made or the procedures followed by Donaldson, Lufkin & Jenrette.
Donaldson, Lufkin & Jenrette was not requested to, and did not, solicit the
interest of any other party in any other transaction with Unisource.
In preparing its opinion, Donaldson, Lufkin & Jenrette:
. reviewed the draft dated February 26, 1999 of the merger agreement;
. reviewed financial and other information and projections that were
publicly available or provided to it by Unisource and UGI, including
information provided during discussions with their respective
managements;
. compared financial and securities data of Unisource, UGI and AmeriGas
Partners with various other companies whose securities are traded in
public markets, reviewed the historical stock prices and trading volumes
of the common stock of Unisource and UGI and the historical unit prices
and trading volumes of the common units of AmeriGas Partners; and
. conducted such other financial studies, analyses and investigations that
it deemed appropriate for purposes of its opinion.
For its opinion, Donaldson, Lufkin & Jenrette relied upon and assumed the
accuracy and completeness of all of the financial and other information that
was available or provided to it. Donaldson, Lufkin & Jenrette also assumed that
the financial projections provided to it were reasonably prepared and reflected
the best currently available estimates and judgments of the management of
Unisource and UGI as to the future operating and financial performance of
Unisource and of UGI and AmeriGas Partners, respectively, under the various
scenarios presented. Donaldson, Lufkin & Jenrette did not assume any
responsibility for making an independent evaluation of any assets or
liabilities or for any independent verification of any of the information
reviewed by it. Donaldson, Lufkin & Jenrette relied as to certain legal matters
on advice of counsel to Unisource. Donaldson, Lufkin & Jenrette also was
advised by Unisource that concurrent with the announcement of the merger, UGI
would announce its intention to dispose of UGI Utilities and would reduce its
common stock dividend in the amount as provided by management, and that UGI had
cash and credit facilities sufficient to fund a stock buyback of up to 6.6
million shares, if advisable.
The Donaldson, Lufkin & Jenrette opinion is necessarily based on economic,
market, financial and other conditions as they exist on, and on the information
made available to Donaldson, Lufkin & Jenrette as of, the date of the
Donaldson, Lufkin & Jenrette opinion. It should be understood that, although
subsequent developments may affect its opinion, Donaldson, Lufkin & Jenrette
does not have an obligation to update, revise or reaffirm its opinion. The
Donaldson, Lufkin & Jenrette opinion expresses no opinion as to the prices at
which UGI common stock or Unisource common stock will trade at any time. It
does not address the relative merits of the merger or the board of director's
decision to proceed with the merger. The Donaldson, Lufkin & Jenrette opinion
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the merger.
Donaldson, Lufkin & Jenrette, as part of its investment banking services, is
regularly engaged in the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, and sales, distributions and private
placements of listed and unlisted securities, and for estate, corporate and
other purposes. Donaldson, Lufkin & Jenrette has performed investment banking
and other services for Unisource in the past, and has been paid for these
services. In March 1998, Donaldson, Lufkin & Jenrette was retained by Unisource
as its general financial advisor, an engagement for which Donaldson, Lufkin &
Jenrette received usual and customary compensation. In November 1998,
Donaldson, Lufkin & Jenrette was retained by Unisource to assist in the
valuation and sale of Unisource's Mexican operations, for which it will receive
usual and customary compensation. Over the past several years, Donaldson,
Lufkin & Jenrette has also been retained by UGI on a number of business
matters, including the 1995 transaction in which AmeriGas acquired the
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<PAGE>
approximately 65% interest in Petrolane it did not already own and with respect
to the issue and sale from time to time by UGI Utilities of Medium-Term Notes,
for which Donaldson, Lufkin & Jenrette received usual and customary
compensation. Donaldson, Lufkin & Jenrette has also been retained by UGI in
connection with the sale of UGI Utilities.
Engagement Letter
Pursuant to an engagement letter dated February 12, 1999, Unisource engaged
Donaldson, Lufkin & Jenrette to provide financial advisory and investment
banking services to Unisource. Unisource paid Donaldson, Lufkin & Jenrette a
fee of $1.0 million upon delivery of the fairness opinion and has agreed to pay
Donaldson, Lufkin & Jenrette, contingent upon the consummation of the merger,
an additional fee in an amount equal to 0.4% of the aggregate value of
outstanding common stock of Unisource, plus the amount of any debt of Unisource
assumed, acquired, remaining outstanding, retired or defeased or preferred
stock of Unisource redeemed or remaining outstanding in connection with the
merger, less the $1.0 million payment; provided, however, that in no event
shall the additional fee, as calculated above, be less than $3.5 million or
greater than $6 million. Unisource has agreed to reimburse Donaldson, Lufkin &
Jenrette for travel and other out-of-pocket expenses, including the fees and
expenses of its legal counsel. Unisource also has agreed to pay to Donaldson,
Lufkin & Jenrette the greater of $1.5 million or 10% of any break-up or similar
fee or profit received by Unisource in connection with the termination of the
merger agreement and to indemnify Donaldson, Lufkin & Jenrette and related
persons against liabilities arising from its engagement, including liabilities
under the federal securities laws.
Financial analyses performed by Donaldson, Lufkin & Jenrette
The following is a summary of the financial analyses performed by Donaldson,
Lufkin & Jenrette solely in connection with providing its written opinion and
in its presentation to the Unisource board of directors on February 28, 1999.
Donaldson, Lufkin & Jenrette's analyses included valuations of each of UGI and
Unisource and pro forma analysis of UGI and Unisource on a combined basis.
UGI
. Summary Valuation. Donaldson, Lufkin & Jenrette calculated the
theoretical equity value of UGI by summing the estimated net after tax
proceeds that would accrue to UGI in a sale of UGI Utilities and the
theoretical value of UGI's stake in AmeriGas (ascribing no value to UGI
Enterprises, Inc.). Donaldson, Lufkin & Jenrette divided this total value
by the number of fully diluted UGI shares outstanding to arrive at a
theoretical equity value per share and then derived the implied value per
Unisource share based on the exchange ratio of 0.566 shares of UGI per
Unisource share. The equity value of a company is the value of its fully-
diluted equity outstanding. The theoretical values of UGI Utilities and
AmeriGas Partners were estimated based on Donaldson, Lufkin & Jenrette's
separate analysis of each business on a per UGI share basis. Donaldson,
Lufkin & Jenrette made no attempt to estimate actual trading values for
UGI, which will likely vary from the calculated theoretical values. This
analysis should not be viewed in isolation and was intended to arrive at
the theoretical values of the component assets of UGI.
The analysis showed:
<TABLE>
<CAPTION>
Per UGI Share Range
------------- -------------
<S> <C>
After-tax proceeds from UGI Utilities disposition........... $ 9.00-$11.00
AmeriGas Partners........................................... $12.00-$17.75
Cash at UGI*................................................ $ 4.04
-------------
Total theoretical value..................................... $25.04-$32.79
Current UGI market price (2/26/99).......................... $20.31
Implied discount to theoretical value....................... 18.9%-38.1%
Implied value per Unisource share........................... $14.18-$18.57
</TABLE>
- --------
* Based on $150.7 million of cash on UGI's balance sheet as of December 31,
1998, less $14.1 million at AmeriGas Partners and $3.6 million at UGI
Utilities.
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<PAGE>
. Stock Price and Trading History. Donaldson, Lufkin & Jenrette reviewed
the daily trading activity, including price and volume, of UGI common
stock from February 24, 1997 to February 24, 1999. Donaldson, Lufkin &
Jenrette noted that between February 23, 1998 and February 26, 1999,
UGI's stock price fell from $28.63 to $20.31, a decline of more than 30%.
. Relative Performance. Donaldson, Lufkin & Jenrette compared the
performance of UGI and AmeriGas Partners to the Standard & Poor's Midcap
400, a composite of selected regulated utilities companies and a
composite of selected propane distributors, for the period between
December 31, 1996 and February 22, 1999. The Standard & Poor's Midcap 400
is an index which tracks the performance of a select group of medium-
sized publicly traded companies. The composite of regulated utilities
companies consisted of AGL Resources Inc., Atmos Energy Corp., Indiana
Energy, Inc., Peoples Energy Corp., Piedmont Natural Gas Co. and
Washington Gas Light Co. The composite of propane distributors consisted
of Cornerstone Propane Partners, L.P., Ferrellgas Partners, L.P.,
Heritage Propane Partners, L.P., National Propane Partners, L.P. and
Suburban Propane Partners, L.P. Such analysis indicated that UGI's share
price has underperformed the Standard & Poor's Midcap 400 and the
utilities composite, but has outperformed the propane composite over the
selected period.
UGI Utilities
. Summary of Valuation of UGI Utilities. Donaldson, Lufkin & Jenrette
analyzed the pre-tax value of UGI Utilities per UGI share using
comparable public companies analysis, precedent merger and acquisition
transactions analysis, discounted cash flow analysis of the UGI Utilities
Normal Weather Case and discounted cash flow analysis of the UGI
Utilities Warm Weather Case, each of which is separately discussed below.
The analysis showed:
<TABLE>
<CAPTION>
UGI Utilities Pre-Tax Value
Methodology Range (per UGI share)
----------- ---------------------------
<S> <C>
Comparable public companies.................. $12.50-$14.75
Precedent merger and acquisition
transactions................................ $14.00-$20.50
Discounted cash flow analysis--UGI Utilities
Normal Weather Case......................... $14.50-$17.50
Discounted cash flow analysis--UGI Utilities
Warm Weather Case........................... $14.25-$17.00
-------------
Donaldson, Lufkin & Jenrette's estimate of
pre-tax value of UGI Utilities.............. $14.00-$17.00
</TABLE>
Assuming the disposition of UGI Utilities and a tax rate of 41.6% as
provided by UGI management, Donaldson, Lufkin & Jenrette estimated that the
sale of UGI Utilities would generate approximately $9.00 to approximately
$11.00 in after-tax value per UGI share.
. Comparable Public Companies Analysis. Donaldson, Lufkin & Jenrette
analyzed the implied value per UGI share of UGI Utilities based on the
market values and trading multiples of selected publicly traded
utilities. The selected group consisted of AGL Resources Inc., Atmos
Energy Corp., Indiana Energy, Inc., Peoples Energy Corp., Piedmont
Natural Gas Co. and Washington Gas Light Co. Donaldson, Lufkin & Jenrette
compared the stock price on February 25, 1999, the dividend yield, the
equity value, the stock price as a multiple of earnings per share for the
last twelve reported months and for calendar years 1998 and 1999, the
stock price as a multiple of book value and the enterprise value and the
enterprise value as a multiple of sales, earnings before interest, taxes,
depreciation and amortization ("EBITDA") and earnings before interest and
taxes ("EBIT") for the last twelve reported months, of each of UGI and
members of the selected group. The enterprise value of a company is equal
to its equity value plus the book value of its preferred stock, minority
interests and debt less cash. For the
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<PAGE>
purpose of deriving price/earnings multiples for calendar years 1998 and
1999, Donaldson, Lufkin & Jenrette relied on earnings estimates compiled
by First Call, which were adjusted to exclude unusual and nonrecurring
items. Based on such comparison, Donaldson, Lufkin & Jenrette calculated
the implied enterprise and equity value of UGI Utilities and the implied
equity value of UGI Utilities per UGI share, and estimated the pre-tax
value of UGI Utilities at approximately $12.50 to approximately $14.75 per
UGI share.
. Precedent Merger and Acquisition Transactions Analysis. Donaldson, Lufkin
& Jenrette also analyzed the implied value per UGI share of UGI Utilities
based on the implied transaction multiples paid in selected utilities
merger and acquisition transactions. The transactions were: Southwest Gas
Corp./Southern Union, Public Service Co. of North Carolina/South Carolina
Electric & Gas, North Carolina Natural Gas/Carolina Power & Light, Bay
State Gas Co./NIPSCO Industries, Lykes Energy, Inc./TECO Energy, Inc. and
United Cities Gas/Atmos Energy. Donaldson, Lufkin & Jenrette analyzed the
equity purchase price, the total transaction value, the total transaction
value as a multiple of revenues, EBITDA and EBIT for the last reported
twelve months, and the equity purchase price as a multiple of net income
for the last twelve reported months and of book value for each
transaction. Based on such comparison, Donaldson, Lufkin & Jenrette
calculated the implied enterprise and equity value of Utilities and the
implied equity value of UGI Utilities per UGI share, and estimated the
pre-tax value of Utilities at approximately $14.00 to approximately
$20.50 per UGI share.
. Discounted Cash Flow Analysis--Utilities Normal Weather Case. Donaldson,
Lufkin & Jenrette performed a discounted cash flow analysis of UGI
Utilities using projections prepared by the management of UGI which
Donaldson, Lufkin & Jenrette adjusted with guidance from UGI management
to estimate the financial impact of unusually warm weather in UGI
Utilities's market areas in fiscal 1999 and UGI management's assumption
that weather in such market areas would return to normal historical
average temperatures beginning in fiscal 2000 and continue through the
end of the projection period (the "Utilities Normal Weather Case"). The
discounted cash flow for UGI Utilities was estimated using discount rates
ranging from 8.5% to 10.0% and exit multiples of EBITDA ranging from 8.0
to 10.0. This analysis yielded an implied pre-tax value per UGI share for
Utilities ranging from approximately $14.50 to approximately $17.50.
. Discounted Cash Flow Analysis--Utilities Warm Weather Case. Donaldson,
Lufkin & Jenrette performed a discounted cash flow analysis of UGI
Utilities using projections prepared by the management of UGI which
Donaldson, Lufkin & Jenrette adjusted with guidance from UGI management
to estimate the financial impact of unusually warm weather in UGI
Utilities's market areas over the entire projection period (the
"Utilities Warm Weather Case"). The discounted cash flow for UGI
Utilities was estimated using discount rates ranging from 8.5% to 10.0%
and exit multiples of EBITDA ranging from 8.0 to 10.0. This analysis
yielded an implied pre-tax value per UGI share for UGI Utilities ranging
from approximately $14.25 to approximately $17.00.
AmeriGas Partners, L.P.
. Summary of Valuation of AmeriGas Partners. Donaldson, Lufkin & Jenrette
analyzed the pre-tax value of UGI's stake in AmeriGas Partners per UGI
share using comparable public companies analysis, discounted cash flow
analysis of management's AmeriGas Normal Weather Case and discounted cash
flow analysis of the AmeriGas Warm Weather Case, each of which is
separately discussed below. Throughout this analysis, Donaldson, Lufkin &
Jenrette assumed that the value of UGI's 58.6% stake in AmeriGas Partners
equals 58.6% of AmeriGas Partners' total equity value, applying no
discount for the subordinated nature of certain of UGI's interests in
AmeriGas.
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<PAGE>
The analysis showed:
<TABLE>
<CAPTION>
AmeriGas Partners Equity
Methodology Value Range (per UGI share)
----------- ---------------------------
<S> <C>
Comparable public companies.................. $ 9.00-$15.00
Discounted cash flow analysis--AmeriGas
Normal Weather Case......................... $17.50-$25.00
Discounted cash flow analysis--AmeriGas Warm
Weather Case................................ $12.75-$18.00
-------------
Donaldson, Lufkin & Jenrette estimate of
value of UGI's stake in AmeriGas Partners... $12.00-$17.75
</TABLE>
. Comparable Public Companies Analysis. Donaldson, Lufkin & Jenrette
analyzed the implied value per UGI share of AmeriGas Partners based on
the market values and trading multiples of selected publicly traded
propane distribution companies. The selected group consisted of
Cornerstone Propane Partners, L.P., Ferrellgas Partners, L.P., Heritage
Propane Partners, L.P., National Propane Partners, L.P. and Suburban
Propane Partners, L.P. Donaldson, Lufkin & Jenrette compared the unit
price on February 25, 1999, the dividend yield, the equity value, the
unit price as a multiple of earnings per unit for the last twelve
reported months and for calendar years 1998 and 1999, the unit price as a
multiple of book value and the enterprise value and the enterprise value
as a multiple of sales, EBITDA and EBIT for the last twelve reported
months, of each of AmeriGas Partners and members of the selected group.
For the purpose of deriving price/earnings multiples for calendar years
1998 and 1999, Donaldson, Lufkin & Jenrette relied on earnings estimates
compiled by First Call, which were adjusted to exclude unusual and
nonrecurring items. Based on such comparison, Donaldson, Lufkin &
Jenrette calculated the implied enterprise and equity value of AmeriGas
and the implied equity value of UGI's stake in AmeriGas Partners per UGI
share, and estimated the value of AmeriGas Partners at approximately
$9.00 to approximately $15.00 per UGI share.
. Discounted Cash Flow Analysis--AmeriGas Normal Weather Case. Donaldson,
Lufkin & Jenrette performed a discounted cash flow analysis of AmeriGas
Partners using projections prepared by the management of UGI which
Donaldson, Lufkin & Jenrette adjusted with guidance from UGI management
to estimate the financial impact of unusually warm weather in AmeriGas
Partners' market areas in fiscal 1999 and UGI management's assumption
that weather in such market areas would return to normal historical
average temperatures beginning in fiscal 2000 and continue through the
end of the projection period ("AmeriGas Normal Weather Case"). The
discounted cash flow for the AmeriGas Normal Weather Case was estimated
using discount rates ranging from 8.0% to 9.5% and exit multiples of
EBITDA ranging from 9.5 to 11.5. This analysis yielded an implied price
per UGI share for UGI's stake in AmeriGas Partners ranging from
approximately $17.50 to approximately $25.00.
. Discounted Cash Flow Analysis--AmeriGas Warm Weather Case. Donaldson,
Lufkin & Jenrette performed a discounted cash flow analysis of AmeriGas
Partners using projections prepared by the management of UGI which
Donaldson, Lufkin & Jenrette adjusted with guidance from UGI management
to reflect the financial impact of unusually warm weather in AmeriGas
Partners' market areas over the entire projection period ("AmeriGas Warm
Weather Case"). The discounted cash flow for the AmeriGas Warm Weather
Case was estimated using discount rates ranging from 8.0% to 9.5% and
exit multiples of EBITDA ranging from 9.5 to 11.5. This analysis yielded
an implied value per UGI share for UGI's stake in AmeriGas Partners
ranging from approximately $12.75 to approximately $18.00.
Unisource
. Summary Valuation Per Share. Based on an exchange ratio of 0.566 UGI
shares per Unisource share and the UGI share price of $20.31 as of
February 26, 1999, Donaldson, Lufkin & Jenrette calculated an implied
price per share for Unisource of $11.50 and compared such value to the
range of Unisource
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share values implied from comparable publicly traded distribution
companies analysis, precedent merger and acquisition transactions
analysis, discounted cash flow analysis of Unisource management's Base
Case and discounted cash flow analysis of Unisource management's Downside
Case, each of which is separately discussed below.
Donaldson, Lufkin & Jenrette's analysis showed:
<TABLE>
<CAPTION>
Unisource Value
Methodology Range (per share)
----------- -----------------
<S> <C>
Comparable public companies.............................. $ 6.00-$ 9.50
Precedent merger and acquisition transactions............ $10.00-$15.00
Discounted cash flow analysis--Base Case................. $15.75-$19.50
Discounted cash flow analysis--Downside Case............. $13.00-$16.50
</TABLE>
. Comparable Public Companies Analysis. Donaldson, Lufkin & Jenrette
analyzed the implied price per share of Unisource based on the market
values and trading multiples of three groups of selected publicly traded
distribution companies. The office supplies distributors group consisted
of Boise Cascade Office Products, Corporate Express Inc., US Office
Products Co., United Stationers Inc. and Daisytek International
Corporation. The miscellaneous distributors group consisted of Henry
Schein Inc., Finishmaster Inc., Barnett Inc., Guest Supply Inc., Wilmar
Industries Inc. and WW Grainger Inc. The food and related supplies
distributors group consisted of Fleming Companies Inc., Performance Food
Group Inc., Supervalu Inc., Sysco Corp. and US Foodservice Inc.
Donaldson, Lufkin & Jenrette compared the stock price on February 24,
1999, the equity value, the enterprise value, the stock price as a
multiple of earnings per share for the last twelve reported months and
for calendar year 1999, three-year average EBITDA margins and the
enterprise value as a multiple of sales and EBITDA and EBIT for the last
twelve reported months, of each of Unisource and the three selected
groups. For the purpose of deriving price/earnings multiples for calendar
year 1999, Donaldson, Lufkin & Jenrette relied on earnings estimates
compiled by First Call, which were adjusted to exclude unusual and
nonrecurring items. Donaldson, Lufkin & Jenrette also compared the
operating statistics of Unisource to the office supplies distributors
group and the food & related supplies distributors group and noted that
Unisource recently had underperformed other publicly traded distributors
on an operating basis. Based on such analysis, Donaldson, Lufkin &
Jenrette calculated the implied enterprise value, the implied equity
value and the implied equity value per share for Unisource, and estimated
an implied value per Unisource share of approximately $6.00 to
approximately $9.50.
. Precedent Merger and Acquisition Transactions Analysis. Donaldson, Lufkin
& Jenrette also analyzed the implied price per share of Unisource based
on the transaction multiples paid in selected merger and acquisition
transactions. The transactions were: Azerty (Abitibi-Consolidated)/United
Stationers Supply Co., ProSource, Inc./AmeriServe Food Distribution,
Inc., National Sanitary Supply Co./Unisource Worldwide Inc., Fisher
Scientific International/Investor Group, Rykoff-Sexton Inc./JP Food
Service, General Medical/McKesson, Maintenance Warehouse/Home Depot,
Subsidiary of Auklands Limited/W.W. Grainger, Univar Corp./Pakhoed
Holding NV, W.H. Smith Business Supplies/Guilbert SA, Alling & Corey
Co./Union Camp Corp., Grand & Toy Ltd (Cara Operations)/Boise Cascade
Office Products and United Stationers, Inc./Associated Stationers Inc.
Donaldson, Lufkin & Jenrette analyzed the total transaction value, the
total transaction value as a multiple of revenues, EBITDA and EBIT for
the last twelve reported months, and EBIT margins for the last twelve
reported months for each comparable transaction. Based on such analysis,
Donaldson, Lufkin & Jenrette calculated the implied enterprise value, the
implied equity value and the implied equity value per share for
Unisource, and estimated an implied value per Unisource share of
approximately $10.00 to approximately $15.00.
. Discounted Cash Flow Analysis--Base Case. Donaldson, Lufkin & Jenrette
performed a discounted cash flow analysis of Unisource using projections
prepared by the management of Unisource which reflected Unisource
management's estimate of the impact of a projected turnaround in
financial performance in fiscal 1999 and further improvements in fiscal
2000 (the "Base Case"). The discounted
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cash flow for Unisource was estimated using discount rates ranging from
12.0% to 14.0% and exit multiples of EBITDA ranging from 7.0 to 9.0. This
analysis yielded implied prices per share for Unisource ranging from
approximately $15.75 to approximately $19.50.
. Discounted Cash Flow Analysis--Downside Case. Donaldson, Lufkin &
Jenrette performed a discounted cash flow analysis of Unisource using
projections prepared by the management of Unisource which reflected the
potential impact of slowing in the implementation of Unisource's
restructuring plan (the "Downside Case"). The discounted cash flow for
Unisource was estimated using discount rates ranging from 12.0% to 14.0%
and exit multiples of EBITDA ranging from 7.0 to 9.0. This analysis
yielded implied prices per share for Unisource ranging from approximately
$13.00 to approximately $16.50.
Combined Company
. Pro Forma Financial Summary. Donaldson, Lufkin & Jenrette prepared pro
forma income statements and balance sheets for the combined company using
a combination of financial projections prepared by Unisource management
for the Unisource Base Case and financial projections prepared in
conjunction with UGI management for the UGI Normal Weather Case. The
analysis indicated that the combined company's EBIT would grow at a
compound annual growth rate of approximately 5.6% for fiscal years 2000
through 2003.
. Summary Pro Forma Credit Analysis. Donaldson, Lufkin & Jenrette prepared
pro forma credit statistics for the combined company using a combination
of financial projections prepared by Unisource management for the
Unisource Base Case and financial projections prepared in conjunction
with UGI management for the UGI Normal Weather Case. The analysis
indicated that the combined company is projected to have improved credit
ratios. Donaldson, Lufkin & Jenrette also prepared a summary credit
analysis for the pro forma parent company, which would include
Unisource's operations, supported by the right to a dividend from UGI
Utilities in fiscal year 2000 and from AmeriGas Partners in 2000 and
going forward, and debt reduction from a portion of the proceeds of the
sale of UGI Utilities.
. Accretion/Dilution Analysis. Donaldson, Lufkin & Jenrette analyzed the
impact of the merger on the projected earnings per share of Unisource and
UGI for the projected fiscal years ending September 30, 2000 and
September 30, 2001. This analysis was based on financial projections
prepared by Unisource management for the Unisource Base Case and on
financial projections prepared in conjunction with UGI management for the
UGI Normal Weather Case and assumptions provided by the managements of
Unisource and UGI, including that UGI Utilities would be held for sale,
with the earnings from the business excluded from the combined company's
income statements, 50% of the after-tax proceeds from the sale of
utilities would be used to repay debt of the combined company and that
UGI would implement share buy-backs; the first stock buy-back would be
carried out by UGI prior to the merger using existing cash of $100
million and would result in a buy-back of approximately 4.92 million
shares based on the average price of UGI stock on February 26, 1999, and
the second stock buy-back would take place at the end of September 2000
and would utilize 50% ($190.8 million) of the after-tax proceeds from the
sale of UGI Utilities for an additional buy-back of shares. The
assumption that 50% of the after-tax proceeds from the sale of UGI
Utilities would be used to fund a stock buyback at the end of September
2000 was made by Donaldson, Lufkin & Jenrette solely for the purpose of
Donaldson, Lufkin & Jenrette's accretion/dilution analysis. UGI
subsequently informed Donaldson, Lufkin & Jenrette that it had no
intention of implementing such share buyback in fiscal year 2000. The
analysis indicated that the merger would have a dilutive effect on the
pro rata earnings per share of UGI to be received by Unisource
stockholders as compared with the earnings per share projected for
Unisource on a standalone basis for fiscal year 2000 and fiscal year
2001, a dilutive effect on the earnings per share of UGI for fiscal year
2000 and an accretive effect on the earnings per share of UGI for fiscal
year 2001.
. Historical Market Exchange Ratio Analysis. Donaldson, Lufkin & Jenrette
analyzed the weekly closing prices of Unisource and UGI for the period of
December 13, 1996 to February 25, 1999 and calculated the high, low and
mean market exchange ratios as of the first and last day of such period,
and over the last
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twelve reported months and over the last thirty, sixty and ninety days
preceding the end of such period. For the purpose of calculating averages,
DLJ used weekly closing prices provided by Factset Data Systems. The
analysis indicated that Unisource and UGI had traded at an average market
exchange ratio of 0.564 since December 13, 1996 and were trading at a
market exchange ratio of 0.345 on February 25, 1999.
. Contribution Analysis. Donaldson, Lufkin & Jenrette calculated the
percentage contribution to fiscal year 1998 revenues, EBITDA and net
income, to enterprise value and equity value and to projected fiscal
years 1999 and 2000 revenues, EBITDA and net income by each of the
companies based on a combination of financial projections prepared by
Unisource management for the Unisource Base Case and the financial
projections prepared in conjunction with UGI management for the UGI
Normal Weather Case. Such analysis implied an exchange ratio range from
0.300 to 0.600 UGI shares per Unisource share.
. Summary Exchange Ratio Analysis. Donaldson, Lufkin & Jenrette compared
the proposed exchange ratio of 0.566 to the relative values of Unisource
and UGI as estimated according to comparable public companies analysis,
discounted cash flow analysis of the Unisource Base Case and the UGI Warm
Weather Case, discounted cash flow analysis of the Unisource Downside
Case and the UGI Normal Weather Case, market exchange ratio analysis and
contribution analysis.
The analysis showed:
<TABLE>
<CAPTION>
Methodology Exchange Ratio Range
----------- --------------------
<S> <C>
Comparable public company analysis.................. 0.178-0.372
Discounted cash flow analysis--Unisource Base
Case/UGI Warm Weather Case......................... 0.403-0.628
Discounted cash flow analysis--Unisource Downside
Case/UGI Normal Weather Case....................... 0.279-0.458
Contribution analysis............................... 0.300-0.600
</TABLE>
Based on the totality of analysis, Donaldson, Lufkin & Jenrette concluded
that the exchange ratio of 0.566 was fair to the stockholders of Unisource
from a financial point of view.
The preparation of a fairness opinion involves determinations about the
most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances. Donaldson,
Lufkin & Jenrette performed each of the analyses described above in order to
provide a different perspective on the transaction and add to the total mix of
information available. Donaldson, Lufkin & Jenrette did not form a conclusion
as to whether any individual analysis supported or failed to support its
opinion. Rather, Donaldson, Lufkin & Jenrette considered the results of the
analyses in light of each other and did not place particular reliance or
weight on any individual analysis and ultimately based its opinion on the
results of all of the analyses considered together. Donaldson, Lufkin &
Jenrette's conclusions also involved significant elements of judgment and
qualitative analysis. In addition, even though the separate analyses are
summarized above, Donaldson, Lufkin & Jenrette believes that its analyses must
be considered as a whole. Donaldson, Lufkin & Jenrette also believes that
selecting portions of its analyses, without considering all analyses, could
create an incomplete or misleading view of the evaluation process underlying
its opinion.
In performing its analyses, Donaldson, Lufkin & Jenrette made numerous
assumptions regarding industry performance, general business, financial,
economic and market conditions and other matters. Many of these matters are
beyond the control of Unisource and UGI. No company or transaction used in the
analyses is directly comparable to Unisource, UGI or the contemplated
transaction. In addition, mathematical analysis such as determining the mean
or median is not in itself a meaningful method of using selected company or
transaction data. Analyses relating to the value of businesses or securities
are not appraisals and do not reflect the prices at which the businesses or
securities can actually be sold. The analyses performed by Donaldson, Lufkin &
Jenrette do not indicate actual values or future results. These may be
significantly more or less favorable than suggested by the analyses. None of
Unisource, UGI and Donaldson, Lufkin & Jenrette assume responsibility if
future results are materially different from those projected.
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<PAGE>
Recommendation Of the Board of Directors of UGI and Reasons of UGI For The
Merger
At a meeting of the UGI board of directors held on February 28, 1999, after
careful consideration, the UGI board of directors, among other things:
.determined that the merger is fair to and in the best interests of UGI and
its stockholders;
. approved the merger and the merger agreement; and
.recommended that UGI stockholders approve the share issuance proposal.
The UGI board of directors believes the merger will:
. Better serve its stockholders by redeploying its assets from lower growth
utility operations to a higher-growth distribution business;
. Establish a platform from which to increase the number and type of
products it distributes;
. Increase its earnings potential and generate cash flow to support greater
growth opportunities;
. Make the best use of operational strengths and management expertise in
distribution and logistics to benefit customers and suppliers of both
companies; and
. Combine best practices in distribution, customer service and information
systems to reduce costs and improve service.
In reaching its decision to approve the merger agreement and recommend that
stockholders approve the issuance of UGI common stock in the merger, the UGI
board of directors considered a number of factors, including:
. The terms and structure of the merger, including the fixed exchange ratio
of 0.566 UGI shares for each Unisource share which implied a price of
$11.50 per share based on UGI's closing price on February 26, 1999;
. The results of UGI's due diligence investigation of Unisource and other
information concerning the business, assets, capital structure, financial
performance and prospects of UGI and Unisource;
. Current and historical market prices and trading information with respect
to UGI common stock and Unisource common stock;
. The expected increase in earnings per share in the first fiscal year
after the merger is completed;
. Unisource's implementation of its restructuring plan and UGI management's
belief that they can help to enhance and accelerate the restructuring;
. The reduction of UGI's annual dividend, thereby increasing cash available
for investment in new growth businesses outside the regulated and low-
growth utility industry;
. UGI's planned share repurchase program, providing liquidity to its
stockholders;
. The expected sale of UGI's utility operations and the use of the sale
proceeds by the combined company to reduce debt, pursue investments with
greater growth opportunities or expand its core distribution businesses;
. The designation by UGI of five of the ten members of the board of
directors of the combined company, and the designation to the board of
directors of a sixth member who is currently a director of both UGI and
Unisource;
. The continuation of Lon R. Greenberg as chairman, president and chief
executive officer of the combined company after the merger;
. The financial and other analyses prepared by Merrill Lynch and the
opinion of Merrill Lynch to the UGI board of directors that, as of
February 28, 1999, and based upon the assumptions made, matters
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<PAGE>
considered and limits of review set forth in that opinion, the exchange
ratio was fair to UGI from a financial point of view (see "Opinion of
UGI's Financial Advisor" below);
. That the merger is expected to be tax-free to both UGI and Unisource
stockholders, except for cash received by Unisource stockholders in lieu
of fractional shares;
. The use of best practices in distribution, customer service, purchasing
and information systems, the expansion of national distribution networks
and the creation of additional growth opportunities and economies of
scale, enabling the combined company to improve its existing services and
broaden the number and types of products it distributes; and
. The ability of the UGI board of directors, if required by its fiduciary
duties, to terminate the merger agreement to accept an acquisition
proposal made by a third party that is superior to the merger with
Unisource.
The UGI board of directors also considered the following risks inherent in
proceeding with the merger:
. The expected increase in earnings per share and other benefits of the
merger might not be realized;
. The risk that Unisource's restructuring plan would not be successfully
implemented or implemented on schedule or that the plan would not produce
the desired results;
. A potential decline in the market price of UGI common stock as a result
of the announced sale of UGI's utility operations and the reduction of
UGI's annual dividend as yield-oriented utility investors move toward
other investments;
. The risk that the merger would not be consummated and that UGI may have
made significant stock repurchases or entered into definitive agreements
to sell its utility operations;
. The significant time and effort required by management to implement the
merger and related transactions, including the sale of UGI Utilities;
. The risk that Unisource's lenders may not waive provisions of Unisource's
credit facility which would otherwise be in default upon the merger and
the uncertainty regarding UGI's ability to refinance the debt if the
default were not waived; and
. The effect of the potential merger on both companies' ability to retain
key employees and to continue to operate without disruption or loss of
key customers or suppliers.
This discussion of the information and factors considered and weight given
to such factors by the UGI board of directors is not intended to be
exhaustive. In view of the variety of factors considered in connection with
its evaluation of the merger, the UGI 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 determination. In addition,
individual members of UGI board of directors may have given different weights
to different factors.
The UGI board of directors recommends that holders of UGI common stock vote
FOR approval of the issuance of UGI common stock in connection with the
merger.
Opinion of UGI's Financial Advisor
On February 28, 1999, Merrill Lynch delivered its opinion to UGI's board of
directors to the effect that, as of such date, and based upon the assumptions
made, matters considered and limits of review set forth in such opinion, the
exchange ratio was fair from a financial point of view to UGI.
A copy of the Merrill Lynch opinion, which sets forth the assumptions made,
matters considered and certain limitations on the scope of review undertaken
by Merrill Lynch, is attached as Annex B-2 to this Joint Proxy
Statement/Prospectus. Each holder of UGI common stock is urged to read this
opinion in its entirety. The Merrill Lynch opinion was intended for the use
and benefit of UGI's board of
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<PAGE>
directors, was directed only to the fairness from a financial point of view to
UGI, did not address the merits of the underlying decision by UGI to engage in
the merger and does not constitute a recommendation to any stockholders as to
how such stockholders should vote on the proposed merger or any matter related
thereto. The exchange ratio was determined on the basis of arm's-length
negotiations between UGI and Unisource and was approved by UGI's board of
directors. The summary of the Merrill Lynch opinion set forth in this Joint
Proxy Statement/Prospectus is qualified in its entirety by reference to the
full text of the Merrill Lynch opinion, which is attached as Annex B-2 hereto.
In arriving at its opinion, Merrill Lynch, among other things:
1. reviewed certain publicly available business and financial information
relating to Unisource and UGI that Merrill Lynch deemed to be relevant;
2. reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
Unisource and UGI, as well as the amount and timing of the cost savings
and related expenses expected to result from the merger furnished to
Merrill Lynch by Unisource and UGI, respectively;
3. conducted discussions with members of senior management and
representatives of Unisource and UGI concerning the matters described in
clauses 1 and 2 above, as well as their respective businesses and
prospects before and after giving effect to the merger;
4. reviewed the market prices and valuation multiples for Unisource common
stock and UGI common stock and compared them with those of certain
publicly traded companies that Merrill Lynch deemed to be relevant;
5. reviewed the results of operations of Unisource and UGI and compared
them with those of certain publicly traded companies that Merrill Lynch
deemed to be relevant;
6. compared the proposed financial terms of the merger with the financial
terms of certain other transactions that Merrill Lynch deemed to be
relevant;
7. participated in certain discussions and negotiations among
representatives of Unisource and UGI and their financial and legal
advisors;
8. reviewed the potential pro forma impact of the merger;
9. reviewed a draft of the merger agreement dated February 25, 1999; and
10. reviewed such other financial studies and analyses, including the
Unisource Worldwide Profit Improvement Project Final Report Executive
Summary, dated June 30, 1998, prepared by Coopers & Lybrand Consulting,
and took into account such other matters as Merrill Lynch deemed
necessary, including Merrill Lynch's assessment of general economic,
market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available. Merrill Lynch did not assume any responsibility for independently
verifying such information or for undertaking an independent evaluation or
appraisal of any of the assets or liabilities of Unisource or UGI and was not
furnished with any such evaluation or appraisal. In addition, Merrill Lynch did
not assume any obligation to conduct any physical inspection of the properties
or facilities of Unisource or UGI. With respect to the financial forecast
information furnished to or discussed with Merrill Lynch by Unisource or UGI,
Merrill Lynch assumed that they were reasonably prepared and reflected the best
currently available estimates and judgment of Unisource's or UGI's management
as to the expected future financial performance of Unisource or UGI, as the
case may be. Merrill Lynch further assumed that the merger would qualify as a
tax-free reorganization for U.S. federal income tax purposes, and that the
final form of the merger agreement would be substantially similar to the last
draft reviewed by Merrill Lynch as of February 25, 1999.
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<PAGE>
The Merrill Lynch opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated and on the information
made available to Merrill Lynch, as of the date of the Merrill Lynch opinion.
Merrill Lynch assumed that in the course of obtaining the necessary regulatory
or other consents or approvals (contractual or otherwise) for the merger, no
restrictions, including any divestiture requirements or amendments or
modifications, would be imposed that would have a material adverse effect on
the contemplated benefits of the merger.
In connection with the preparation of its opinion, Merrill Lynch was not
authorized by UGI or UGI's board of directors to solicit, nor did Merrill Lynch
solicit, third-party indications of interest for the acquisition of all or any
part of UGI. In addition, Merrill Lynch expressed no opinion as to the prices
at which shares of UGI common stock would trade following the announcement or
consummation of the merger.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in connection with the Merrill Lynch opinion
delivered to UGI's board of directors on February 28, 1999.
Historical Trading Analysis. Merrill Lynch reviewed the historical ratios of
the daily closing prices per share of UGI common stock to those of Unisource
common stock for the period beginning on December 12, 1996 (the date Unisource
first traded following its spin-off from Alco Standard Corporation) and ending
on February 24, 1999. This analysis showed that the average historical trading
ratio during such period was 0.568x and that the maximum and minimum historical
trading ratios during such period were 1.024x and 0.255x, respectively. Merrill
Lynch also calculated a range of implied exchange ratios by comparing (i) the
52-week high per-share trading price of UGI to the 52-week high per-share
trading price of Unisource and (ii) the 52-week low per-share trading price of
UGI to the 52-week low per-share trading price of Unisource. This analysis
yielded a minimum implied exchange ratio of 0.281x and a maximum implied
exchange ratio of 0.494x, compared to the proposed exchange ratio of 0.566x.
Comparable Public Companies Analysis. Using publicly available information,
Merrill Lynch compared certain financial and operating information and ratios
(described below) for Unisource and UGI with the corresponding financial and
operating information and ratios for selected comparable companies.
The comparable companies selected in the Unisource analysis included the
following companies:
1. Anixter International Inc.;
2. Applied Industrial Technologies, Inc.;
3. Boise Cascade Office Products Corporation;
4. Corporate Express, Inc.;
5. Genuine Parts Company;
6. SUPERVALUE INC.;
7. Sysco Corporation; and
8. W.W. Grainger, Inc.
The comparable companies selected for the UGI analysis included the
following large capitalization local distribution companies:
1. AGL Resources Inc.;
2. MCN Energy Group Inc.;
3. Nicor Inc.;
4. Peoples Energy Corporation;
5. Piedmont Natural Gas Company, Inc.; and
6. Washington Gas Light Company.
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Merrill Lynch used forward price/earnings multiples of the comparable
companies (based on estimates from UGI and Unisource for fiscal years 1999 and
2000) to calculate implied equity values per share of Unisource common stock
and UGI common stock (using earnings estimates provided by the managements of
Unisource and UGI, respectively). The multiples of the comparable companies
selected for the Unisource analysis had a relevant range of 12.0x to 15.0x and
a mean of 13.8x (excluding Sysco and W.W. Grainger, which traded at multiples
of 25.3x and 16.7x, respectively), and the multiples of the comparable
companies selected for the UGI analysis had a relevant range of 13.5x to 15.0x
and a mean of 13.6x. Merrill Lynch then used these implied per share equity
values to calculate implied exchange ratios, which ranged from a minimum of
0.498x to a maximum of 0.561x (obtained by comparing the highest estimated
valuation of Unisource common stock to the highest estimated valuation of UGI
common stock and the lowest estimated valuation of Unisource common stock to
the lowest estimated valuation of UGI common stock), compared to the proposed
exchange ratio of 0.566x.
Merrill Lynch also calculated implied exchange ratios by comparing the
implied per share equity value of Unisource and UGI based on multiples of 1999
EBITDA of the comparable companies applied to the estimates of management for
the 1999 EBITDA of Unisource and UGI. The multiples of the comparable companies
selected for the Unisource analysis had a relevant range of 7.0x to 9.0x and a
mean of 7.3x, and the multiples of the comparable companies selected for the
UGI analysis had a relevant range of 7.0x to 8.0x and a mean of 7.5x. Using
this method, the implied exchange ratios ranged from a low of 0.329x to a high
of 0.408x (obtained by comparing the highest estimated valuation of Unisource
common stock to the highest estimated valuation of UGI common stock and the
lowest estimated valuation of Unisource common stock to the lowest estimated
valuation of UGI common stock), compared to the proposed exchange ratio of
0.566x.
Discounted Cash Flow Analysis. Merrill Lynch derived an estimated per share
equity valuation range for Unisource and UGI by performing a discounted cash
flow ("DCF") analysis. The DCF for Unisource was calculated assuming discount
rates ranging from 9.0% to 11.0% and was comprised of the sum of the present
values of the following:
1. the unlevered free cash flows in years 1999 through 2003 (as projected
by Unisource management for years 1999 through 2001 and as projected by
UGI management for 2002 and 2003); and
2. the year 2003 terminal value based upon multiples of projected EBITDA
ranging from 6.0x to 7.0x.
The DCF for UGI was calculated assuming discount rates of 7.0% to 9.0% and
was comprised of the sum of the present values of the following:
1. the unlevered free cash flows in years 1999 through 2003 (as projected
by UGI management); and
2. the year 2003 terminal value based upon multiples of EBITDA ranging from
7.0x to 8.0x.
Based upon the estimated valuation ranges of Unisource and UGI set forth
above, Merrill Lynch calculated an implied exchange ratio of a share of UGI
common stock to a share of Unisource common stock ranging from 0.620 to 0.674
(obtained by comparing the highest estimated valuation of Unisource common
stock to the highest estimated valuation of UGI common stock and the lowest
estimated valuation of Unisource common stock to the lowest estimated valuation
of UGI common stock), compared to the proposed exchange ratio of 0.566x.
Pro Forma Combination Analysis. Merrill Lynch also analyzed certain pro
forma effects resulting from the merger, including the potential impact of the
merger on projected earnings per share of UGI following the merger based on pro
forma assumptions that:
1. the merger would close by the end of UGI's fiscal year 1999 and would be
treated as a reverse purchase for accounting purposes;
40
<PAGE>
2. the utility business of UGI would be sold in a transaction that closed
at the end of UGI's fiscal year 2000 and would be treated as a
discontinued business for fiscal year 2000;
3. UGI would repurchase $100 million of shares of its common stock at a
weighted average price of $18.00 using existing cash during the time
period between the announcement date and the distribution of proxies to
UGI stockholders;
4. UGI would cut its dividend to $0.75 per share effective as of the first
quarter of fiscal year 2000;
5. the merger would generate no synergies; and
6. new goodwill would be amortized over 40 years.
This analysis indicated that the merger would be accretive to UGI
stockholders in fiscal year 2000 and in each year thereafter.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial or summary description. Merrill Lynch
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all such factors and analyses, could create a misleading view of the process
underlying the analyses set forth in the Merrill Lynch opinion. Merrill Lynch
did not assign relative weights to any of its analyses in preparing the
opinion. The matters considered by Merrill Lynch in its analyses were based on
numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond UGI's and Merrill Lynch's control and involve
the application of complex methodologies and educated judgment. Any estimates
contained in Merrill Lynch's analyses are not necessarily indicative of actual
past or future results or values, which may be significantly more or less
favorable than such estimates. Estimated values do not purport to be appraisals
and do not necessarily reflect the prices at which businesses or companies may
be sold in the future, and such estimates are inherently subject to
uncertainty.
No company utilized as a comparison in the analyses described above is
identical to Unisource or UGI. In addition, various analyses performed by
Merrill Lynch incorporate projections prepared by research analysts using only
publicly available information. Such estimates may or may not prove to be
accurate. An analysis of publicly traded comparable companies is not
mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
UGI's board of directors selected Merrill Lynch to act as its financial
advisor because of Merrill Lynch's reputation as an internationally recognized
investment banking firm with substantial experience in transactions similar to
the merger and because it is familiar with UGI and its business. As part of its
investment banking business, Merrill Lynch is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities and private placements.
Pursuant to the terms of a letter agreement between UGI and Merrill Lynch
dated February 22, 1999, UGI has agreed to pay Merrill Lynch the following
fees:
1. a fee of $1 million upon the execution of the merger agreement, and
2. an additional fee of $5 million payable upon consummation of the merger.
UGI has also agreed to reimburse Merrill Lynch for its reasonable out-of-
pocket expenses (including reasonable fees and disbursements of legal counsel)
and to indemnify Merrill Lynch and certain related parties
41
<PAGE>
from and against certain liabilities, including liabilities under the federal
securities laws arising out of its engagement.
Merrill Lynch Capital, an affiliate of Merrill Lynch, has committed to
provide a $100 million credit facility to UGI, the proceeds of which may be
used by UGI for working capital and general corporate purposes, including the
repurchase of shares of UGI common stock, and Merrill Lynch may continue to
provide financing services to UGI and may receive fees for the rendering of
such services. In addition, in the ordinary course of Merrill Lynch's business,
Merrill Lynch may actively trade Unisource common stock, as well as UGI common
stock and other securities of UGI, for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position
in such securities.
Exchange of Financial Forecasts
UGI (including UGI Utilities and UGI Energy Services)
Management of each of UGI and Unisource from time to time have prepared
internal financial forecasts regarding their respective anticipated future
operations. In the course of the discussions described in "Background of the
Merger," UGI and Unisource provided certain of these internal forecasts to each
other.
UGI's financial forecasts, which assume normal weather conditions and a
short-term interest rate of 4.4% on cash available for investment, reflected
the following forecasted information:
<TABLE>
<CAPTION>
Millions
-----------------------------------------------------
Cash
Available Shares
Fiscal Year for Investment Sales EBITDA Net Income Outstanding EPS
----------- -------------- ----- ------ ---------- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
2000 $159.7 $1,609.5 $308.1 $57.9 32.9 $1.76
2001 178.8 1,669.6 320.7 60.8 32.9 1.85
2002 195.7 1,724.4 331.6 64.0 32.9 1.95
2003 213.9 1,781.0 345.9 71.6 32.9 2.18
2004 232.6 1,839.5 358.3 75.6 32.9 2.30
</TABLE>
UGI (excluding UGI Utilities and UGI Energy Services)
For the purpose of preparing the combined financial forecasts of UGI and
Unisource, UGI management adjusted the above forecasts to reflect the proposed
sale of UGI Utilities and UGI Energy Services and the effect of the announced
dividend reduction. These adjusted forecasts assume that the sale of UGI
Utilities and UGI Energy Services would be completed at the end of September
2000, with UGI receiving after-tax proceeds of $390.0 million. These adjusted
forecasts, which assume the investment of $390.0 million, together with other
cash available for investment, at a short-term interest rate of 4.4%, reflected
the following forecasted information:
<TABLE>
<CAPTION>
Millions
-----------------------------------------------------
Cash
Available Shares
Fiscal Year for Investment Sales EBITDA Net Income Outstanding EPS
----------- -------------- ----- ------ ---------- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
2000 $597.8 $1,075.9 $197.2 $18.8 32.9 $0.57
2001 623.0 1,119.9 225.6 33.4 32.9 1.02
2002 647.8 1,159.0 235.0 36.1 32.9 1.10
2003 673.3 1,199.5 243.8 37.9 32.9 1.15
2004 699.6 1,241.3 253.6 40.2 32.9 1.22
</TABLE>
Unisource
Unisource expects to realize annual pre-tax benefits of approximately $150
million once the restructuring plan is fully implemented. These benefits are
assumed to begin to have a significant impact in the second half of fiscal year
1999 and be substantially realized in fiscal year 2000. The decrease in sales
in fiscal year 2000 compared to fiscal year 1998 primarily reflects assumed
pricing declines and the proposed divestiture of Unisource's Mexican
operations. Unisource's financial forecasts reflected the following forecasted
information:
42
<PAGE>
<TABLE>
<CAPTION>
Millions
--------------------------------------
SG&A
Shares % of
Fiscal Year Sales EBITDA Net Income Outstanding Gross Profit EPS
----------- ----- ------ ---------- ----------- ------------ ---
<S> <C> <C> <C> <C> <C> <C>
2000 $6,665.3 $252.1 $ 80.5 70.3 85.1% $1.15
2001 6,933.7 288.0 102.8 70.3 83.4 1.45
2002 7,153.2 303.1 116.3 70.3 83.3 1.65
2003 7,381.1 318.9 131.6 70.3 83.1 1.87
2004 7,618.0 335.5 145.8 70.3 82.9 2.07
</TABLE>
UGI and Unisource Combined
We prepared the combined financial forecasts of UGI and Unisource shown
below by giving effect to the pro forma adjustments presented in the "Notes to
Unaudited Pro Forma Condensed Combined Financial Information of UGI and
Unisource" on page . We combined the foregoing financial forecasts assuming
that $200.0 million of the cash available from the sale of UGI Utilities and
UGI Energy Services would be used to reduce debt and that UGI would use the
remaining cash proceeds and internally generated cash to repurchase common
stock at the beginning of fiscal year 2002. The combined financial forecast
assumes that 5% of the previous year's outstanding UGI stock would be
repurchased at the estimated then current market price, although UGI has no
present plan or intention to implement such stock buyback. Any remaining cash
is assumed to be invested at a short-term interest rate of 4.4%. We did not
prepare a combined financial forecast for fiscal year 1999 as we believe it
would not be indicative of ongoing operations because it would only represent
three months of combined operations.
<TABLE>
<CAPTION>
Millions
----------------------------------------------------
Cash
Available for Shares
Fiscal Year Investment Sales EBITDA Net Income Outstanding EPS
----------- ------------- ----- ------ ---------- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
2000 $362.0 $7,741.2 $450.2 $114.3 65.6 $1.74
2001 510.6 8,053.6 508.9 150.2 65.6 2.29
2002 539.4 8,312.2 535.6 161.5 62.3 2.59
2003 570.5 8,580.6 558.1 169.3 59.2 2.86
2004 607.1 8,859.3 583.4 177.6 56.3 3.16
</TABLE>
UGI and Unisource Combined--Business Expansion
We also prepared combined financial forecasts reflecting investing excess
cash in core business expansion and acquisitions, rather than in the stock buy-
back and the short-term cash investments. If excess cash were invested at an
after-tax return of 6% in 2000, 8% in 2001 and 10% thereafter, the combined
financial forecasts would be as follows:
<TABLE>
<CAPTION>
Millions
------------------------------------------------------
Shares
Fiscal Year EBITDA Net Income Outstanding EPS
----------- ------ ---------- ----------- ---
<S> <C> <C> <C> <C>
2000 $456.8 $118.8 65.6 $1.81
2001 544.3 173.8 65.6 2.65
2002 609.2 210.0 65.6 3.20
2003 663.9 237.8 65.6 3.62
2004 724.5 268.9 65.6 4.10
</TABLE>
The Unisource forecasts for fiscal years 2000 and 2001 and the UGI forecasts
were prepared for internal budgeting and planning purposes only and not with a
view to public disclosure or compliance with published guidelines of the SEC or
the guidelines established by the American Institute of Certified Public
Accountants (AICPA) regarding projections or forecasts. The Unisource forecasts
for fiscal years 2002 through 2004 were prepared in connection with the
proposed combination of Unisource and UGI only and not with a view
43
<PAGE>
to public disclosure or compliance with these guidelines. Accordingly, the
Unisource forecasts for fiscal years 2002 through 2004 did not include the same
in-depth level of analysis as the fiscal year 2000 and fiscal year 2001
forecasts, but were, however, based on assumptions management considers
reasonable. While presented with numerical specificity, the forecasts are based
upon a variety of assumptions relating to the business of the respective
companies and are inherently subject to significant uncertainties and
contingencies that are beyond the control of the managements of UGI or
Unisource, including the impact of general economic and business conditions,
the competitive environment in which each operates and other factors. See
"Disclosure Regarding Forward-Looking Statements" on page and "Risk Factors"
on page . Accordingly, actual results may differ materially from those
forecasted. Although the UGI and Unisource boards of directors were provided
with these internal financial forecasts, the forecasts were only one of many
items they considered.
The inclusion of the forecasts herein should not be regarded as a
representation by UGI, Unisource or any other person that such forecasts are or
will prove to be correct. As a matter of course, neither Unisource nor UGI
makes public projections or forecasts of its anticipated financial position or
results of operations. Except to the extent required under applicable
securities laws, neither UGI nor Unisource intends to make publicly available
any update or other revisions to any of the forecasts to reflect circumstances
existing after the respective dates of preparation of such forecasts.
Interests of Officers and Directors in the Merger
In considering the recommendation of the Unisource board in favor of the
merger and the UGI board of directors in favor of the share issuance,
stockholders should be aware that certain members of each company's board of
directors and management have interests in the merger that are different from,
and in addition to, the interests of such company's stockholders. The Unisource
board of directors was aware of such interests and considered them, among other
matters, when approving the merger. The UGI board of directors was aware of
such interests and considered them, among other matters, when approving the
share issuance in connection with the merger.
Directors and Officers
The merger agreement provides that four of the ten directors on the board of
the combined company will be designated by Unisource from among the current
members of the Unisource board and that five of the ten directors on the board
of the combined company will be designated by UGI from among the current
members of the UGI board. The remaining member of the combined company's board
will be James W. Stratton, who currently is a member of the board of directors
of both companies. Ray B. Mundt, Unisource's current chairman and chief
executive officer, who directed the merger negotiations for Unisource and voted
to approve the merger, will serve as one of the Unisource director designees to
the combined company's board. The merger agreement provides that Lon R.
Greenberg, UGI's current chairman, president and chief executive officer, will
hold those positions in the combined company. See "Board of Directors and
Management Following the Merger."
Indemnification and Insurance
Under the merger agreement, the combined company will:
. indemnify and hold harmless present or former directors, officers and
employees of Unisource or its subsidiaries for all acts or omissions
occurring prior to the closing of the merger connected to his/her duties
as a director, officer or employee or to the transactions contemplated by
the merger agreement and
. provide, for a period of six years after the closing of the merger, an
insurance policy that provides Unisource's officers and directors in
office immediately prior to the closing of the merger with at least the
same coverage as that provided by Unisource's policy in effect as of
February 28, 1999 to the extent that the expenditures in any one year
necessary to provide such coverage do not exceed 200% of the annual
premiums currently paid by Unisource.
44
<PAGE>
Severance; Letter Agreements with Key Employees
Unisource and six of its executive officers are parties to letter
agreements which will remain in effect following the closing of the merger.
Among other things, the letter agreements provide for:
. a lump sum severance benefit based on a specified multiple (either 1.5 or
2.0 times) of current salary and bonus plus the payment of certain fringe
benefits; and
. the acceleration of options granted to such officers
in the event of a termination of employment by the combined company without
"cause" as such term is defined in the letter agreements or resignation by the
executive officer for "good reason" as such term is defined in the letter
agreements, in each case within two years after a "change in control" as such
term is defined in the letter agreements. The merger will constitute a change
in control under the letter agreements.
The maximum Unisource severance benefit (in addition to certain non-
quantifiable fringe benefits and perquisites) which could be payable under the
letter agreements to each of the six Unisource executive officers listed in
the table below is as follows:
<TABLE>
<CAPTION>
Maximum
Aggregate Unisource
Individual Severance Benefit
---------- ------------------- ---
<S> <C> <C>
Mr. Richard H. Bogan............................... [Numbers to come]
Ms. Kathleen M. Burns..............................
Mr. Thomas A. Decker...............................
Mr. Robert M. McLaughlin...........................
Mr. George D. Timchal..............................
Mr. Kenneth F. Vuylsteke...........................
</TABLE>
UGI and certain of its executive officers are parties to agreements which
will remain in effect following the closing of the merger. Among other things,
each agreement provides for a lump sum payment based on a specified multiple
(1.0, 1.5 or, in the case of Mr. Greenberg, 2.5 times) of the executive's 5-
year average compensation in the event of either a termination of employment
by the combined company without "cause," as such term is defined in the
agreement, or resignation by the executive officer for "good reason," as such
term is defined in the agreement, in each case within three years after a
"change in control" as such term is defined in the agreement. The merger will
constitute a "change in control" under the agreement unless the
executive/nominating committee of the UGI board determines, immediately prior
to the closing of the merger, that the circumstances do not warrant payment
under the agreements. The executive/nominating committee has not yet
determined whether the circumstances of the merger warrant payment under the
agreements.
The amounts which could be payable under the agreements to the UGI
executive officers listed in the table below are as follows:
<TABLE>
<CAPTION>
Payment under
Change of Control
Individual Agreement
---------- -----------------
<S> <C>
Mr. Lon R. Greenberg..................................... [Numbers to come]
Mr. Brendan P. Bovaird...................................
Mr. Robert J. Chaney.....................................
Mr. Michael J. Cuzzolina.................................
Mr. Bradley C. Hall......................................
Mr. Anthony J. Mendicino.................................
</TABLE>
UGI's stock option plans do not provide for accelerated vesting in the
event of a "change of control."
45
<PAGE>
The UGI 1997 Directors' Equity Compensation Plan provides for annual awards
to directors of units representing an interest equivalent to one share of UGI
common stock. When a director terminates service on the UGI board of directors,
the units are paid out in shares of common stock. The merger will constitute a
"change of control" under the Plan and unless the compensation and management
development committee of the UGI board of directors determines otherwise, all
accrued units will be immediately paid out in cash to all directors.
Awards of Restricted Stock under Unisource's Incentive Compensation Plan
Upon the closing of the merger, 107,979 shares of Unisource common stock
granted to the following employees as long-term incentive awards pursuant to
Unisource's Incentive Compensation Plan will vest:
<TABLE>
<CAPTION>
Number of
Shares
Employee which Vest
-------- ----------
<S> <C>
Hugh G. Moulton................................................. 8,333
Richard H. Bogan................................................ 12,114
Thomas A. Decker................................................ 10,979
George D. Timchal............................................... 2,268
Kenneth F. Vuylsteke............................................ 2,457
Kathleen M. Burns............................................... 5,000
Robert M. McLaughlin............................................ 5,000
Other Employees................................................. 61,828
</TABLE>
Immediately prior to the closing of the merger, the other 264,945 shares of
Unisource common stock granted as long-term incentive awards pursuant to
Unisource's Incentive Compensation Plan will be cancelled.
Accounting Treatment
The merger will be accounted for as a reverse acquisition because the
stockholders of Unisource will receive a majority of the voting rights in the
combined company. For accounting purposes, UGI will be treated as the acquired
company and Unisource will be considered to be the acquiring company. We will
allocate the purchase price for the UGI common stock being purchased by the
Unisource stockholders to the identifiable assets and liabilities of UGI based
upon their fair values. The purchase price in excess of the fair value of the
assets and liabilities of UGI, if any, will be recorded as goodwill. The cash
portion of the merger consideration, which is payable in lieu of any fractional
shares, will be accounted for as a dividend by the combined company. The amount
of the purchase price that we will allocate to the net assets of the utility
and energy marketing businesses held for sale will be the expected sales
proceeds (less estimated costs to sell) plus cash flows we expect these
businesses to generate during the period prior to disposal. The operating
results of UGI (excluding those of the utility and energy marketing businesses
held for sale) will be combined with the results of Unisource from the date of
the merger. The historical results of the combined company for periods prior to
the merger will be those of Unisource.
Federal Income Tax Consequences of the Merger
The following is a discussion of the material federal income tax
consequences of the merger to the holders of Unisource common stock and to UGI
and is based on the opinions of Weil, Gotshal & Manges LLP, counsel to UGI, and
Davis Polk & Wardwell, counsel to Unisource. The opinions are based upon
current provisions of the United States Internal Revenue Code of 1986, as
amended (the "Code"), existing regulations promulgated under the Code and
current administrative rulings and court decisions, all of which are subject to
change. No attempt has been made to comment on all federal income tax
consequences of the merger that may be relevant to particular holders,
including holders that are subject to special tax rules, for example, dealers
in securities, foreign persons, mutual funds, insurance companies, tax-exempt
entities and holders who do not hold their shares as capital assets. Holders of
Unisource common stock are advised to consult their own tax advisors
46
<PAGE>
regarding the federal income tax consequences of the merger in light of their
personal circumstances and the consequences under applicable state, local and
foreign tax laws.
Neither UGI nor Unisource intends to secure a ruling from the Internal
Revenue Service with respect to the tax consequences of the merger. UGI has
received from its counsel, Weil, Gotshal & Manges LLP, an opinion to the effect
that, based on the law as in effect as of the date hereof, the merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code and that UGI, Vulcan Acquisition Corp. and
Unisource will not recognize any gain or loss as a result of the merger.
Unisource has received from its counsel, Davis Polk & Wardwell, an opinion to
the effect that, based on the law as in effect as of the date hereof, the
merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that no gain or loss will
be recognized by a holder of Unisource common stock upon receipt of UGI common
stock in exchange for shares of Unisource common stock in connection with the
merger, except with respect to cash received by such holder in lieu of
fractional shares. It is a condition to the closing of the merger that each
party's counsel redeliver the opinions described above, based on the law in
effect as of the effective time of the merger. In rendering their opinions,
counsel to each of UGI and Unisource have relied upon particular factual
representations made by UGI and Unisource.
Assuming the merger is treated as a reorganization within the meaning of
Section 368(a) of the Code:
. no gain or loss will be recognized for federal income tax purposes by
UGI, Vulcan Acquisition Corp. or Unisource as a result of the merger;
. except as described below with respect to cash received in lieu of
fractional shares, a holder of Unisource common stock will not recognize
gain or loss on the exchange of shares of Unisource common stock for UGI
common stock in the merger;
. the aggregate tax basis of the UGI common stock received by a holder of
Unisource common stock, including any fractional share deemed received,
will be the same as the aggregate tax basis of the Unisource common stock
surrendered for the UGI common stock; and
. the holding period for capital gains purposes of the UGI common stock
received by a holder of Unisource common stock, including any fractional
share deemed received, will include the holding period of the Unisource
common stock surrendered for the UGI common stock, provided that the
shares of Unisource common stock are held as capital assets at the
effective time of the merger.
Cash In Lieu of Fractional Shares.
Cash received by a holder of Unisource common stock in lieu of a fractional
share of UGI common stock will be treated as received in exchange for such
fractional share interest, and gain or loss will be recognized for federal
income tax purposes, measured by the difference between the amount of cash
received and the portion of the basis of the Unisource common stock allocable
to the fractional share interest. The gain or loss will be capital gain or loss
provided that the shares of Unisource common stock were held as capital assets
and will be long term capital gain or loss if the shares of Unisource common
stock were held for more than one year at the effective time of the merger.
Backup Withholding.
Under the Code, a holder of Unisource common stock may be subject, under
certain circumstances, to backup withholding at a rate of 31% with respect to
the amount of cash, if any, received in lieu of fractional share interests
unless the holder provides proof of an applicable exemption or a correct
taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholding rules. Any amounts withheld under the
backup withholding rules are not an additional tax and may be refunded or
credited against the holder's federal income tax liability if the required
information is furnished to the Internal Revenue Service.
47
<PAGE>
Regulatory Filings And Approvals
Unisource and UGI may not close the merger unless the waiting periods under
the antitrust laws of the United States, Canada and Mexico expire or are
terminated by the applicable regulatory authority. Unisource and UGI believe
that these waiting periods will expire or terminate prior to the special
meetings. However, it is not certain that these waiting periods will expire or
terminate by this time, and these antitrust regulatory authorities may impose
unfavorable conditions prior to the expiration or termination of these waiting
periods. There can be no assurance that a challenge to the merger on antitrust
grounds will not be made or that, if such a challenge is made, it would not be
successful.
Restrictions on Sales of Shares of UGI Common Stock by Affiliates of Unisource
The shares of UGI common stock to be issued in connection with the merger
will be registered under the Securities Act of 1933 and will be freely
transferable under the Securities Act, except for shares of UGI common stock
issued to any person who is deemed to be an "affiliate" of Unisource at the
time of its special meeting. Persons who may be deemed to be affiliates of
Unisource include individuals or entities that control, are controlled by, or
are under common control with Unisource and may include some officers,
directors and principal stockholders of Unisource. Affiliates of Unisource may
not sell their shares of UGI common stock acquired in connection with the
merger except pursuant to:
. an effective registration statement under the Securities Act covering the
resale of those shares;
. an exemption under paragraph (d) of Rule 145 under the Securities Act; or
. any other applicable exemption under the Securities Act.
UGI's registration statement on Form S-4, of which this Joint Proxy
Statement/Prospectus forms a part, does not cover the resale of shares of UGI
common stock to be received by the Unisource affiliates in the merger. The
merger agreement requires Unisource to use its reasonable best efforts to cause
each of its affiliates to execute a letter agreement prior to the closing of
the merger to the effect that such affiliates will not offer or sell or
otherwise dispose of any of the shares of UGI common stock issued to such
affiliates in the merger in violation of the Securities Act.
Dissenters' Rights
Neither Unisource stockholders nor UGI stockholders have dissenters' rights
of appraisal or other rights to demand the fair value in cash for their shares
by reason of the merger or other transactions contemplated by the merger
agreement.
Stock Exchange Listing
It is a condition to the merger that the NYSE authorize for listing the
shares of UGI common stock in connection with the merger. In addition, UGI
intends to list such shares on the Philadelphia Stock Exchange, effective upon
the completion of the merger.
48
<PAGE>
THE MERGER AGREEMENT
Effective Time
Promptly after the satisfaction or waiver of the conditions to the merger
set forth in the merger agreement, we will file a certificate of merger with
the Secretary of State of Delaware. The effect of this filing is that Vulcan
Acquisition Corp. will merge with and into Unisource, and Unisource will become
a direct, wholly-owned subsidiary of UGI.
Merger Consideration
Upon the closing of the merger, each outstanding share of Unisource common
stock, other than shares of Unisource common stock held by UGI, Unisource or
UGI's subsidiaries, will be converted into the right to receive 0.566 shares of
UGI common stock, together with cash in lieu of any fractional shares of UGI
common stock.
Unisource Stock Options and Restricted Stock
Upon the closing of the merger, each Unisource stock option will convert
automatically into an option to purchase the number of shares of UGI common
stock equal to the number of shares of Unisource common stock subject to such
Unisource stock option multiplied by the exchange ratio, at an exercise price
per share of UGI common stock equal to the current exercise price per share of
Unisource common stock divided by the exchange ratio.
Likewise, each share of Unisource restricted common stock outstanding
immediately prior to the closing of the merger will automatically be converted
into 0.566 shares of UGI common stock and, except for awards of 107,979 shares
of Unisource restricted common stock made under Unisource's Incentive
Compensation Plan, which will vest upon the closing of the merger, and the
other awards of shares of Unisource restricted common stock made under
Unisource's Incentive Compensation Plan, which will be cancelled immediately
prior to the closing of the merger, will be subject to the same restrictions
applicable to the shares of Unisource restricted common stock immediately prior
to the merger.
Exchange of Unisource Common Stock
UGI will appoint an exchange agent to handle the exchange of Unisource stock
certificates in the merger and the payment of cash for fractional shares. Soon
after the closing of the merger, the exchange agent will send to each holder of
Unisource common stock a letter of transmittal for use in the exchange and
instructions explaining how to surrender Unisource stock certificates to the
exchange agent. Holders of Unisource common stock who surrender their
certificates to the exchange agent, together with a properly completed letter
of transmittal, will receive the appropriate merger consideration. Holders of
unexchanged Unisource stock certificates will not be entitled to receive any
dividends payable by UGI after the closing of the merger until their
certificates are surrendered. Unisource stockholders should not return stock
certificates with the enclosed proxy.
Representations and Warranties and Covenants
Representations and Warranties
UGI and Unisource have made various customary mutual representations and
warranties in the merger agreement about themselves and their subsidiaries.
Conduct of Business by UGI and Unisource
Unisource and UGI have agreed in the merger agreement that, prior to the
closing of the merger, they will conduct their respective businesses, and that
of their subsidiaries, in the ordinary course of business and in a manner
consistent with past practice. Each of Unisource and UGI has agreed to try to
preserve its and its
49
<PAGE>
subsidiaries' business organizations, keep available the services of its
present officers and employees and preserve its relationships with customers,
suppliers and others with which it has business relations. In particular, each
party has agreed in the merger agreement not to engage, directly or indirectly,
in specified material transactions between the date of execution of the merger
agreement and the closing of the merger without the consent of the other party.
No Solicitation
Each of UGI and Unisource has agreed not to directly or indirectly solicit
or knowingly encourage a third party to make a proposal to it regarding any
merger, consolidation, share exchange, business combination, recapitalization
or similar transaction, including any tender or exchange offer in which such
third party would acquire more than 20% of its equity securities or a sale or
other disposition of all or substantially all of its assets.
If, prior to the time of its stockholder meeting, either Unisource or UGI
receives any written proposal for an alternative transaction which its board of
directors determines, after consultation with its financial advisor, is
reasonably likely to be consummated and would result in a transaction that is
superior from a financial point of view to its stockholders than the merger, it
may furnish information to, and enter into negotiations with, the party making
the superior proposal, provided that, based upon the advice of its independent
legal counsel, its board of directors has determined that each such action is
necessary to comply with its fiduciary duties.
Duty to Recommend.
Unisource has agreed in the merger agreement to recommend to its
stockholders the adoption of the merger agreement. UGI has agreed in the merger
agreement to recommend to its stockholders the approval of the issuance of UGI
common stock in connection with the merger. Neither board of directors is
permitted by the merger agreement to withdraw or modify its recommendation
unless it determines in good faith, taking into account all legal and financial
aspects, that such action would be necessary to comply with its fiduciary
duties.
Consents and Approvals.
UGI and Unisource have agreed to make all filings, including those under the
Hart-Scott-Rodino Act, and to use their reasonable best efforts to obtain all
consents and approvals required in connection with the authorization, execution
and delivery of the merger agreement and the closing of the transactions
contemplated by the merger agreement.
Indemnification and Insurance.
See "Interests of Officers and Directors in the Merger."
Employee Benefits.
Following the merger, the combined company will honor Unisource's and all of
Unisource's subsidiaries' employment, collective bargaining, consulting,
termination, severance, change in control and indemnification agreements with
any current or former officer, director, consultant or employee. In addition,
for six months following the closing of the merger, the combined company will
provide, for the benefit of the employees of Unisource and its subsidiaries,
compensation and benefits which in the aggregate are not materially less
favorable than those provided to employees of Unisource and its subsidiaries.
Expenses.
Whether or not the merger is consummated, all expenses incurred in
connection with the merger agreement and the transactions contemplated by the
merger agreement will be paid by the party incurring such
50
<PAGE>
expenses, except that the costs of filing, printing and mailing the Joint Proxy
Statement/Prospectus will be shared equally by UGI and Unisource and, as
described under "Effect of Termination," UGI or Unisource would be obligated to
reimburse the other party for up to $5,000,000 of expenses incurred by the
other party in connection with the merger agreement if the merger agreement is
terminated because it breaches its covenants or representations and warranties.
Conditions to the Merger
Conditions to Obligation of Each Party to Close the Merger.
Each of UGI's and Unisource's respective obligations to close the merger are
subject to the satisfaction of the following conditions:
. Effectiveness of the Registration Statement. The SEC has not issued any
stop order suspending the effectiveness of the registration statement of
which this document is a part, nor has it started or threatened any
proceedings for that purpose;
. Stockholder Approval. The Unisource stockholders have adopted the merger
agreement and the UGI stockholders have approved the issuance of the UGI
common stock in connection with the merger;
. Listing. The UGI common stock to be issued in connection with the merger
has been approved for listing on the New York Stock Exchange;
. Antitrust. Any waiting period applicable to the merger under the Hart-
Scott-Rodino Act has expired or been terminated; and
. Government Actions. No law or court order prohibits the closing of the
merger or permits the closing subject to conditions or restrictions that
have had or are reasonably expected to have, individually or in the
aggregate, a material adverse effect on Unisource and its subsidiaries,
taken as a whole.
Additional Conditions to the Obligation of UGI to Close the Merger.
The obligation of UGI to close the merger is also subject to the following
conditions:
. Representations and Warranties. Except as would not reasonably be
expected to have, individually or in the aggregate, a material adverse
effect on Unisource and its subsidiaries, taken as a whole, the
representations and warranties of Unisource in the merger agreement are
true and correct as of the closing of the merger;
. Covenants. Unisource has complied in all material respects with all
covenants required to be complied with by it under the merger agreement;
and
. Tax Opinion. UGI has received the written opinion of Weil, Gotshal &
Manges LLP with respect to the tax-free nature of the merger.
Additional Conditions to Obligation of Unisource to Close the Merger.
The obligation of Unisource to close the merger is also subject to the
following conditions:
. Representations and Warranties. Except as would not reasonably be
expected to have, individually or in the aggregate, a material adverse
effect on UGI and its subsidiaries, taken as a whole, the
representations and warranties of UGI contained in the merger agreement
are true and correct as of the closing of the merger;
. Covenants. UGI has complied in all material respects with all covenants
required to be complied with by it under the merger agreement; and
. Tax Opinion. Unisource has received the written opinion of Davis Polk &
Wardwell with respect to the tax-free nature of the merger.
51
<PAGE>
Termination
Conditions to Termination.
The merger agreement may be terminated at any time prior to the closing of
the merger, notwithstanding the adoption by the Unisource stockholders of the
merger agreement and the approval by the UGI stockholders of the issuance of
UGI common stock in connection with the merger:
. by mutual written consent of the boards of directors of both Unisource
and UGI;
. by either of UGI or Unisource if:
. the merger has not been consummated by September 30, 1999;
. the Unisource stockholders reject the merger at the Unisource
stockholder meeting;
. the UGI stockholders reject the issuance of UGI common stock at the
UGI stockholder meeting;
. a law or court order permanently prohibits the merger;
. the other party's board of directors withdraws or modifies its
recommendation of the merger or share issuance in a manner adverse to
the terminating party;
. prior to the approval of the merger agreement or share issuance by
its stockholders, either party's board of directors, as required by
its fiduciary duties, decides to accept an acquisition proposal made
by a third party that offers its stockholders greater value than the
merger; or
. the other party breaches any representation, warranty, covenant or
agreement contained in the merger agreement and such breach cannot be
cured and would cause a condition to the terminating party's
obligation to the merger to be incapable of being satisfied by
September 30, 1999.
Effect of Termination.
In the event the merger agreement is terminated due to breaches of covenants
or representations and warranties, the breaching party will pay to the other
party all documented expenses up to $5,000,000 incurred by the other party in
connection with the merger agreement.
In addition, the merger agreement requires Unisource and UGI to pay the
other party a $25,000,000 fee if the merger agreement is terminated because:
. prior to approval of the merger agreement or share issuance by its
stockholders, its board of directors decides to accept an acquisition
proposal made by a third party that offers its stockholders greater
value than the merger;
. its board of directors withdraws or adversely modifies its approval
or recommendation of the merger agreement or share issuance; or
. its stockholders reject the merger agreement or share issuance or it
willfully breaches the merger agreement; and
a competing acquisition proposal for it exists at the time of its
stockholder meeting or at the time the merger agreement is terminated;
and
it agrees to an acquisition proposal with any party within six months
of the termination of the merger agreement or with the party that made
the acquisition proposal within nine months of the termination of the
merger agreement.
Notwithstanding the foregoing, in no event will the fees and expenses paid
as a result of a termination of the merger agreement exceed $25,000,000 in the
aggregate.
Amendments
UGI and Unisource may amend the merger agreement at any time prior to
closing of the merger; provided, however, that after approval of the merger by
the Unisource stockholders and the approval of the issuance of UGI common stock
by the UGI stockholders, the merger agreement cannot be amended without
stockholder approval if stockholder approval for such amendment is required by
law.
52
<PAGE>
UNISOURCE SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The table below provides you with selected historical consolidated financial
information of Unisource. Unisource has prepared this information using the
consolidated financial statements of Unisource for each of the fiscal years in
the five-year period ended September 30, 1998 and for the three-month periods
ended December 31, 1997 and 1998. The financial statements for each of the
fiscal years in the five-year period ended September 30, 1998 and as of
September 30, 1995, 1996, 1997 and 1998 have been audited by Ernst & Young LLP,
independent auditors. The balance sheet information as of September 30, 1994 is
derived from unaudited financial statements. The financial statements for the
three-month periods ended December 31, 1997 and 1998 have not been audited.
When you read the selected historical consolidated financial information of
Unisource, you should consider reading along with it the historical
consolidated financial statements and related notes in Unisource's annual and
quarterly reports as filed with the Securities and Exchange Commission. See
"Where to Find More Information" on page .
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended September 30,(1) December 31,
--------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- --------
(Millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Information:
Revenues................ $5,756.5 $6,987.3 $7,022.8 $7,108.4 $7,417.3 $1,869.1 $1,680.5
Cost of goods sold...... 4,825.7 5,925.2 5,896.2 5,911.8 6,149.3 1,546.1 1,376.1
Inventory writedown
(2).................... -- -- -- -- 23.0 -- --
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 930.8 1,062.1 1,126.6 1,196.6 1,245.0 323.0 304.4
Selling and
administrative
expenses............... 782.3 855.8 942.1 1,051.9 1,156.0 286.3 281.1
Special charges (2):
Information technology
write-off............. -- -- -- -- 168.0 168.0 --
Restructuring and
implementation costs.. -- -- 50.0 -- 108.5 -- 3.0
Mexico valuation
charge................ -- -- -- -- 70.0 -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations............. 148.5 206.3 134.5 144.7 (257.5) (131.3) 20.3
Interest expense........ 26.2 33.6 31.5 41.6 45.5 12.1 11.4
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
cumulative effect of
accounting change...... 122.3 172.7 103.0 103.1 (303.0) (143.4) 8.9
Provision (benefit) for
income taxes........... 47.8 67.5 43.0 44.4 (71.2) (42.8) 3.8
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of
accounting change...... 74.5 105.2 60.0 58.7 (231.8) (100.6) 5.1
Cumulative effect of
change in method of
accounting for taxes... 14.0 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 88.5 $ 105.2 $ 60.0 $ 58.7 $ (231.8) $ (100.6) $ 5.1
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
share--basic (3)....... -- -- -- $ 0.88 $ (3.36)(2) $ (1.47)(2) $ 0.07(2)
Earnings (loss) per
share--diluted (3)..... -- -- -- $ 0.87 $ (3.36)(2) $ (1.47)(2) $ 0.07(2)
Weighted average shares
outstanding--basic..... -- -- -- 67.0 68.9 68.6 69.9
Weighted average shares
outstanding--diluted... -- -- -- 67.6 68.9 68.6 70.0
Cash dividends per
share.................. -- -- -- 0.60 0.80 0.20 0.05
Balance Sheet
Information:
Working capital......... $ 549.8 $ 815.1 $ 750.8 $ 667.4 $ 466.0 $ 679.5 $ 467.2
Total assets............ 1,720.0 2,019.0 2,191.7 2,558.8 1,966.7 2,206.8 1,861.8
Total debt.............. 75.2 71.0 60.3 806.9 510.0 708.8 504.2
Total stockholders'
equity................. 353.5 415.9 935.5 984.4 698.4 860.3 699.9
Other Financial
Information:
EBITDA before special
charges (4)............ $ 181.0 $ 239.7 $ 224.5 $ 191.5 $ 170.2 $ 50.8 $ 36.9
Net cash provided by
(used in) operating
activities............. 94.5 (66.6) 205.9 161.1 201.3 (5) (33.6)(5) (17.9)
Capital expenditures.... 33.9 50.1 35.8 25.3 29.7 8.6 2.7
Depreciation and
amortization........... 32.5 33.4 40.0 46.8 58.2 14.1 13.6
Selling and
administrative expense
(excluding special
charges) - % of gross
profit 84.0 80.6 83.6 87.9 91.2 88.6 92.3
</TABLE>
53
<PAGE>
- --------
(1) The financial statements and notes for periods prior to fiscal year 1998
are not strictly comparable to those subsequent to fiscal year 1997 because
prior to December 31, 1996, the consolidated financial statements include
the assets, liabilities, revenues and expenses of Unisource as a wholly-
owned subsidiary of IKON, and the assets, liabilities, revenues and
expenses of certain operations that were contributed to Unisource by IKON
on October 1, 1995.
(2) The loss per common share for Unisource for the year ended September 30,
1998 includes the impact of the following special charges:
<TABLE>
<CAPTION>
Pre-Tax After-Tax Loss Per
Charge Charge Share
------- --------- --------
(Millions, except per
share amounts)
<S> <C> <C> <C>
Charges related to streamlining Unisource's
organizational structure:
Severance and facility closures............... $108.5 $ 69.7 $(1.00)
Inventory write-downs (included in cost of
sales)....................................... 23.0 14.9 (0.22)
Valuation charge related to Unisource's Mexico
operations..................................... 70.0 70.0 (1.01)
Write-off of Unisource's capitalized information
technology development and related costs....... 168.0 109.2 (1.60)
Tax charge associated with the sale of a
significant portion of Unisource's U.S.-based
grocery supply systems business................ -- 5.7 (0.08)
------ ------ -------
Total........................................... $369.5 $269.5 $(3.91)
====== ====== =======
</TABLE>
Special charges include the information technology write off of $168.0
($109.2 after-tax and $(1.60) per share) for the three months ended
December 31, 1997 and implementation costs associated with the
restructuring plan of $3.0 ($1.7 after-tax and $(0.03) per share) for the
three months ended December 31, 1998. Unisource also recorded a $50.0
restructuring charge, $32.5 after-tax, in 1996.
(3) Historical net income (loss) per share is not presented before fiscal year
1997 since Unisource became a separate publicly-owned company effective
December 31, 1996.
(4) EBITDA before special charges represents earnings before interest, income
taxes, depreciation, amortization, special charges, inventory writedown and
cumulative effect of accounting change. EBITDA before special charges is
provided because it is a measure commonly used by analysts and investors to
determine a company's ability to incur and service its debt. EBITDA before
special charges is not a measurement of financial performance under
generally accepted accounting principles and should not be considered an
alternative to net income as a measure of performance or to cash flow as a
measure of liquidity. EBITDA before special charges is not necessarily
comparable with similarly titled measures for other companies.
(5) Excludes $150.0 provided by the sale of accounts receivable under the
domestic asset securitization program.
54
<PAGE>
UGI SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The table below provides you with selected historical consolidated financial
information of UGI. UGI has prepared this information using the consolidated
financial statements of UGI for each of the fiscal years in the five-year
period ended September 30, 1998 and for the three-month periods ended December
31, 1997 and 1998. UGI has derived the consolidated income statement and
balance sheet information below as of and for each of the years in the five-
year period ended September 30, 1998 from financial statements audited by
independent public accountants. UGI has derived the remaining information from
unaudited consolidated financial statements.
When you read the selected historical consolidated financial information of
UGI, you should consider reading along with it the historical consolidated
financial statements and related notes in UGI's annual and quarterly reports as
filed with the Securities and Exchange Commission. See "Where To Find More
Information" on page .
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended September 30, December 31,
---------------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1997 1998
------- -------- -------- -------- -------- -------- --------
(Millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement
Information:
Revenues................ $ 762.2 $ 877.6 $1,557.6 $1,642.0 $1,439.7 $ 471.2 $ 373.7
Cost of sales........... 382.4 438.7 887.1 938.8 756.7 267.3 181.6
------- -------- -------- -------- -------- -------- --------
Gross profit............ 379.8 438.9 670.5 703.2 683.0 203.9 192.1
Operating and
administrative
expenses............... 264.0 331.6 437.5(1) 439.8 437.7 109.0 112.7
Depreciation and
amortization........... 41.8 60.9 86.0 86.1 87.8 21.6 21.7
Other (income), net..... (42.4)(2) (31.9)(3) (12.7) (22.6)(4) (12.7) (4.3) (3.8)
------- -------- -------- -------- -------- -------- --------
Operating income........ 116.4 78.3 159.7 199.9 170.2 77.6 61.5
Interest expense........ (43.3) (59.3) (79.5) (83.1) (84.4) (21.4) (21.2)
Minority interest in
AmeriGas Partners...... -- 19.7 (4.3) (18.3) (8.9) (11.1) (7.4)
Equity in Petrolane
(5).................... (1.0) (5.3) -- -- -- -- --
Income tax expense...... (33.4) (22.7)(6) (33.6) (43.6) (34.4) (19.6) (14.5)
Dividends on UGI
Utilities preferred
stock.................. (1.3) (2.8) (2.8) (2.8) (2.2) (0.7) (0.4)
------- -------- -------- -------- -------- -------- --------
Income from continuing
operations............. $ 37.4 $ 7.9 $ 39.5 $ 52.1 $ 40.3 $ 24.8 $ 18.0
Income from discontinued
operations............. $ 7.6 (7) $ -- $ -- $ -- $ -- $ -- $ --
Net income (loss)....... $ 45.0 $ (8.4)(8) $ 39.5 $ 52.1 $ 40.3 $ 24.8 $ 18.0
Basic earnings (loss)
per share:
Continuing operations.. $ 1.16 $ 0.24 $ 1.19 $ 1.58 $ 1.22 $ 0.75 $ 0.55
Discontinued
operations............ $ 0.24 (7) $ -- $ -- $ -- $ -- $ -- $ --
Net income (loss)...... $ 1.40 $ (0.26)(8) $ 1.19 $ 1.58 $ 1.22 $ 0.75 $ 0.55
Diluted earnings (loss)
per share:
Continuing operations.. $ 1.16 $ 0.24 $ 1.19 $ 1.57 $ 1.22 $ 0.75 $ 0.55
Discontinued
operations............ $ 0.23 (7) $ -- $ -- $ -- $ -- $ -- $ --
Net income (loss)...... $ 1.39 $ (0.26)(8) $ 1.19 $ 1.57 $ 1.22 $ 0.75 $ 0.55
Average shares
outstanding--basic..... 32.186 32.694 33.058 33.049 32.971 32.927 32.855
Average shares
outstanding--diluted... 32.274 32.710 33.142 33.132 33.123 33.081 32.939
Cash dividends declared
per share.............. $ 1.36 $ 1.39 $ 1.41 $ 1.43 $ 1.45 $ 0.36 $ 0.365
Balance Sheet
Information:
Cash and short-term
investments............ $ 77.4 $ 132.7 $ 97.1 $ 129.4 $ 148.4 $ 152.5 $ 150.7
Total assets............ 1,182.2 2,152.3 2,133.0 2,151.7 2,074.6 2,244.0 2,127.5
Capitalization:
Total debt............. $ 412.5 $ 916.1 $ 941.8 $ 964.0 $ 982.8 $1,038.6 $1,027.3
Minority interest in
AmeriGas Partners..... -- 318.9 284.4 266.5 236.5 267.9 234.2
UGI Utilities preferred
stock................. 35.2 35.2 35.2 35.2 20.0 35.2 20.0
Common stockholders'
equity................ 424.3 380.5 377.6 376.1 367.1 393.6 374.1
------- -------- -------- -------- -------- -------- --------
Total capitalization... $ 872.0 $1,650.7 $1,639.0 $1,641.8 $1,606.4 $1,735.3 $1,655.6
======= ======== ======== ======== ======== ======== ========
Other Financial
Information:
EBITDA (9)............. $ 158.2 $ 139.2 $ 245.7 $ 286.0 $ 258.0 $ 99.2 $ 83.2
Capital expenditures... 50.1 68.8 62.7 68.8 69.2 15.6 16.2
</TABLE>
55
<PAGE>
- --------
(1) Includes reduction in operating expenses of $4.4 from the refund of
insurance premium deposits and $3.3 from a reduction in accrued
environmental costs.
(2) Includes management fee income from Petrolane Incorporated (Petrolane) of
$33.3.
(3) Includes management fee income from Petrolane of $20.5.
(4) Includes $4.7 gain from the sale of the Partnership's 50% equity interest
in Atlantic Energy, Inc. and $3.5 from the sale of UTI Energy common
stock.
(5) Represents UGI's 35% equity interest in Petrolane prior to UGI's April 19,
1995 acquisition of the approximately 65% of Petrolane common shares
outstanding not already owned by UGI. On April 19, 1995, UGI combined the
propane distribution businesses of Petrolane and AmeriGas Propane into
AmeriGas Partners, L.P.
(6) Reflects the write-off of net deferred tax benefits of AmeriGas Propane
and Petrolane totaling $11.7 representing UGI's share of such tax benefits
no longer realizable as a result of the public unitholders' interest in
the Partnership.
(7) Reflects gain from the sale for accounting purposes of UGI's former oil
field service businesses.
(8) Includes extraordinary loss from debt restructuring and loss from
cumulative effect of change in accounting for postemployment benefits of
$(13.2) and $(3.1), or $(0.40) and $(0.10) per share, respectively.
(9) EBITDA (earnings before interest expense, income taxes, depreciation and
amortization) should not be considered as an alternative to net income (as
an indicator of operating performance) or as an alternative to cash flow
(as a measure of liquidity or ability to service debt obligations) and is
not a measure of performance or financial condition under generally
accepted accounting principles.
56
<PAGE>
BOARD OF DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER
Board of Directors
The merger agreement provides that the board of directors of the combined
company will be increased from seven members to ten at the effective time of
the merger. Of these ten members, five will be current members of the UGI board
of directors designated by UGI and four will be current members of the
Unisource board of directors designated by Unisource. The remaining member
currently serves on both the UGI board of directors and the Unisource board of
directors. It is anticipated that after the merger, the board of directors of
the combined company will be comprised of the following ten individuals, who
are all United States citizens:
Current Members of the UGI Board of Directors
Stephen D. Ban
Age 58
Dr. Ban is president and chief executive officer of the Gas Research
Institute (gas industry research and development), a position he has held since
1987. He was formerly executive vice president of Gas Research Institute until
1986 and vice president, Research and Development of Bituminous Materials, Inc.
until 1981. Dr. Ban also serves as a director of UGI Utilities, Inc. and
Energen Corporation.
Thomas F. Donovan
Age 65
Mr. Donovan retired as vice chairman of Mellon Bank on December 31, 1996, a
position he had held since 1988. He continues to serve as an advisory board
member to Mellon Bank. Mr. Donovan also serves as a director of UGI Utilities,
Inc., AmeriGas Propane, Inc., Nuclear Electric Insurance Co., and Merrill Lynch
International Bank, Ltd.
Lon R. Greenberg
Age 48
Mr. Greenberg has been Chairman of the UGI board of directors since August
1996, chief executive officer of UGI since August 1995 and president of UGI
since 1994. He was formerly vice chairman of the UGI board of directors from
1995 to 1996, and senior vice president--legal and corporate development of UGI
from 1989 to 1994. Mr. Greenberg also serves as a director of UGI Utilities,
Inc., AmeriGas Propane, Inc., and the Mellon PSFS Advisory Board.
Marvin O. Schlanger
Age 51
Mr. Schlanger is a principal in the firm of Cherry Hill Chemical
Investments, L.L.C. (October 1998- Present). He was previously president and
chief executive officer (May 1998 to October 1998), executive vice president
and chief operating officer (1994 to May 1998) and a director (1994 to 1998) of
ARCO Chemical Company. He also held the position of senior vice president of
ARCO Chemical Company and President of ARCO Chemical Americas Company (1992 to
1994). Mr. Schlanger also serves as a director of UGI Utilities, Inc. and
Wellman, Inc.
David I.J. Wang
Age 67
In 1991, Mr. Wang retired as executive vice president--Timber and Specialty
Products and a director of International Paper Company, a position he had held
since 1987. Mr. Wang serves as a director of UGI Utilities, Inc. and AmeriGas
Propane, Inc.
57
<PAGE>
Current Members of the Unisource Board of Directors
Gary L. Countryman
Age 59
Mr. Countryman is chairman of the Board of Liberty Mutual Insurance Company
and Liberty Mutual Fire Insurance Company (1998 to Present) and was chairman
and chief executive officer of Liberty Mutual Insurance Company and Liberty
Mutual Fire Insurance Company (1992-1998) and chairman of the board, president
and chief executive officer, Liberty Mutual Insurance Company and Liberty
Mutual Fire Insurance Company (1991-1992). He also serves as a director of Bank
Boston Corporation, Boston Edison and Harcourt General, Inc.
Paul J. Darling II
Age 60
Mr. Darling is chairman, president and chief executive officer of Corey
Steel Company (1984-Present). He also serves as a director of Liberty Mutual
Insurance Company, Liberty Mutual Fire Insurance Company and Liberty Financial
Companies, Inc.
James P. Kelly
Age 55
Mr. Kelly is chairman and chief executive officer (1997-present) of the
United Parcel Services and was vice chairman of UPS (1996-1997), senior vice
president and chief operating officer of UPS (1992-1996) and senior vice
president and National Relations Group Manager of UPS (1988-1992).
Ray B. Mundt
Age 70
Mr. Mundt is chairman and chief executive officer of Unisource (1996-
present). Mr. Mundt has been chairman (1986-1995), chief executive officer
(1980-1993) and president (1974-1988) of Alco Standard. He also serves as a
director of Liberty Mutual Insurance Company and Liberty Financial Companies,
Inc.
Current Member of Both the UGI Board of Directors and the Unisource Board of
Directors,
James W. Stratton
Age 62
Mr. Stratton is the president and chief executive officer of Stratton
Management Company (1972-present), an investment advisory and financial
consulting firm. He is also chairman and chief executive officer of FinDaTex, a
financial services firm. Mr. Stratton serves as a director of UGI Utilities,
Inc., AmeriGas Propane, Inc., Stratton Growth Fund, Stratton Monthly Dividend
Shares, Inc., Stratton Small-Cap Yield Fund and Teleflex, Inc.
Committees of the Board of Directors
The merger agreement provides that at the effective time of the merger at
least one Unisource director designee will be added to each committee of the
combined company's board of directors. The merger agreement also provides that
at the effective time of the merger a Unisource director designee reasonably
acceptable to UGI will be the chairman of the compensation committee and the
audit committee of the combined company's board of directors.
Chief Executive Officer
Lon R. Greenberg will be the chairman, president and chief executive officer
of the combined company following the merger. Ray B. Mundt, the current
chairman and chief executive officer of Unisource, has agreed to serve as a
member of the board of directors of the combined company until the next annual
meeting of stockholders.
58
<PAGE>
COMPARISON OF STOCKHOLDERS RIGHTS
The rights of the Unisource stockholders are governed by Delaware law,
including the Delaware General Corporation Law (the "DGCL"), the Unisource
charter and the Unisource bylaws. The rights of UGI stockholders are governed
by Pennsylvania law, including the Pennsylvania Business Corporation Law (the
"PBCL"), the UGI charter and the UGI bylaws. Upon consummation of the merger,
stockholders of Unisource will become holders of UGI common stock.
Consequently, their rights will be governed by Pennsylvania law.
The following is a summary of some of the material differences between the
rights of the holders of Unisource common stock and the rights of the holders
of UGI common stock. This summary is not complete. For a full description of
the rights of the holders of Unisource and UGI common stock, holders must refer
to Delaware law, Pennsylvania law, the Unisource charter, the Unisource bylaws,
the UGI charter and the UGI bylaws. Copies of the Unisource charter, the
Unisource bylaws, the UGI charter and the UGI bylaws have been filed with the
SEC and will be sent to the holders of Unisource and UGI common stock upon
request. See "Where To Find More Information" on page .
<TABLE>
- -----------------------------------------------------------------------------------------
<CAPTION>
Stockholder Right Unisource UGI
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Approval of Mergers and Certain Actions by stockholders to Actions by stockholders to
Asset Sales effect mergers or sales of effect mergers or sales of
all or substantially all all or substantially all of
of the assets of the the assets of the company
company require the require approval by a
approval of holders of a majority of the votes cast
majority of the by the holders entitled to
outstanding stock. vote.
- -----------------------------------------------------------------------------------------
Members of the Board of Classified board with All directors are elected
Directors three classes of annually.
approximately even number.
Each director is elected
for a term of three years.
- -----------------------------------------------------------------------------------------
Removal of Directors Directors can be removed Directors may be removed
only for cause, and then only for cause, either by
only with the affirmative unanimous written consent
vote of the holders of or by majority vote at a
two-thirds of the meeting.
outstanding stock.
- -----------------------------------------------------------------------------------------
Amendment to Bylaws Bylaws may be amended at The stockholders may not
any meeting of directors amend the bylaws without
or stockholders. However, the approval of the board.
amendment of certain The board can amend the
sections of the bylaws, bylaws by majority vote.
including those regarding
special meetings, notice
provisions, actions by
written consent, election
of directors,
indemnification provisions
and amendment of bylaws
require a two-thirds vote
of the outstanding common
stock.
</TABLE>
- --------------------------------------------------------------------------------
59
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------
<CAPTION>
Stockholder Right Unisource UGI
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Calling of Special Meeting of Special meetings of Special meetings of
Stockholders stockholders of Unisource stockholders of UGI cannot
cannot be called by be called by stockholders,
stockholders except in the case of an
"Interested Stockholder"
who wants to call a meeting
for the purpose of voting
on the type of business
combination described in
PBCL Sections 2-555(3) and
(4).
- ----------------------------------------------------------------------------------------
Amendment to Charter Amendments to the charter Amendments to the charter
generally require the require the approval of
approval of holders of a holders of a majority of
majority of the the votes cast by the
outstanding stock. holders entitled to vote.
However, amendments to
certain provisions of the
charter, including those
related to the nomination,
election and removal of
directors, the calling of
special meetings and the
prohibition against action
by written consent,
require the approval of
holders of two-thirds of
the outstanding stock.
- ----------------------------------------------------------------------------------------
</TABLE>
Dividend Rights
Unisource. Under the DGCL, a corporation may pay dividends out of surplus
or, if no surplus exists, out of net profits for the fiscal year in which such
dividends are declared and/or of its preceding fiscal year. However dividends
may not be paid out of these net profits if the capital of the corporation is
less than the aggregate amount of capital represented by the outstanding stock
of all classes having a preference upon the distribution of assets. The
Unisource bylaws provide that, subject to the provisions of the DGCL and the
Unisource charter, dividends may be declared at any regular or special meeting
of the Unisource board of directors. Dividends may be paid in cash, property,
or in shares of capital stock. Before declaring dividends, the board of
directors can set aside funds for a reserve to meet contingencies, subject to
the rights of preferred stockholders, if any.
UGI. Under the PBCL, a corporation is prohibited from making a distribution
to stockholders if doing so would leave that corporation unable to pay its
debts as they become due in the usual course of business, or the diminished
total assets of such corporation would impair the rights of stockholders having
senior rights upon dissolution. For the purpose of determining whether or not
the senior rights would be impaired, the board of directors may base its
determination on one or more of the following: the book value, or the current
value, of the corporation's assets and liabilities, unrealized appreciation and
depreciation of the corporation's assets and liabilities or any other method
that is reasonable in the circumstances. The UGI charter provides that
stockholders may receive dividends out of any surplus legally available for
such purpose, subject to the rights of any outstanding preferred stock of UGI.
Fiduciary Duties of Directors
Unisource. Under the DGCL, the business and affairs of a corporation are
managed by or under the direction of its boards of directors. In exercising
their powers, directors are charged with the fiduciary duties of loyalty and
care. A party challenging the decision of a board of directors generally bears
the burden of
60
<PAGE>
rebutting the applicability of the so-called "business judgment rule" (a
presumption that, in making a business decision, directors acted on an informed
basis, in good faith and in the honest belief that the action was taken in the
best interests of the corporation) by demonstrating that, in reaching their
decision, the directors breached one or more of their fiduciary duties. Unless
this presumption is rebutted, the business judgment exercised by directors in
making their decisions is not subject to judicial review. Where, however, the
presumption is rebutted (and in certain other circumstances), the directors
bear the burden of demonstrating the entire fairness of the relevant
transaction. Notwithstanding the foregoing, Delaware courts may subject
directors' conduct to enhanced scrutiny in taking defensive actions in response
to a threat to corporate control or approving a transaction resulting in a sale
of such control.
UGI. The fiduciary duties of directors are similar under the PBCL to
directors' duties under the DGCL. Unlike the DGCL, however, the PBCL includes a
provision specifically permitting (although not requiring) directors, in
discharging their duties, to consider the effects of any action taken by them
upon any or all groups affected by such action, including stockholders,
employees, suppliers, customers and creditors of the corporation, and upon
communities in which offices or other establishments of the corporation are
located. Furthermore, unlike the DGCL, the PBCL also makes clear that directors
have no greater obligation to justify their activities and need not meet any
higher burden of proof in the context of a potential or proposed acquisition of
control than in any other context.
Liability of Directors
Unisource. The DGCL permits a corporation to limit or eliminate the
liability of its directors to the corporation or its stockholders for monetary
damages arising from a breach of fiduciary duty, except under certain
circumstances. Some of these circumstances would include a breach of the duty
of loyalty to the corporation or its stockholders, acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, a declaration of a dividend or the authorization of the repurchase or
redemption of stock in violation of the DGCL or any transaction from which the
director derived an improper personal benefit. The Unisource charter eliminates
director liability to the fullest extent permitted by the DGCL.
UGI. Under the PBCL, a corporation may eliminate the personal liability of
its directors for monetary damages for any action taken or the failure to take
any action. This rule is limited in that it does not protect directors that
have breached or failed to perform their duties when the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness. In
addition, a Pennsylvania corporation may not eliminate the personal liability
of directors where the responsibility or liability of a director arises from
the violation of any criminal statute or is for the payment of federal, state
or local taxes. The UGI bylaws eliminate director liability to the fullest
extent permitted by the PBCL.
Indemnification of Directors and Officers
Unisource. Under the DGCL, a corporation may indemnify a director or officer
of the corporation against expenses (including attorneys' fees), judgments,
fines and settlement amounts actually and reasonably incurred in a civil or
criminal action, suit or proceeding (but in a derivative action on behalf of
such corporation, the corporation may indemnify such person only against
expenses incurred) or by reason of being or having been a representative of the
corporation. This indemnification is available if the person acted in good
faith and reasonably believed that his actions were in or not opposed to the
best interest of the corporation and, in a criminal proceeding, had no
reasonable cause to believe that his conduct was unlawful. In a derivative
action brought on behalf of the corporation, this indemnification is limited to
expenses incurred. The DGCL also provides that a corporation may advance a
director or officer the expenses incurred in defending any action, if it
receives an undertaking from the officer or director to repay the amount
advanced if it is ultimately determined that the person is not entitled to
indemnification. A determination of the amount of the indemnification to be in
any circumstance must be made by a majority of the directors who are not
parties to the action, even though less than a quorum, or, if there are no such
directors or if such directors so direct, by
61
<PAGE>
independent legal counsel. No indemnification for expenses in derivative
actions is permitted under the DGCL if the person is found to be liable to the
corporation, unless a court finds him entitled to such indemnification. If,
however, that person is successful in defending a third-party or derivative
action, indemnification for expenses incurred is mandatory. The
indemnification provisions of the DGCL are nonexclusive of any other rights to
which the party may be entitled under any bylaw, agreement or vote of
stockholders or disinterested directors. The Unisource bylaws provide for
indemnification of directors and officers to the fullest extent permitted by
law and authorize Unisource to purchase and maintain insurance on behalf of
any such person whether or not Unisource would have the power to indemnify
such director or officer against such liability under the Unisource bylaws.
UGI. The provisions of the PBCL regarding indemnification are substantially
similar to those of the DGCL. Unlike the DGCL, however, the PBCL expressly
permits indemnification in connection with any action, including a derivative
action, unless a court determines that the acts or omissions giving rise to
the claim constituted willful misconduct or recklessness. The UGI bylaws
provide for indemnification of directors and officers to the fullest extent
permitted by law. However, the UGI bylaws specifically state that there will
be no indemnification for expenses where the indemnitee initiates the claim,
without prior approval of a majority of the UGI board of directors. The UGI
bylaws provide for the advancement of certain expenses if the person seeking
indemnification agrees to repay all amounts advanced if it is later ultimately
determined that such person is not entitled to be indemnified.
Anti-Takeover Provisions
Unisource. Under the DGCL, a corporation is prohibited from engaging in any
business combination with a person who, together with his affiliates or
associates, owns (or within a three-year period did own) 15% or more of the
corporation's voting stock (an "interested stockholder"), unless
. prior to the date on which such person became an interested stockholder,
the board of directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder,
. the interested stockholder acquired 85% of the voting stock of the
corporation (excluding specified shares) upon consummation of the
transaction or
. on or after the date on which such person became an interested
stockholder, the business combination is approved by the board of
directors of such corporation and the affirmative vote (at special
meeting and not by written consent) of at least 66 2/3% of the
outstanding voting shares of such corporation (excluding shares held by
such interested stockholder). A "business combination" includes:
. mergers, consolidations and sales or other dispositions of 10% or more
of the assets of a corporation to or with an interested stockholder,
. certain transactions resulting in the issuance or transfer to an
interested stockholder of any stock of such corporation or its
subsidiaries, and
. other transactions resulting in a disproportionate financial benefit to
an interested stockholder.
The DGCL does not contain a "control-share acquisition" statute similar to
that contained in the PBCL.
UGI. Unlike the DGCL, the PBCL provides that a "registered" corporation,
such as UGI, is permanently prohibited from engaging in any business
combination with a person who, together with his affiliates or associates,
owns (or within the preceding five-year period did own) 20% or more of the
corporation's voting shares (an "interested stockholder"), unless:
. such business combination, or the acquisition of shares causing such
interested stockholder to become such, was approved in advance by the
board of directors of such corporation;
62
<PAGE>
. such business combination is approved by the affirmative vote of holders
of shares representing at least a majority of the shares entitled to
vote, excluding shares held by the interested stockholder and its
affiliates and associates, the interested stockholder acquires at least
80% of the voting shares of such corporation and the consideration to be
offered to stockholder in connection with such business combination meets
specified fair price standards;
. such business combination is unanimously approved by the holders of all
outstanding common shares of such corporation;
. no earlier than five years after the date the stockholder became an
interested stockholder, such business combination is approved by a
majority of the outstanding voting shares of such corporation (excluding
shares held by such interested stockholder); or
. no earlier than five years after the date the stockholder became an
interested stockholder, the business combination is approved by a
majority of all stockholders and meets certain considerations set forth
in the PBCL concerning the amount of consideration.
A "business combination" includes mergers, consolidations, asset sales,
share exchanges, divisions of a "registered" corporation or any subsidiary
thereof and other transactions resulting in a disproportionate financial
benefit to an interested stockholder.
The PBCL, unlike the DGCL, provides that, subject to certain limited
exceptions, in the event of an acquisition by any person or group of shares of
a "registered" corporation that entitles the holder thereof to at least 20% of
the voting power of the voting shares of that corporation, such person or group
must give notice to all stockholders of record of the corporation that an
acquisition has occurred and any stockholder may demand payment of the fair
value of their shares.
The PBCL also includes a "control-share acquisition" statute. A "control-
share acquisition" is an acquisition of a number of voting shares that, when
added to the voting shares already held by the acquiring person or group, would
entitle such person or group to exercise voting power for the first time within
any of the following three ranges: (i) at least 20% but less than 33%, (ii) at
least 33% but less than 50%, or (iii) more than 50%. "Control shares" also
include voting shares acquired within 180 days of the occurrence of a "control-
share acquisition" or acquired with the intention of making a "control-share
acquisition." The PBCL provides that "Control shares" of a "registered"
corporation will not have voting rights unless these rights are restored by the
affirmative vote of the holders of a majority of the voting power of the
outstanding shares (excluding the "control shares") and the holders of a
majority of the voting power of the outstanding voting shares. In addition,
under certain circumstances, a "registered" corporation is permitted to redeem
its "control shares."
Any profit realized by a "controlling person" from the disposition of any
equity security of a "registered" corporation is recoverable if the person who
profited became a "controlling person" within the 18 months after realizing the
profit, and the security disposed of was acquired either 24 months before or
18 months after the person became a "controlling person." Subject to certain
exceptions, "controlling person" includes any person or group who acquired,
offered to acquire, or directly or indirectly publicly disclosed, or caused to
be publicly disclosed, its intention to acquire, power to vote at least 20% of
the voting shares of such corporation, or publicly disclosed or caused to be
publicly disclosed that it may seek to acquire control of such corporation
through any means.
LEGAL MATTERS
The legality of the shares of UGI common stock to be issued in the merger
will be passed on by Brendan P. Bovaird, vice president, general counsel and
secretary of UGI.
63
<PAGE>
EXPERTS
The consolidated financial statements and schedules of UGI as of and for the
years ended September 30, 1998 and 1997 included in UGI's Annual Report on Form
10-K for the year ended September 30, 1998 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 and schedules of UGI for the year ended September 30, 1996 also
included in UGI's Annual Report on Form 10-K for the year ended September 30,
1998 have been audited by PricewaterhouseCoopers LLP, independent auditors, 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
accounting and auditing in giving said reports.
The consolidated financial statements and schedule of Unisource appearing
and incorporated by reference in Unisource's Annual Report (Form 10-K) for the
year ended September 30, 1998 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing and
incorporated by reference therein and incorporated herein by reference. Such
consolidated financial statements and schedule are incorporated herein by
reference in reliance upon such reports given on the authority of such firm as
experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Due to the contemplated closing of the merger, Unisource does not currently
expect to mail a proxy statement for its 2000 annual meeting of Stockholders
because Unisource will be a wholly owned subsidiary of UGI following the
merger. In the event the merger is not closed, proposals of Unisource
stockholders to be included in the proxy statement to be mailed to all
Unisource stockholders entitled to vote at the 2000 annual meeting of
Stockholders must be received at Unisource's principal executive office no
later than August 10, 1999.
Any stockholder proposal that a UGI stockholder would like to include in
UGI's proxy statement for its 2000 Annual Meeting of Stockholders must be
received at UGI's principal executive offices no later than August 31, 1999.
64
<PAGE>
INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINEDFINANCIAL INFORMATION OF UGI AND
UNISOURCE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction.............................................................. F-2
Unaudited Pro Forma Condensed Combined Statement of Continuing Operations
of UGI and Unisource for the three months ended December 31, 1998........ F-3
Unaudited Pro Forma Condensed Combined Statement of Continuing Operations
of UGI and Unisource for the year ended September 30, 1998............... F-4
Unaudited Pro Forma Condensed Combined Balance Sheet of UGI and Unisource
as of December 31, 1998.................................................. F-5
Notes to Unaudited Pro Forma Condensed Combined Financial Information of
UGI and Unisource........................................................ F-6
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
OF UGI AND UNISOURCE
The Unaudited Pro Forma Condensed Combined Financial Information has been
derived from the historical consolidated financial statements of UGI and
Unisource for the year ended September 30, 1998 and as of and for the three
months ended December 31, 1998. The information is presented as if the merger
had occurred on October 1, 1997 for the statements of continuing operations and
on December 31, 1998 for the balance sheet. The Unaudited Pro Forma Condensed
Combined Financial Information assumes that in the merger UGI exchanges 0.566
of a share of its common stock for each share of Unisource common stock
outstanding (of which fractional shares will be paid in cash). It is estimated
that all outstanding Unisource common stock will be exchanged for 39.301
million shares of UGI common stock and $7.5 million in cash for fractional
shares. Because the Unisource stockholders will own approximately 60% of the
outstanding shares of UGI common stock upon completion of the transaction, the
merger will be accounted for as a reverse acquisition. Accordingly, for
accounting purposes, UGI is treated as the acquired company and Unisource is
considered the acquiring company. The purchase price of UGI is based on the
fair market value of UGI common stock at the date that the Merger Agreement was
signed. The estimated purchase price will be allocated to the assets and
liabilities of UGI based on the final determination of their fair values at the
acquisition date. The historical UGI financial position and results of
operations will not be included in the Unisource consolidated financial
statements for periods prior to the date the merger is completed. The pro forma
information also reflects (1) the effect of the reclassification of UGI's gas
and electric utility operations and energy marketing businesses as businesses
held for sale and (2) the announced buyback of 20% of UGI common stock
outstanding prior to the merger at an assumed average price of $18.00 per
share.
The purchase price of UGI used in the Unaudited Pro Forma Condensed Combined
Financial Information for this business combination is based on the fair market
value of UGI common stock of $17.729 per share, which was the average closing
price of UGI common stock for the period beginning one trading day before and
ending one trading day after the merger announcement. The exchange ratio of
0.566 shares of UGI common stock for each share of Unisource common stock is
fixed and will not be adjusted in the event of any increase or decrease in the
market price of UGI common stock. Consequently, changes in the market price of
UGI common stock will not impact the assumed purchase price in these pro forma
financial statements.
The Unaudited Pro Forma Condensed Combined Financial Information is intended
for informational purposes only, and does not purport to represent what the
combined entity's results of continuing operations or financial position would
actually have been had the transaction in fact occurred at an earlier date or
to project the results for any future date or period. Upon completion of the
merger, the actual financial position and results of continuing operations of
the combined company will differ, perhaps significantly, from the pro forma
amounts reflected herein due to a variety of factors, including changes in
operating results between the date of the pro forma condensed combined
financial information and the date on which the merger is completed and
thereafter, as well as the factors discussed under "Risk Factors" and
"Disclosures Regarding Forward-Looking Statements."
The Unaudited Pro Forma Condensed Combined Financial Information does not
give effect to any future cost savings or profit improvement that might result
from the completion of the previously announced Unisource restructuring
program. Unisource's management expects to realize annual pre-tax benefits of
approximately $150 million once the program is fully implemented. In addition,
the after-tax proceeds from the sale of UGI's gas and electric utility
operations and energy marketing businesses and the potential uses of those
proceeds are not included in the pro forma combined financial information.
In the Unaudited Pro Forma Condensed Combined Financial Information, the UGI
and Unisource historical financial information for the year ended September 30,
1998 was derived from the financial statements included in UGI's and
Unisource's Annual Reports on Form 10-K for the year ended September 30, 1998.
The UGI and Unisource historical financial information for the three months
ended December 31, 1998 was derived from the financial statements included in
UGI's and Unisource's Quarterly Reports on Form 10-Q for the three months ended
December 31, 1998.
F-2
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF CONTINUING OPERATIONS OF UGI AND UNISOURCE
For the Three Months Ended December 31, 1998
(Millions, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
Businesses
Held for Effect of Pro Forma
UGI Unisource(j) Sale(a) the Merger Combined
------ ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Printing & Imaging.... $ -- $1,044.7 $ -- $-- $1,044.7
Supply Systems........ -- 635.8 -- -- 635.8
Propane............... 237.8 -- -- -- 237.8
Utilities............. 112.8 -- (112.8) -- --
Energy marketing...... 23.1 -- (23.1) -- --
------ -------- ------ ---- --------
Total............... 373.7 1,680.5 (135.9) -- 1,918.3
------ -------- ------ ---- --------
Cost of goods sold:
Printing & Imaging.... -- 895.9 -- -- 895.9
Supply Systems........ -- 480.2 -- -- 480.2
Propane............... 104.5 -- -- -- 104.5
Utilities............. 55.3 -- (55.3) -- --
Energy marketing...... 21.8 -- (21.8) -- --
------ -------- ------ ---- --------
Total cost of goods
sold............... 181.6 1,376.1 (77.1) -- 1,480.6
------ -------- ------ ---- --------
Gross profit........ 192.1 304.4 (58.8) -- 437.7
------ -------- ------ ---- --------
Expenses, net:
Selling, general and
administrative....... 112.7 267.7 (27.3) -- 353.1
Special charges....... -- 3.0 (b) -- -- 3.0
Depreciation and
amortization......... 21.7 13.6 (5.5) (1.1)(c) 28.7
Other (income), net... (3.8) (0.2) 1.1 1.8 (d) (1.1)
------ -------- ------ ---- --------
Total expenses,
net................ 130.6 284.1 (31.7) 0.7 383.7
------ -------- ------ ---- --------
Operating income........ 61.5 20.3 (27.1) (0.7) 54.0
Interest expense........ (21.2) (11.4) 4.4 1.7 (c) (26.5)
Minority interest in
AmeriGas Partners...... (7.4) -- -- -- (7.4)
------ -------- ------ ---- --------
Income from continuing
operations before
income taxes........... 32.9 8.9 (22.7) 1.0 20.1
Income tax expense...... (14.5) (3.8) 8.5 -- (e) (9.8)
Dividends on UGI
Utilities preferred
stock.................. (0.4) -- 0.4 -- --
------ -------- ------ ---- --------
Income from continuing
operations............. $ 18.0 $ 5.1 $(13.8) $1.0 $ 10.3
====== ======== ====== ==== ========
Income from continuing
operations per share:
Basic................. $ 0.55 $ 0.16
Diluted............... $ 0.55 $ 0.16
Weighted average shares
outstanding:
Basic................. 32.9 32.5 (f) 65.4
Diluted............... 32.9 32.5 (f) 65.4
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information of UGI and Unisource.
F-3
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF CONTINUING OPERATIONS OF UGI AND UNISOURCE
For the Year Ended September 30, 1998
(Millions, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
Businesses
Held for Effect of Pro Forma
UGI Unisource(j) Sale(a) the Merger Combined
-------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Printing & Imaging.... $ -- $4,715.3 $ -- $ -- $4,715.3
Supply Systems........ -- 2,702.0 -- -- 2,702.0
Propane............... 914.4 -- -- -- 914.4
Utilities............. 422.3 -- (422.3) -- --
Energy marketing...... 103.0 -- (103.0) -- --
-------- -------- ------ ----- --------
Total............... 1,439.7 7,417.3 (525.3) -- 8,331.7
-------- -------- ------ ----- --------
Cost of goods sold:
Printing & Imaging.... -- 4,100.1 -- -- 4,100.1
Supply Systems........ -- 2,049.2 -- -- 2,049.2
Inventory writedown... -- 23.0 (b) -- -- 23.0
Propane............... 443.8 -- -- -- 443.8
Utilities............. 214.6 -- (214.6) -- --
Energy marketing...... 98.3 -- (98.3) -- --
-------- -------- ------ ----- --------
Total cost of goods
sold............... 756.7 6,172.3 (312.9) -- 6,616.1
-------- -------- ------ ----- --------
Gross profit........ 683.0 1,245.0 (212.4) -- 1,715.6
-------- -------- ------ ----- --------
Expenses, net:
Selling, general and
administrative....... 437.7 1,099.6 (114.2) -- 1,423.1
Special charges....... -- 346.5 (b) -- -- 346.5
Depreciation and
amortization......... 87.8 58.2 (22.2) (4.2)(c) 119.6
Other (income), net... (12.7) (1.8) 5.2 7.0 (d) (2.3)
-------- -------- ------ ----- --------
Total expenses,
net................ 512.8 1,502.5 (131.2) 2.8 1,886.9
-------- -------- ------ ----- --------
Operating income
(loss)................. 170.2 (257.5) (81.2) (2.8) (171.3)
Interest expense........ (84.4) (45.5) 17.6 6.8 (c) (105.5)
Minority interest in
AmeriGas Partners...... (8.9) -- -- -- (8.9)
-------- -------- ------ ----- --------
Income (loss) from
continuing operations
before income taxes.... 76.9 (303.0) (63.6) 4.0 (285.7)
Income tax (expense)
benefit................ (34.4) 71.2 (b) 24.3 (0.1)(e) 61.0
Dividends on UGI
Utilities preferred
stock.................. (2.2) -- 2.2 -- --
-------- -------- ------ ----- --------
Income (loss) from
continuing operations.. $ 40.3 $ (231.8) $(37.1) $ 3.9 $ (224.7)
======== ======== ====== ===== ========
Income (loss) from
continuing operations
per share:
Basic................. $ 1.22 $ (3.46)
Diluted............... $ 1.22 $ (3.46)
Weighted average shares
outstanding:
Basic................. 33.0 31.9 (f) 64.9
Diluted............... 33.1 31.8 (f) 64.9
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information of UGI and Unisource.
F-4
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET OF UGI AND UNISOURCE
As of December 31, 1998
(Millions of dollars)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
Businesses
Held for Effect of Pro Forma
UGI Unisource(j) Sale(a) the Merger Combined
-------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 80.5 $ 22.3 $ -- $(100.0)(g) $ 2.8
Short-term
investments.......... 70.2 -- -- (40.8)(g) 29.4
Accounts receivable... 153.0 560.5 (65.1) -- 648.4
Inventories........... 70.3 371.1 (27.0) -- 414.4
Prepayments and other
current assets....... 31.2 84.4 (7.5) -- 108.1
-------- -------- ------- ------- --------
Total current
assets............. 405.2 1,038.3 (99.6) (140.8) 1,203.1
Property, plant and
equipment, net......... 1,000.3 221.4 (547.3) 11.3 (h) 685.7
Goodwill and other
intangibles, net....... 626.5 576.5 -- 38.3 (h) 1,241.3
Net assets of businesses
held for sale.......... -- -- 224.9 414.4 (h) 639.3
Other assets............ 95.5 25.6 (76.4) -- 44.7
-------- -------- ------- ------- --------
Total assets............ $2,127.5 $1,861.8 $(498.4) $ 323.2 $3,814.1
======== ======== ======= ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
debt................. $ 13.8 $ 7.2 $ (7.1) $ -- $ 13.9
Bank loans............ 132.2 -- (70.2) -- 62.0
Accounts payable...... 97.7 374.9 (52.8) -- 419.8
Restructuring costs... -- 58.0 -- -- 58.0
Accrued expenses and
other current
liabilities.......... 139.9 130.9 (36.7) -- 234.1
-------- -------- ------- ------- --------
Total current
liabilities........ 383.6 571.0 (166.8) -- 787.8
Long-term debt.......... 881.3 497.0 (180.0) 36.9 (h) 1,235.2
Deferred income taxes... 156.0 12.8 (106.3) 199.7 (h) 262.2
Restructuring costs..... -- 28.5 -- -- 28.5
Other noncurrent
liabilities............ 78.3 52.6 (25.3) -- 105.6
Minority interest in
AmeriGas Partners...... 234.2 -- -- -- 234.2
UGI Utilities preferred
stock.................. 20.0 -- (20.0) -- --
Common stockholders'
equity................. 374.1 699.9 -- (255.8)(i) 1,160.6
468.2 (i)
(7.5)(i)
(118.3)(g)
-------- -------- ------- ------- --------
Total liabilities and
stockholders' equity... $2,127.5 $1,861.8 $(498.4) $ 323.2 $3,814.1
======== ======== ======= ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information of UGI and Unisource.
F-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION OF UGI AND UNISOURCE
(Millions, except per share amounts)
(a) These pro forma adjustments reflect the reclassification of UGI's gas and
electric utility operations and its energy marketing businesses as
businesses held for sale in connection with the merger. For statement of
continuing operations information, the results of these businesses have
been eliminated, and for balance sheet purposes, the assets and liabilities
of these businesses have been classified as net assets of businesses held
for sale.
(b) The year ended September 30, 1998 includes special charges totaling $369.5
pre-tax ($269.5 after-tax) recorded by Unisource including: (1) $168.0 to
write off capitalized development and related costs associated with an
information technology system; (2) $108.5 of restructuring and
implementation costs and $23.0 of inventory write-downs associated with its
restructuring plan; (3) $70.0 to record at fair value the net assets to be
disposed related to its Mexico operations; and (4) a $5.7 tax charge
related to the sale of a significant portion of its U.S.-based grocery
supply systems business. The three months ended December 31, 1998 includes
$3.0 of pre-tax implementation costs associated with the restructuring
plan.
The following table reflects the pro forma results of continuing operations
before the special charges:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
September 30, December 31,
1998 1998
------------- ------------------
<S> <C> <C>
Income from continuing operations before
special charges.......................... $44.8 $12.0
Income from continuing operations before
special charges per share:
Basic................................... $0.69 $0.18
Diluted................................. $0.69 $0.18
</TABLE>
(c) These pro forma adjustments reflect the impact on the unaudited pro forma
condensed combined statements of continuing operations resulting from the
allocation of the purchase price to the assets and liabilities of UGI. The
ultimate determination of the purchase price allocation to the assets and
liabilities of UGI is subject to final determination of their respective
fair values, and as a result, these adjustments could change. The following
table reflects the impact on the unaudited pro forma condensed combined
statements of continuing operations resulting from the purchase accounting
adjustments:
<TABLE>
<CAPTION>
Depreciation Interest
& Amortization Expense
-------------- --------
<S> <C> <C>
Additional depreciation............................ $ 0.3 --
Goodwill amortization.............................. (4.5) --
Amortization of debt premium resulting from fair
value adjustment.................................. -- $(6.8)
----- -----
Year ended September 30, 1998...................... $(4.2) $(6.8)
===== =====
Three months ended December 31, 1998............... $(1.1) $(1.7)
===== =====
</TABLE>
(d) These pro forma adjustments reflect a reduction in interest income
associated with the cash and short-term investments used for: (1) the cash
portion of the merger consideration of $7.5; (2) the repurchase of 20% of
the outstanding UGI common stock for $118.3; and (3) merger transaction
costs of $15.0.
(e) These pro forma adjustments, which net to $ -- and $(0.1) for the three
months ended December 31, 1998 and the year ended September 30, 1998,
respectively, represent the estimated income tax effects of the pro forma
adjustments, which are insignificant due to the nondeductibility of
goodwill amortization expense for income tax purposes.
F-6
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION OF UGI AND UNISOURCE--(Continued)
(Millions, except per share amounts)
(f) These pro forma adjustments reflect the additional shares of UGI common
stock to be issued in the transaction. The additional shares to be issued
are calculated at an exchange ratio of 0.56 shares of UGI common stock for
each share of Unisource common stock. The number of shares of Unisource
common stock used in these adjustments include the weighted average
outstanding shares of Unisource common stock. The pro forma adjustment for
weighted average diluted shares outstanding for the year ended September
30, 1998 includes the elimination of .152 shares of UGI common stock
because their inclusion in the pro forma earnings per share calculation is
antidilutive. The pro forma adjustment for weighted average diluted shares
outstanding for the three months ended December 31, 1998 includes 0.055
equivalent shares of UGI common stock related to Unisource stock options.
Additionally, the pro forma adjustments for both the basic and diluted
weighted average shares reflect the buyback of 6.57 shares of UGI common
stock.
(g) These pro forma adjustments reflect the use of existing cash and short-term
investments to: (1) pay the cash portion of the merger consideration of
$7.5; (2) pay the merger transaction costs of $15.0; and (3) repurchase 20%
of the outstanding UGI common stock for $118.3. The cash portion of the
merger consideration, which is payable in lieu of any fractional shares,
represents the equivalent of .006 shares of UGI common stock for each share
of Unisource common stock paid at $17.729 per UGI equivalent share.
(h) These pro forma adjustments reflect the allocation of the difference
between the UGI fair value and the UGI book value (the "excess purchase
price") to the assets and liabilities of UGI. The fair value of UGI is
assumed to be the fair market value of UGI common stock outstanding after
the stock repurchase. UGI book value is assumed to be its stockholders'
equity reduced by estimated merger transaction fees of $15.0 assumed to
have been incurred by UGI and Unisource, and by the repurchase of UGI
common stock of $118.3 prior to the merger.
<TABLE>
<S> <C>
UGI Fair Value:
Shares of UGI common stock outstanding............................ 32.869
UGI common stock repurchased...................................... (6.574)
-------
Adjusted UGI common stock outstanding............................. 26.295
Market price per share of UGI common stock outstanding............ $17.729
-------
Fair value of UGI common stock outstanding........................ $ 466.2
Fair value of outstanding options................................. 2.0
-------
UGI Fair Value.................................................... $ 468.2
UGI Book Value:
December 31, 1998 stockholders' equity............................ $ 374.1
Treasury stock repurchase......................................... (118.3)
Assumed merger transaction fees................................... (15.0)
-------
UGI Book Value.................................................... 240.8
-------
Excess Purchase Price........................................... $227.4
=======
</TABLE>
F-7
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION OF UGI AND UNISOURCE--(Continued)
(Millions, except per share amounts)
This excess purchase price has been allocated to the assets and
liabilities of UGI as follows:
<TABLE>
<S> <C>
Property, plant and equipment, net.................................. $ 11.3
Goodwill............................................................ 38.3
Net assets of businesses held for sale.............................. 414.4
Long-term debt...................................................... (36.9)
Deferred tax liability.............................................. (199.7)
-------
Excess Purchase Price............................................. $ 227.4
=======
</TABLE>
The preliminary allocations of the excess purchase price are based upon
current estimates and information available to UGI. Property, plant and
equipment reflects the adjustment to estimated fair values of these assets.
Goodwill reflects the incremental goodwill resulting from the transaction
after allocation of the purchase price to all other assets and liabilities.
Net assets of businesses held for sale reflect the estimated fair value of
those UGI businesses which will be disposed of in connection with the
merger. It also includes an estimate of the net cash flow for these
businesses for the period beginning on the date of the merger through the
expected sale date. The amounts associated with net assets of businesses
held for sale are presented in accordance with Emerging Issues Task Force
Issue 87-11, "Allocation of Purchase Price to Assets to Be Sold" because
these businesses are expected to be sold within one year of the merger.
Long-term debt reflects the adjustment to record UGI's 58.6% ownership
interest in the fair value of AmeriGas Partners' debt. The deferred tax
liability is related to these allocations.
The goodwill recorded as a result of these allocations will be amortized
over a 40 year life. In determining the estimated useful life, management
considered the nature, competitive position, historical and expected future
operating income of UGI's continuing operations, as well as management's
commitment to support these operations through continued investment in
capital expenditures, information systems and other operational
improvements.
The ultimate allocation of the purchase price to the assets, and
liabilities of UGI is subject to final determination of their respective
fair values. The final allocation will be based upon the results of
appraisals and other studies that will be performed upon the completion of
the transaction.
(i) These pro forma adjustments reflect the effect of reverse acquisition
accounting by adding the fair value of UGI of $468.2 and subtracting: (1)
UGI common stockholders' equity of $374.1; (2) merger transaction fees of
$15.0; (3) the repurchase of UGI common stock of $118.3; and (4) the cash
payout of $7.5 for fractional shares which is treated as a dividend by the
combined company.
(j) Certain reclassifications have been made to the Unisource financial
statements in order to present information on a consistent basis. None of
these reclassifications affects income (loss) from continuing operations.
F-8
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of February 28, 1999
among
UNISOURCE WORLDWIDE, INC.
UGI CORPORATION
and
VULCAN ACQUISITION CORP.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
THE MERGER............................................................... A-1
SECTION 1.1 The Merger................................................. A-1
SECTION 1.2 Effective Time............................................. A-1
SECTION 1.3 Closing of the Merger...................................... A-1
SECTION 1.4 Effects of the Merger...................................... A-1
SECTION 1.5 Certificate of Incorporation and Bylaws.................... A-1
SECTION 1.6 Directors.................................................. A-2
SECTION 1.7 Officers................................................... A-2
ARTICLE II
CONVERSION OF SHARES..................................................... A-2
SECTION 2.1 Conversion of Shares....................................... A-2
SECTION 2.2 Stock Options; Restricted Stock............................ A-2
SECTION 2.3 Exchange Fund.............................................. A-3
SECTION 2.4 Exchange Procedures........................................ A-3
SECTION 2.5 Distributions with Respect to Unsurrendered Certificates... A-4
SECTION 2.6 No Further Ownership Rights in Company Common Stock........ A-4
SECTION 2.7 No Fractional Shares of Parent Common Stock................ A-4
SECTION 2.8 Termination of Exchange Fund............................... A-5
SECTION 2.9 No Liability............................................... A-5
SECTION 2.10 Investment of the Exchange Fund............................ A-5
SECTION 2.11 Lost Certificates.......................................... A-5
SECTION 2.12 Withholding Rights......................................... A-5
SECTION 2.13 Stock Transfer Books....................................... A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ A-5
SECTION 3.1 Organization and Qualification; Subsidiaries............... A-5
SECTION 3.2 Capitalization of the Company and Its Subsidiaries......... A-6
SECTION 3.3 Authority Relative to This Agreement....................... A-6
SECTION 3.4 SEC Reports; Financial Statements.......................... A-7
SECTION 3.5 No Undisclosed Liabilities................................. A-7
SECTION 3.6 Absence of Changes......................................... A-7
SECTION 3.7 Information Supplied....................................... A-9
SECTION 3.8 Consents and Approvals; No Violations...................... A-9
SECTION 3.9 No Default................................................. A-9
SECTION 3.10 Litigation................................................. A-10
SECTION 3.11 Compliance with Applicable Law............................. A-10
SECTION 3.12 Employee Plans............................................. A-10
SECTION 3.13 Labor Matters.............................................. A-11
SECTION 3.14 Environmental Matters...................................... A-12
SECTION 3.15 Taxes...................................................... A-13
SECTION 3.16 Material Contracts......................................... A-14
SECTION 3.17 Insurance.................................................. A-14
SECTION 3.18 Real Property.............................................. A-15
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 3.19 Intellectual Property....................................... A-15
SECTION 3.20 Year 2000................................................... A-15
SECTION 3.21 Opinion of Financial Advisor................................ A-16
SECTION 3.22 Brokers..................................................... A-16
SECTION 3.23 Tax Treatment............................................... A-16
SECTION 3.24 Takeover Statute; Dissenters' Rights........................ A-16
SECTION 3.25 Amendment to Rights Agreement............................... A-16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB................... A-17
SECTION 4.1 Organization and Qualification; Subsidiaries................ A-17
SECTION 4.2 Capitalization of Parent and Its Subsidiaries............... A-17
SECTION 4.3 Authority Relative to This Agreement........................ A-18
SECTION 4.4 SEC Reports; Financial Statements........................... A-18
SECTION 4.5 No Undisclosed Liabilities.................................. A-18
SECTION 4.6 Absence of Changes.......................................... A-19
SECTION 4.7 Information Supplied........................................ A-19
SECTION 4.8 Consents and Approvals; No Violations....................... A-20
SECTION 4.9 No Default.................................................. A-20
SECTION 4.10 Litigation.................................................. A-20
SECTION 4.11 Compliance with Applicable Law.............................. A-21
SECTION 4.12 Employee Plans.............................................. A-21
SECTION 4.13 Labor Matters............................................... A-22
SECTION 4.14 Environmental Matters....................................... A-22
SECTION 4.15 Taxes....................................................... A-23
SECTION 4.16 Material Contracts.......................................... A-24
SECTION 4.17 Insurance................................................... A-24
SECTION 4.18 Real Property............................................... A-24
SECTION 4.19 Intellectual Property....................................... A-24
SECTION 4.20 Year 2000................................................... A-25
SECTION 4.21 Opinion of Financial Advisor................................ A-25
SECTION 4.22 Brokers..................................................... A-25
SECTION 4.23 Tax Treatment............................................... A-25
SECTION 4.24 No Prior Activities......................................... A-25
SECTION 4.25 Takeover Statute............................................ A-25
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS.................................. A-26
SECTION 5.1 Conduct of Business of the Company and Parent............... A-26
SECTION 5.2 Access to Information....................................... A-28
ARTICLE VI
ADDITIONAL AGREEMENTS..................................................... A-28
SECTION 6.1 Preparation of S-4 and the Proxy Statement.................. A-28
SECTION 6.2 Meetings.................................................... A-29
SECTION 6.3 Reasonable Best Efforts..................................... A-29
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 6.4 Acquisition Proposals..................................... A-30
SECTION 6.5 Public Announcements...................................... A-31
SECTION 6.6 Indemnification; Directors' and Officers' Insurance....... A-31
SECTION 6.7 Notification of Certain Matters........................... A-32
SECTION 6.8 Tax-Free Reorganization Treatment......................... A-32
SECTION 6.9 Employee Matters.......................................... A-33
SECTION 6.10 Post-Merger Board of Directors; Executive Officer......... A-33
SECTION 6.11 Fees and Expenses......................................... A-33
SECTION 6.12 Obligations of Merger Sub................................. A-33
SECTION 6.13 Listing of Stock.......................................... A-34
SECTION 6.14 Antitakeover Statutes..................................... A-34
SECTION 6.15 Rule 145 Affiliates....................................... A-34
SECTION 6.16 Corporate Identity........................................ A-34
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER................................ A-34
Conditions to Each Party's Obligations to Effect the
SECTION 7.1 Merger.................................................... A-34
SECTION 7.2 Conditions to the Obligations of Parent and Merger Sub.... A-35
SECTION 7.3 Conditions to the Obligations of the Company.............. A-35
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER.......................................... A-36
SECTION 8.1 Termination by Mutual Agreement........................... A-36
SECTION 8.2 Termination by Either Parent or the Company............... A-36
SECTION 8.3 Termination by the Company................................ A-36
SECTION 8.4 Termination by Parent..................................... A-37
SECTION 8.5 Effect of Termination and Abandonment..................... A-37
SECTION 8.6 Amendment................................................. A-38
SECTION 8.7 Extension; Waiver......................................... A-38
ARTICLE IX
MISCELLANEOUS........................................................... A-38
SECTION 9.1 Nonsurvival of Representations and Warranties............. A-38
SECTION 9.2 Entire Agreement; Assignment.............................. A-39
SECTION 9.3 Notices................................................... A-39
SECTION 9.4 Governing Law; Waiver of Jury Trial....................... A-39
SECTION 9.5 Descriptive Headings...................................... A-40
SECTION 9.6 Parties in Interest....................................... A-40
SECTION 9.7 Severability.............................................. A-40
SECTION 9.8 Specific Performance...................................... A-40
SECTION 9.9 Brokers................................................... A-40
SECTION 9.10 Counterparts.............................................. A-40
SECTION 9.11 Interpretation............................................ A-40
SECTION 9.12 Definitions............................................... A-41
</TABLE>
A-iii
<PAGE>
Glossary of Defined Terms
<TABLE>
<CAPTION>
Defined Terms Defined On Page A-
- ------------- --------------------
<S> <C>
Acquiring Person........................................... 28
Acquisition Proposal....................................... 71
Antitrust Law.............................................. 50
Assumed Stock Option....................................... 4
Beneficial ownership....................................... 71
Beneficially own........................................... 71
Certificate of Merger...................................... 1
Certificates............................................... 5
Closing.................................................... 2
Closing Date............................................... 2
Code....................................................... 1
Company.................................................... 1
Company Audit Date......................................... 12
Company Board.............................................. 4
Company Common Stock....................................... 3
Company Designees.......................................... 57
Company Disclosure Schedule................................ 9
Company Employee Benefit Plan.............................. 17
Company Option Plans....................................... 4
Company Permits............................................ 16
Company Real Property Leases............................... 25
Company Requisite Vote..................................... 11
Company Rights............................................. 28
Company SEC Reports........................................ 12
Company Securities......................................... 10
Company Stock Option....................................... 4
Company Stockholder Meeting................................ 49
Company Title IV Plans..................................... 18
Computer Programs.......................................... 26
Confidentiality Agreement.................................. 48
Covered Transactions....................................... 27
DGCL....................................................... 1
Directors Restricted Stock Plan............................ 5
DLJ........................................................ 27
DOJ........................................................ 50
Effective Time............................................. 2
Employee Benefit Plans..................................... 17, 36
Environmental Costs and Liabilities........................ 20
Environmental Law.......................................... 20
Exchange Act............................................... 12
Exchange Agent............................................. 5
Exchange Fund.............................................. 5
Exchange Ratio............................................. 3
FTC........................................................ 50
GAAP....................................................... 12
Governmental Entity........................................ 15
Hazardous Material......................................... 20
HSR Act.................................................... 15
Indemnified Parties........................................ 54
</TABLE>
A-iv
<PAGE>
<TABLE>
<CAPTION>
Defined Terms Defined On Page A-
- ------------- --------------------
<S> <C>
Indemnified Party.......................................... 54
Intellectual Property...................................... 26
Know....................................................... 71
Knowledge.................................................. 71
Law........................................................ 15
Lien....................................................... 11
Material Adverse Effect.................................... 71
Merger..................................................... 1
Merger Consideration....................................... 3
Merger Sub................................................. 1
Merrill Lynch.............................................. 43
Multiemployer Plan......................................... 17
Parent..................................................... 1
Parent Audit Date.......................................... 31
Parent Board............................................... 43
Parent Common Stock........................................ 3
Parent Disclosure Schedule................................. 28
Parent Employee Benefit Plan............................... 36
Parent Permits............................................. 35
Parent Real Property Leases................................ 42
Parent Requisite Vote...................................... 30
Parent Rights.............................................. 3
Parent SEC Reports......................................... 31
Parent Securities.......................................... 29
Parent Stockholder Meeting................................. 49
Parent Title IV Plans...................................... 36
PBCL....................................................... 44
Person..................................................... 71
Proxy Statement............................................ 15
Release.................................................... 20
Remedial Action............................................ 21
Rights Agreement........................................... 27
S-4........................................................ 14
SEC........................................................ 5
Share...................................................... 3
Share Issuance............................................. 30
Shares..................................................... 3
Share...................................................... 3
Significant Subsidiary..................................... 10
Subsidiary................................................. 72
Superior Proposal.......................................... 52
Surviving Corporation...................................... 1
Takeover Statutes.......................................... 27
Termination Date........................................... 62
Expiration Date............................................ 28
</TABLE>
A-v
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 28, 1999, is among
UNISOURCE WORLDWIDE, INC., a Delaware corporation (the "Company"), UGI
CORPORATION, a Pennsylvania corporation ("Parent"), and VULCAN ACQUISITION
CORP., a Delaware corporation and a direct wholly owned subsidiary of Parent
("Merger Sub").
WHEREAS, the Boards of Directors of the Company, Parent and Merger Sub each
have, in light of and subject to the terms and conditions set forth herein, (i)
determined that the Merger (as hereinafter defined) is fair to their respective
stockholders and in the best interests of such stockholders and (ii) approved
the Merger in accordance with this Agreement; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, the Company, Parent and Merger Sub hereby agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. At the Effective Time (as hereinafter defined) and
upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL"), Merger Sub
shall be merged with and into the Company (the "Merger"). Following the Merger,
the Company shall continue as the surviving corporation (the "Surviving
Corporation") and the separate corporate existence of Merger Sub shall cease.
SECTION 1.2 Effective Time. Subject to the provisions of this Agreement,
Parent, Merger Sub and the Company shall cause the Merger to be consummated by
filing an appropriate Certificate of Merger or other appropriate documents (the
"Certificate of Merger") with the Secretary of State of the State of Delaware
in such form as required by, and executed in accordance with, the relevant
provisions of the DGCL, as soon as practicable on the Closing Date (as
hereinafter defined). The Merger shall become effective upon such filing or at
such time thereafter as is provided in the Certificate of Merger (the
"Effective Time").
SECTION 1.3 Closing of the Merger. The closing of the Merger (the "Closing")
will take place at a time and on a date to be specified by the parties (the
"Closing Date"), which shall be no later than the second business day after
satisfaction or waiver 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 fulfillment or waiver of those conditions), at the offices of
Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, or at
such other time, date or place as agreed to in writing by the parties hereto.
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger
Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.5 Certificate of Incorporation and Bylaws. The certificate of
incorporation of the Company in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law. The bylaws of the Merger Sub in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended
in accordance with applicable law.
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SECTION 1.6 Directors. The directors of Merger Sub at the Effective Time
shall be the initial directors of the Surviving Corporation, to hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation until their successors are duly elected or appointed and qualified
or until their earlier death, resignation or removal.
SECTION 1.7 Officers. The officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation, to hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation until their successors are duly elected or appointed and qualified
or until their earlier death, resignation or removal.
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 Conversion of Shares. (a) At the Effective Time, each
outstanding share of the common stock, par value $.01 per share, of Merger Sub
shall, by virtue of the Merger and without any action on the part of Merger
Sub, the Company or the holder thereof, be converted into one fully paid and
non-assessable share of common stock, par value $.01 per share, of the
Surviving Corporation.
(b) At the Effective Time, each share of common stock, par value $.001 per
share, of the Company including the corresponding Company Rights (as
hereinafter defined) ("Company Common Stock") issued and outstanding
immediately prior to the Effective Time (individually a "Share" and
collectively, the "Shares") (other than (i) Shares held by the Company and (ii)
Shares held by Parent or any of its subsidiaries (as hereinafter defined)),
shall, by virtue of the Merger and without any action on the part of Merger
Sub, the Company or the holder thereof, be converted into and exchangeable for
the right to receive .566 fully paid and non-assessable shares (the "Exchange
Ratio") of common stock, without par value per share, of Parent ("Parent Common
Stock") including the corresponding rights (the "Parent Rights") under the
Rights Agreement, dated as of April 29, 1986, as amended, between Parent and
Mellon Bank (East) N.A. (all such shares of Parent Common Stock issued,
together with any cash in lieu of fractional shares of Parent Common Stock to
be paid pursuant to Section 2.7, the "Merger Consideration").
(c) At the Effective Time, each Share held by Parent, each subsidiary of
Parent or the Company immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of Parent, any subsidiary of
Parent or the Company be canceled, retired and cease to exist and no payment
shall be made with respect thereto.
(d) If between the date of this Agreement and the Effective Time the
outstanding shares of Parent Common Stock shall have been changed into a
different number of shares or a different class by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination
or exchange of shares or any similar event, the amount of shares of Parent
Common Stock constituting the Exchange Ratio shall be correspondingly adjusted
to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares or such similar
event.
SECTION 2.2 Stock Options; Restricted Stock. (a) As soon as practicable
following the date of this Agreement, Parent and the Company (or, if
appropriate, any committee of the Board of Directors of the Company (the
"Company Board") administering Company's Stock Option Plan for Employees,
Incentive Compensation Plan and Directors' Stock Option Plan, each as amended
and restated as of January 28, 1998 (collectively, the "Company Option Plans"))
shall take such action as may be required to effect the following provisions of
this Section 2.2(a). At the Effective Time each option to purchase Shares
pursuant to the Company Option Plans (a "Company Stock Option") which is then
outstanding shall be assumed by Parent and converted into an option (or a new
substitute option shall be granted) (an "Assumed Stock Option") to purchase the
number of shares of Parent Common Stock (rounded up to the nearest whole share)
equal to(x) the number of Shares subject to such option multiplied by (y) the
Exchange Ratio, at an exercise price per
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share of Parent Common Stock (rounded down to the nearest penny) equal to (A)
the former exercise price per share of Company Common Stock under such option
immediately prior to the Effective Time divided by (B) the Exchange Ratio;
provided, however, that in the case of any Company Stock Option which is
intended to qualify as an incentive stock option under Section 422 of the Code,
the conversion formula shall be adjusted, if necessary, to comply with Section
424(a) of the Code. Except as provided above or to the extent that the vesting
and/or exercisability of the Company Stock Options has been accelerated as
provided for in Section 5.1(b) of the Company Disclosure Schedule at or at any
time prior to the Effective Time, each Assumed Stock Option shall be subject to
the same terms and conditions (including expiration date, vesting and exercise
provisions) as were applicable to the converted Company Stock Option
immediately prior to the Effective Time.
(b) As soon as practicable after the Effective Time, Parent shall deliver to
the holders of Company Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective Company Option Plans and the
agreements evidencing the grants of such Company Stock Options and indicating
that such Company Stock Options and agreements have been assumed by Parent and
shall continue in effect on the same terms and conditions (subject to the
adjustments required by the terms thereof or by this Section 2.2).
(c) Parent shall take such actions as are reasonably necessary for the
assumption of the Company Option Plans pursuant to this Section 2.2, including
the reservation, issuance and listing of shares of Parent Common Stock as is
necessary to effectuate the transactions contemplated by this Section 2.2.
Parent shall use its reasonable best efforts to prepare and file with the
Securities and Exchange Commission (the "SEC") as soon as practicable after the
Effective Time a registration statement on Form S-8 or other appropriate form
with respect to shares of Parent Common Stock subject to the Assumed Stock
Options and to maintain the effectiveness of such registration statement
covering such Assumed Stock Options (and to maintain the current status of the
prospectus contained therein) for so long as any of such Assumed Stock Options
remain outstanding.
(d) At the Effective Time, any Shares or share units awarded pursuant to any
plan, arrangement or transaction, including the Restricted Stock Plan for
Directors, as amended and restated on January 28, 1998 (the "Directors
Restricted Stock Plan"), and the Company Option Plans, outstanding immediately
prior to the Effective Time shall be converted into shares of Parent Common
Stock or share units in accordance with Section 2.1 hereof, subject to the same
terms, conditions and restrictions as in effect immediately prior to the
Effective Time, except to the extent that such terms, conditions and
restrictions may be altered in accordance with their terms as a result of the
transactions contemplated hereby.
SECTION 2.3 Exchange Fund. Prior to the Effective Time, Parent shall appoint
a commercial bank or trust company reasonably acceptable to the Company to act
as exchange agent hereunder for the purpose of exchanging Shares for the Merger
Consideration (the "Exchange Agent"). At or prior to the Effective Time, Parent
shall deposit with the Exchange Agent, in trust for the benefit of holders of
Shares, certificates representing Parent Common Stock issuable pursuant to
Section 2.1 in exchange for outstanding Shares. Parent agrees to make available
to the Exchange Agent from time to time as needed, cash sufficient to pay cash
in lieu of fractional shares pursuant to Section 2.7 and any dividends and
other distributions pursuant to Section 2.5. Any cash and certificates of
Parent Common Stock deposited with the Exchange Agent shall hereinafter be
referred to as the "Exchange Fund."
SECTION 2.4 Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent and the Surviving Corporation shall cause the Exchange
Agent to mail to each holder of a certificate or certificates which immediately
prior to the Effective Time represented outstanding Shares ("Certificates") (i)
a letter of transmittal which shall specify that delivery shall be effected,
and risk of loss and title to Certificates shall pass, only upon delivery of
Certificates to the Exchange Agent, and which letter shall be in customary form
and have such other provisions as Parent may reasonably specify and (ii)
instructions for effecting the surrender of such Certificates in exchange for
the applicable Merger Consideration. Upon surrender of a Certificate to the
Exchange Agent together with such letter of transmittal, duly executed and
completed in
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accordance with the instructions thereto, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor (A) certificates for shares
of Parent Common Stock representing, in the aggregate, the whole number of
shares that such holder has the right to receive pursuant to Section 2.1 (after
taking into account all Shares then held by such holder) and (B) a check in the
amount equal to the cash that such holder has the right to receive pursuant to
the provisions of this Article II, including cash in lieu of any dividends and
other distributions pursuant to Section 2.5. No interest will be paid or will
accrue on any cash payable pursuant to Section 2.5 or Section 2.7. In the event
of a transfer of ownership of Company Common Stock which is not registered in
the transfer records of the Company, shares of Parent Common Stock evidencing,
in the aggregate, the proper number of shares of Parent Common Stock and a
check in the proper amount of cash in lieu of any fractional shares of Parent
Common Stock pursuant to Section 2.7 and any dividends or other distributions
pursuant to Section 2.5 may be issued with respect to such Shares to such a
transferee if a Certificate or Certificates representing such Shares are
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
SECTION 2.5 Distributions with Respect to Unsurrendered Certificates. No
dividends or other distributions declared or made with respect to shares of
Parent Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Parent Common Stock that such holder would be entitled to receive upon
surrender of such Certificate and no cash payment in lieu of fractional shares
of Parent Common Stock shall be paid to any such holder pursuant to Section 2.7
until such holder shall surrender such Certificate in accordance with Section
2.4. Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to such holder of shares of Parent Common
Stock issuable in exchange therefor, without interest, (a) promptly after the
time of such surrender, the amount of any cash payable in lieu of fractional
shares of Parent Common Stock to which such holder is entitled pursuant to
Section 2.7 and the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole
shares of Parent Common Stock, and (b) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and a payment date subsequent to
such surrender payable with respect to such shares of Parent Common Stock.
SECTION 2.6 No Further Ownership Rights in Company Common Stock. All shares
of Parent Common Stock issued and cash paid upon conversion of the Shares in
accordance with the terms of Article I and this Article II (including any cash
paid pursuant to Sections 2.5 and 2.7) shall be deemed to have been issued or
paid in full satisfaction of all rights pertaining to the Shares.
SECTION 2.7 No Fractional Shares of Parent Common Stock. (a) No certificates
or scrip of shares of Parent Common Stock representing fractional shares of
Parent Common Stock or book-entry credit of the same shall be issued upon the
surrender for exchange of Certificates and such fractional share interests will
not entitle the owner thereof to vote or to have any rights of a shareholder of
Parent or a holder of shares of Parent Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
Shares exchanged pursuant to the Merger who would otherwise have been entitled
to receive a fraction of a share of Parent Common Stock (after taking into
account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to the product of (i) such
fractional part of a share of Parent Common Stock multiplied by (ii) the
closing price (as reported in the New York City edition of the Wall Street
Journal or, if not reported thereby, another nationally recognized source) for
a share of Parent Common Stock on the date of the Effective Time. As promptly
as practicable after the determination of the aggregate amount of cash to be
paid to holders of fractional interests, the Exchange Agent shall notify Parent
and Parent shall deposit such amount with the Exchange Agent and shall cause
the Exchange Agent to forward payments to such holders of fractional interests
subject to and in accordance with the terms hereof.
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SECTION 2.8 Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Certificates for six months after
the Effective Time shall be delivered to the Surviving Corporation or otherwise
on the instruction of the Surviving Corporation, and any holders of the
Certificates who have not theretofore complied with this Article II shall
thereafter look only to the Surviving Corporation and Parent for the Merger
Consideration with respect to the Shares formerly represented thereby to which
such holders are entitled pursuant to Section 2.1 and Section 2.4 and any
dividends or distributions with respect to shares of Parent Common Stock to
which such holders are entitled pursuant to Section 2.5. Any such portion of
the Exchange Fund remaining unclaimed by holders of Shares five years after the
Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any Governmental
Entity (as hereinafter defined)) shall, to the extent permitted by law, become
the property of the Surviving Corporation free and clear of any claim or
interest of any person previously entitled thereto.
SECTION 2.9 No Liability. None of Parent, Merger Sub, the Company, the
Surviving Corporation or the Exchange Agent shall be liable to any person in
respect of any Merger Consideration from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar Law.
SECTION 2.10 Investment of the Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Parent on a daily
basis. Any interest and other income resulting from such investments shall
promptly be paid to Parent.
SECTION 2.11 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect to the Shares
formerly represented thereby and unpaid dividends and distributions on shares
of Parent Common Stock deliverable in respect thereof pursuant to this
Agreement.
SECTION 2.12 Withholding Rights. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of Shares such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of a Law relating to Taxes. To the extent that
amounts are so withheld by the Surviving Corporation or Parent, as the case may
be, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the Shares in respect to which such
deduction and withholding was made by the Surviving Corporation or Parent, as
the case may be.
SECTION 2.13 Stock Transfer Books. The stock transfer books of the Company
shall be closed immediately upon the Effective Time and there shall be no
further registration of transfers of Shares thereafter on the records of the
Company. On or after the Effective Time, any Certificates presented to the
Exchange Agent or Parent for any reason shall be converted into the Merger
Consideration with respect to the Shares formerly represented thereby and any
dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2.5.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the Company to
Parent prior to the execution of this Agreement (the "Company Disclosure
Schedule") (each section of which qualifies the correspondingly-numbered
representation and warranty or covenant to the extent specified therein), the
Company hereby represents and warrants to each of Parent and Merger Sub as
follows:
SECTION 3.1 Organization and Qualification; Subsidiaries. (a) The Company
and each of its subsidiaries (as hereinafter defined) is a corporation or legal
entity duly organized, validly existing and in good
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standing under the Laws of the jurisdiction of its incorporation or formation
and has all requisite corporate, partnership or similar power and authority to
own, lease and operate its properties and to carry on its businesses as now
conducted and proposed by the Company to be conducted.
(b) Section 3.1 of the Company Disclosure Schedule identifies all
subsidiaries of the Company.
(c) Each of the Company and its subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing does not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(d) The Company has heretofore made available to Parent accurate and
complete copies of the certificate of incorporation and bylaws or equivalent
constituent documents, as currently in effect, of each of the Company and each
of its subsidiaries which on the date of determination is a "significant
subsidiary" within the meaning of Rule 1-02(w) of Regulation S-X promulgated
under the Exchange Act ("Significant Subsidiary").
SECTION 3.2 Capitalization of the Company and Its Subsidiaries. (a) The
authorized capital stock of the Company consists of: (i) 250,000,000 Shares, of
which 70,187,376 Shares were issued and outstanding and 3,052 shares of which
were held in the Company's treasury, in each case, as of the close of business
on January 31, 1999, and (ii) 10,000,000 shares of preferred stock, par value
$.001 per share, no shares of which are outstanding. All of the issued and
outstanding Shares have been validly issued, and are duly authorized, fully
paid, non-assessable and free of preemptive rights. As of February 25, 1999,
5,281,547 Shares were reserved for issuance and issuable pursuant to the
Directors Restricted Stock Plan or otherwise deliverable in connection with the
exercise of outstanding Company Stock Options issued pursuant to the Company
Option Plans. Except for the Company Rights and as set forth above, as of the
date hereof, there are outstanding (i) no shares of capital stock or other
voting securities of the Company, (ii) no securities of the Company or its
subsidiaries convertible into or exchangeable for shares of capital stock or
voting securities of the Company, (iii) no options or other rights to acquire
from the Company or its subsidiaries, and no obligations of the Company or its
subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company, and (iv) no equity equivalents, interests in the ownership or earnings
of the Company or its subsidiaries or other similar rights (including stock
appreciation rights) (collectively, "Company Securities"). There are no
outstanding obligations of the Company or its subsidiaries to repurchase,
redeem or otherwise acquire any Company Securities. There are no stockholder
agreements, voting trusts or other agreements or understandings to which the
Company is a party or to which it is bound relating to the voting of any shares
of capital stock of the Company.
(b) All of the outstanding capital stock of the Company's subsidiaries is
owned by the Company, directly or indirectly, free and clear of any Lien (as
hereinafter defined) or any other limitation or restriction (including any
restriction on the right to vote or sell the same, except as may be provided as
a matter of law). There are no securities of the Company or its subsidiaries
convertible into or exchangeable for, no options or other rights to acquire
from the Company or its subsidiaries, and no other contract, understanding,
arrangement or obligation (whether or not contingent) providing for the
issuance or sale, directly or indirectly, of, or granting a right of first
refusal, first negotiation, last look or similar right with respect to, any
capital stock or other ownership interests in, or any other securities of, any
subsidiary of the Company. There are no outstanding contractual obligations of
the Company or its subsidiaries to repurchase, redeem or otherwise acquire any
outstanding shares of capital stock or other ownership interests in any
subsidiary of the Company. For purposes of this Agreement, "Lien" means, with
respect to any asset (including, without limitation, any security) any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind in
respect of such asset.
SECTION 3.3 Authority Relative to This Agreement. (a) The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated
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hereby. No other corporate proceedings on the part of the Company are necessary
to authorize this Agreement or to consummate the transactions contemplated
hereby (other than, with respect to the Merger, the Company Requisite Vote (as
hereinafter defined)). This Agreement has been duly and validly executed and
delivered by the Company and constitutes a valid, legal and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(b) The Company Board has duly and validly authorized the execution and
delivery of this Agreement and approved the consummation of the transactions
contemplated hereby, and has taken all corporate actions required to be taken
by the Company Board for the consummation of the transactions, including the
Merger, contemplated hereby and, subject to Section 6.4(b), has resolved (i) to
deem this Agreement and the transactions contemplated hereby, including the
Merger, taken together, advisable and fair to and in the best interests of the
Company and its stockholders, and (ii) to recommend that the stockholders of
the Company approve and adopt this Agreement. The Company Board has directed
that this Agreement be submitted to the stockholders of the Company for their
approval. The affirmative approval of the holders of Shares representing a
majority of the votes that may be cast by the holders of all outstanding Shares
(the "Company Requisite Vote") is the only vote of the holders of any class or
series of capital stock of the Company necessary to adopt this Agreement and
approve the transactions contemplated hereby, including the Merger.
SECTION 3.4 SEC Reports; Financial Statements. The Company has filed all
required forms, reports and documents with the SEC since November 1, 1996, each
of which has complied in all material respects with all applicable requirements
of the Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), each as in effect on the dates such forms, reports and
documents were filed. The Company has heretofore made available to Parent, in
the form filed with the SEC (including any amendments thereto), (i) its Annual
Reports on Form 10-K for each of the fiscal years ended September 30, 1997 and
1998 and its Form 10 filed November 26, 1996, (ii) all definitive proxy
statements relating to the Company's meetings of stockholders (whether annual
or special) held since January 1, 1997, and (iii) all other reports or
registration statements filed by the Company with the SEC since November 1,
1996 (the "Company SEC Reports"). None of such forms, reports or documents,
including, without limitation, any financial statements or schedules included
or incorporated by reference therein, contained, when filed, any untrue
statement of a material fact or omitted to state a material fact required to be
stated or incorporated by reference therein or 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 included
in the Company SEC Reports complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto and fairly present, in conformity with generally
accepted accounting principles applied on a consistent basis ("GAAP") (except
as may be indicated in the notes thereto), the consolidated financial position
of the Company and its consolidated subsidiaries as of the dates thereof and
their consolidated results of operations and changes in financial position for
the periods then ended (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments).
SECTION 3.5 No Undisclosed Liabilities. Except as and to the extent publicly
disclosed by the Company in the Company SEC Reports, none of the Company or its
subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, and there is no existing condition, situation
or set of circumstances which would reasonably be expected to result in such a
liability or obligation, other than liabilities or obligations provided for in
the consolidated balance sheet of the Company (including the notes thereto) as
of September 30, 1998, liabilities or obligations under this Agreement and
liabilities or obligations which would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
SECTION 3.6 Absence of Changes. Except as and to the extent publicly
disclosed in the Company SEC Reports or as expressly permitted by Section 5.1,
since September 30, 1998, the Company and its
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subsidiaries have conducted their business in the ordinary and usual course
consistent with past practice and there has not been:
(a) any event, occurrence or development which does or would reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company
(other than payment of the Company's regular quarterly cash dividend on
Company Common Stock), or any repurchase, redemption or other acquisition
by the Company or any subsidiary of the Company of any Company Securities;
(c) any amendment of any term of any outstanding security of the Company
or any subsidiary of the Company that would materially increase the
obligations of the Company or such subsidiary under such security;
(d) (x) any incurrence or assumption by the Company or any subsidiary of
the Company of any indebtedness for borrowed money, other than borrowings
under existing credit facilities (or any renewals, replacements or
extensions that do not increase the aggregate commitments thereunder) that
are incurred (A) in the ordinary and usual course of business consistent
with past practice (it being understood that any indebtedness incurred
prior to the date hereof in respect of capital expenditures shall be
considered to have been in the ordinary and usual course of business
consistent with past practice) or (B) in connection with (1) any
acquisition or capital expenditure permitted by Section 5.1 or (2) the
transactions contemplated hereby, or (y) any guarantee, endorsement or
other incurrence or assumption of liability (whether directly, contingently
or otherwise) by the Company or any subsidiary of the Company for the
obligations of any other person (other than the Company or any wholly owned
subsidiary of the Company), other than in the ordinary and usual course of
business consistent with past practice;
(e) any creation or assumption by the Company or any subsidiary of the
Company of any Lien on any material asset of the Company or any subsidiary
of the Company other than in the ordinary and usual course of business
consistent with past practice;
(f) any making of any loan, advance or capital contribution to or
investment in any person by the Company or any subsidiary of the Company
other than (i) loans, advances or capital contributions to or investments
in wholly owned subsidiaries of the Company or (ii) loans or advances to
employees of the Company or any subsidiary made in the ordinary and usual
course of business consistent with past practice;
(g) (i) any contract or agreement entered into by the Company or any
subsidiary of the Company on or prior to the date hereof relating to any
material acquisition or disposition of any assets or business other than in
the ordinary course of business or (ii) any modification, amendment,
assignment, termination or relinquishment by the Company or any subsidiary
of the Company of any contract, license or other right (including any
insurance policy naming it as a beneficiary or a loss payable payee) that
does or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company;
(h) any material change in any method of accounting or accounting
principles or practice by the Company or any subsidiary of the Company,
except for any such change required by reason of a change in GAAP; or
(i) any (i) grant of any severance or termination pay to any director,
officer or employee of the Company or any of its subsidiaries, (ii)
entering into of any employment, deferred compensation, change in control
or other similar agreement (or any amendment to any such existing
agreement) with any director, officer or employee of the Company or any of
its subsidiaries, (iii) increase in benefits payable under any existing
severance or termination pay policies or employment agreements or (iv)
increase in compensation, bonus or other benefits payable to directors,
officers or employees of the Company or any of its subsidiaries other than,
in the case of clause (i) with respect to non-executive employees and
clause (iv) only, in the ordinary course of business consistent with past
practice.
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SECTION 3.7 Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock pursuant to the
Merger (the "S-4") will, at the time the S-4 is filed with the SEC and at the
time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) the proxy statement relating to the Company Stockholder Meeting (as
hereinafter defined) and Parent Stockholder Meeting (as hereinafter defined) to
be held in connection with the Merger and the Share Issuance, respectively (the
"Proxy Statement"), will, at the date mailed to stockholders and at the times
of the meetings of stockholders to be held in connection with the Merger,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect
to the Company, its officers and directors or any of its subsidiaries should
occur which is required to be described in an amendment of, or a supplement to,
the S-4 or the Proxy Statement, the Company shall promptly so advise Parent and
such event shall be so described, and such amendment or supplement (which
Parent shall have a reasonable opportunity to review) shall be promptly filed
with the SEC and, as required by Law, disseminated to the stockholders of the
Company. The Proxy Statement, insofar as it relates to the Company Stockholder
Meeting, will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.
SECTION 3.8 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), the filing and recordation of the
Certificate of Merger as required by the DGCL and as otherwise set forth in
Section 3.8 to the Company Disclosure Schedule, no filing with or notice to,
and no permit, authorization, consent or approval of, any court or tribunal or
administrative, governmental or regulatory body, agency or authority (a
"Governmental Entity") or other third party is necessary for the execution and
delivery by the Company of this Agreement or the consummation by the Company of
the transactions contemplated hereby, except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings or give
such notice does not and would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on the Company.
SECTION 3.9 No Default. Neither the Company nor any of its subsidiaries are
in violation of any term of (i) its certificate of incorporation, bylaws or
other organizational documents, (ii) any agreement or instrument related to
indebtedness for borrowed money or any other agreement to which it is a party
or by which it is bound, or (iii) any foreign or domestic law, order, writ,
injunction, decree, ordinance, award, stipulation, statute, judicial or
administrative doctrine, rule or regulation enacted by a Governmental Entity
("Law") applicable to the Company, its subsidiaries or any of their respective
properties or assets, the consequence of which violation does or would
reasonably be expected to (A) have, in the case of (ii) or (iii), individually
or in the aggregate, a Material Adverse Effect on the Company or (B) prevent or
materially delay the performance of this Agreement by the Company. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not (i) violate the certificate of
incorporation, bylaws or other organizational documents of the Company or any
of its subsidiaries, (ii) violate or conflict with, constitute a default under,
require any consent, waiver or notice under any term of, or result in the
reduction or loss of any benefit or the creation or acceleration of any right
or obligation under, any agreement, note, bond, mortgage, indenture, contract,
lease, Company Permit (as hereinafter defined) or other obligation or right to
which the Company or any of its subsidiaries is a party or by which any of the
assets or properties of the Company or any of its subsidiaries is bound, (iii)
violate any applicable Law, or (iv) result in the creation or imposition of any
Lien upon any of the properties or assets of the Company or any of its
subsidiaries, except, in the case of clauses (ii) through (iv) only, where any
of the foregoing do not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
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SECTION 3.10 Litigation. Except as and to the extent publicly disclosed by
the Company in the Company SEC Reports, there is no suit, claim, action or
proceeding pending or, to the Company's knowledge, threatened, nor to the
knowledge of the Company, is there any investigation pending or threatened,
against the Company or any of its subsidiaries or any of their respective
properties or assets which (a) would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company or
(b) as of the date hereof, questions the validity of this Agreement or any
action to be taken by the Company in connection with the consummation of the
transactions contemplated hereby or is reasonably likely to otherwise prevent
or delay the consummation of the transactions contemplated by this Agreement.
Except as and to the extent publicly disclosed by the Company in the Company
SEC Reports, none of the Company or its subsidiaries is subject to any
outstanding order, writ, injunction or decree which does or would reasonably be
expected to have a Material Adverse Effect on the Company.
SECTION 3.11 Compliance with Applicable Law. The Company and its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "Company Permits"), except for failures to
hold such permits, licenses, variances, exemptions, orders and approvals which
do not or would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company. The Company and its
subsidiaries are in compliance with the terms of the Company Permits, except
where the failure to so comply does not or would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company. The businesses of the Company and its subsidiaries are not being
conducted in violation of any Law applicable to the Company or its
subsidiaries, except for violations or possible violations which do not and
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company. To the Company's knowledge, no
investigation or review by any Governmental Entity with respect to the Company
or its subsidiaries is pending or threatened, nor, to the Company's knowledge,
has any Governmental Entity indicated an intention to conduct the same, other
than, in each case, those which do not or would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company.
SECTION 3.12 Employee Plans. (a) Section 3.12(a) of the Company Disclosure
Schedule lists all material "employee benefit plans," as defined in Section
3(3) of ERISA, including any "multiemployer plan," as defined in Section 3(37)
of ERISA (a "Multiemployer Plan") and all other material employee benefit plans
or other benefit arrangements, including, without regard to materiality, all
executive compensation, directors' benefit, bonus or other incentive
compensation, change in control, severance and deferred compensation plans
which the Company or any of its subsidiaries maintains, contributes to or has
any obligation to or liability for (each a "Company Employee Benefit Plan" and
collectively, the "Company Employee Benefit Plans").
(b) True, correct and complete copies of each Company Employee Benefit Plan
(and, where applicable, the most recent summary plan description, actuarial
report, determination letter, most recent Form 5500 and trust agreement) have
been made available to Parent for review prior to the date hereof.
(c) As of the date hereof, (i) all payments required to be made by or under
any Company Employee Benefit Plan, any related trusts, or any collective
bargaining agreement have been made; (ii) the Company and its subsidiaries have
performed all material obligations required to be performed by them under any
Company Employee Benefit Plan; (iii) the Company Employee Benefit Plans have
been administered in material compliance with their terms and the requirements
of ERISA, the Code and other applicable Laws; (iv) there are no material
actions, suits, arbitrations or claims (other than routine claims for benefit)
pending or threatened with respect to any Company Employee Benefit Plan; and
(v) the Company and its subsidiaries have no material liability as a result of
any "prohibited transaction" (as defined in Section 406 of ERISA and Section
4975 of the Code) for any excise tax or civil penalty.
(d) None of the Company Employee Benefit Plans is subject to Title IV of
ERISA (the "Company Title IV Plans") and, as of the most recent plan valuation
date, the "accumulated benefit obligations", and the "projected benefit
obligations" of each Company Title IV Plan that is currently sponsored by the
Company or
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any trades or businesses (whether or not incorporated) which are or have ever
been under common control, or which are or have ever been treated as a single
employer, with the Company under Section 414(b), (c), (m) or (o) of the Code
(an "ERISA Affiliate") using the actuarial assumptions used by each such plan's
actuary for FAS 87 purposes, does not exceed the fair market value of the
assets of each such Plan.
(e) The Company and its subsidiaries have not incurred any material
withdrawal liability with respect to any Company Benefit Plan which is a
Multiemployer Plan.
(f) Each of the Company Benefit Plans which is intended to be "qualified"
within the meaning of Section 401(a) of the Code has been determined by the
Internal Revenue Service to be so "qualified" and the Company knows of no fact
which would adversely affect the qualified status of any such plan.
(g) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment becoming due, or materially increase the amount of
compensation due, to any current or former employee of the Company or any of
its subsidiaries; (ii) materially increase any benefits otherwise payable under
any Company Employee Benefit Plan; or (iii) result in the acceleration of the
time of payment or vesting of any such material benefits.
SECTION 3.13 Labor Matters. (a) Section 3.13 of the Company Disclosure
Schedule sets forth a list of all material employment, labor or collective
bargaining agreements to which the Company or any subsidiary of the Company is
party and except as set forth therein, there are no material employment, labor
or collective bargaining agreements which pertain to employees of the Company
or any of its subsidiaries. The Company has heretofore made available to Parent
true and complete copies of the (A) employment agreements listed on Section
3.13 of the Company Disclosure Schedule and the (B) labor or collective
bargaining agreements listed on Section 3.13 of the Company Disclosure
Schedule, together with all amendments, modifications, supplements and side
letters affecting the duties, rights and obligations of any party thereunder.
(b) (i) No employees of the Company or any of its subsidiaries are
represented by any labor organization; no labor organization or group of
employees of the Company or any of its subsidiaries has made a pending written
demand for recognition or certification; and, to the Company's knowledge, there
are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority. To the Company's knowledge, there are no
organizing activities involving the Company or any of its Subsidiaries
presently being engaged in by any labor organization or group of employees of
the Company or any of its subsidiaries;
(ii) There are no strikes, work stoppages, unfair labor practice charges,
grievances or complaints pending or threatened in writing by or on behalf of
any employee or group of employees of the Company or any of its Subsidiaries
other than any such charges, grievances or complaints which do not and would
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company; and
(iii) There are no complaints, charges or claims against the Company or any
of its subsidiaries pending, or threatened in writing to be brought or filed,
with any Governmental Entity or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment of any individual by the Company or any of its subsidiaries other
than any such complaints, charges or claims which do not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(c) The Company and each of its subsidiaries is in compliance with all Laws
relating to the employment of labor, including all such laws and orders
relating to wages, hours, collective bargaining, discrimination, civil rights,
safety and health, workers' compensation and the collection and payment of
withholding and/or Social Security taxes and similar taxes other than any such
non-compliance which does not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
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SECTION 3.14 Environmental Matters. (a) For purposes of this Agreement:
(i) "Environmental Costs and Liabilities" means any and all losses,
liabilities, obligations, damages (including compensatory, punitive and
consequential damages), fines, penalties, judgments, actions, claims, costs
and expenses (including, without limitation, fees, disbursements and
expenses of legal counsel, experts, engineers and consultants and the costs
of investigation and feasibility studies and cost to clean up, remove,
treat, or in any other way address any Hazardous Materials (as hereinafter
defined)) arising from, under or pursuant to any Environmental Law (as
hereinafter defined);
(ii) "Environmental Law" means any applicable federal, state, local or
foreign law (including common law), statute, rule, regulation, ordinance,
decree or other legal requirement relating to the protection of natural
resources, the environment and public and employee health and safety or
pollution or the release or exposure to Hazardous Materials (as hereinafter
defined) and shall include, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") (42
U.S.C. (S) 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. (S) 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. (S) 6901 et seq.), the Clean Water Act (33 U.S.C. (S) 1251 et seq.),
the Clean Air Act (33 U.S.C. (S) 7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. (S) 7401 et seq.), the Federal Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. (S) 136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.)("OSHA") and
the regulations promulgated pursuant thereto, and any such applicable state
or local statutes, and the regulations promulgated pursuant thereto as such
laws have been and may be amended or supplemented through the Closing Date;
(iii) "Hazardous Material" means any substance, material or waste which
is regulated, classified or otherwise characterized as hazardous, toxic,
pollutant, contaminant or words of similar meaning or regulatory effect by
any Governmental Entity or the United States, and includes, without
limitation, petroleum, petroleum by-products and wastes, asbestos and
polychlorinated biphenyls;
(iv) "Release" means any release, spill, effluent, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching, or
migration into the indoor or outdoor environment, or into or out of any
property currently or formerly owned, operated or leased by the applicable
party or its subsidiaries; and
(v) "Remedial Action" means all actions, including, without limitation,
any capital expenditures, required by a Governmental Entity or required
under or taken pursuant to any Environmental Law, or voluntarily undertaken
to (A) clean up, remove, treat, or in any other way, ameliorate or address
any Hazardous Materials or other substance in the indoor or outdoor
environment; (B) prevent the Release or threat of Release, or minimize the
further Release of any Hazardous Material so it does not endanger or
threaten to endanger the indoor or outdoor environment; (C) perform pre-
remedial studies and investigations or post-remedial monitoring and care
pertaining or relating to a Release; or (D) bring the applicable party into
compliance with any Environmental Law.
(b) Except as disclosed in the Company SEC Reports or as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect,
(i) The operations of the Company and its subsidiaries have been and are
in compliance with all Environmental Laws, and the Company is not aware of
any facts, circumstances or conditions, which would prevent compliance in
the future;
(ii) The Company and its subsidiaries have obtained and are in
compliance with all permits, authorizations, licenses or similar approvals
required under applicable Environmental Laws for the operations of their
respective businesses;
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(iii) The Company and its subsidiaries are not subject to any
outstanding written orders or material contracts with any Governmental
Entity or other person respecting (A) Environmental Laws, (B) Remedial
Action or (C) any Release or threatened Release of a Hazardous Material;
(iv) Neither the Company nor any of its subsidiaries has any actual or
contingent liability , and there are no facts, conditions, situations or
set of circumstances that could reasonably be expected to result in or be
the basis for any such liability in connection with the Release of any
Hazardous Material (whether on-site or off-site) nor have such entities
incurred or do such entities reasonably expect to incur any Environmental
Costs and Liabilities;
(v) The operations of the Company or its subsidiaries do not involve the
generation, transportation, treatment, storage or disposal of hazardous
waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in effect as
of the date of this Agreement) or any state equivalent;
(vi) No judicial or administrative proceedings are pending or, to the
Company's knowledge, threatened against the Company or its subsidiaries
alleging the violation of or seeking to impose liability pursuant to any
Environmental Law and no claim, summons or order has been received, no
complaint has been filed, no penalty has been assessed, and no
investigations, actions, suits or proceedings are pending or, to the
Company's knowledge, threatened against the Company or any of its
subsidiaries under Environmental Laws; and
(vii) The Company has made available to Parent copies of all
environmentally related assessments, audits, investigations, sampling or
similar reports of which the Company has knowledge relating to the Company
or its subsidiaries or any real property currently or formerly owned,
operated or leased by or for the Company or its subsidiaries.
SECTION 3.15. Taxes. Except as disclosed on Section 3.15 of the Company
Disclosure Schedule or except as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company:
(a) Each of the Company and each subsidiary has timely filed, or has
caused to be timely filed on its behalf (taking into account any extension
of time within which to file), all Tax Returns required to be filed by it,
and all such filed Tax Returns are true, complete and accurate in all
material respects. All Taxes shown to be due on such Tax Returns, or
otherwise required to be paid by the Company or a subsidiary, have been
timely paid.
(b) The most recent financial statements contained in the Company SEC
Reports reflect an adequate reserve for all Taxes payable by the Company
and its subsidiaries for all Taxable periods and portions thereof through
the date of such financial statements. No deficiency with respect to Taxes
has been proposed, asserted or assessed against the Company or any
subsidiary.
(c) The Federal income Tax Returns of the Company and each subsidiary
have been examined by and settled with the United States Internal Revenue
Service (or the applicable statue of limitations has expired) for all years
through 1990.
All assessments for Taxes due with respect to such completed and settled
examinations or any concluded litigation have been fully paid.
(d) Neither the Company nor any subsidiary has any obligation under any
agreement (either with any person or any taxing authority) with respect to
Taxes.
(e) Neither the Company nor any subsidiary has constituted either a
"distributing corporation" or a "controlled corporation" (within the
meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock
qualifying for tax-free treatment under Section 355 of the Code since the
effective date of Section 355(e) of the Code.
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(f) Since December 31, 1984, neither the Company nor any subsidiary has
been a member of an affiliated group of corporations within the meaning of
Section 1504 of the Code, other than the affiliated group of which the
Company is the common parent.
(g) No audit or other administrative or court proceedings are pending
with respect to Federal income or state income or franchise Taxes of the
Company or any subsidiary and no notice thereof has been received. No issue
has been raised by any taxing authority in any presently pending Federal
income or state income or franchise Tax audit that could be material and
adverse to the Company or any subsidiary for any period after the Effective
Time.
(h) No claim has been made by a taxing authority in a jurisdiction where
neither the Company nor any subsidiary files state income or franchise Tax
Returns that the Company or any subsidiary is or may be subject to income
or franchise taxation in that jurisdiction.
(i) Neither the Company nor any subsidiary is a party to any contract,
agreement or other arrangement which provides for the payment of any amount
which would not be deductible by reason of Section 162(m) of the Code.
(j) The Company has made available to Parent true and complete copies of
(i) all Federal income Tax Returns of the Company and its subsidiaries for
the preceding three taxable years and (ii) any audit report issued within
the last three years (or otherwise with respect to any audit or proceeding
in progress) relating to Federal income Taxes of the Company or any
subsidiary.
(k) Neither the Company nor any subsidiary (or any employee, officer or
director thereof) has taken or agreed to take any action that could
reasonably be expected to give rise to any liability of the Company under
Section V of the Tax Sharing and Indemnification Agreement dated as of
November 20, 1996 between Alco Standard Corporation and the Company.
(l) For purposes of this Agreement:
"Taxes" includes all forms of taxation, whenever created or imposed, and
whether of the United States or elsewhere, and whether imposed by a local,
municipal, governmental, state, foreign, Federal or other Governmental Entity,
or in connection with any agreement with respect to Taxes (including, without
limitation, the Tax Sharing and Indemnification Agreement dated as of November
20, 1996, between Alco Standard Corporation and the Company), including all
interest, penalties and additions imposed with respect to such amounts.
"Tax Returns" means all Federal, state, local, provincial and foreign Tax
returns, declarations, statements, reports, schedules, forms and information
returns and any amended Tax return relating to Taxes.
SECTION 3.16 Material Contracts. All of the material contracts of the
Company and its subsidiaries that are required to be described in the Company
SEC Reports or to be filed as exhibits thereto are described in the Company SEC
Reports or filed as exhibits thereto and are in full force and effect. Neither
the Company nor any of its subsidiaries nor any other party is in breach of or
in default under any such contract, except for such breaches and defaults as
have not had and would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
SECTION 3.17 Insurance. The insurance policies maintained by the Company or
any of its subsidiaries have been issued by insurers, which, to the Company's
knowledge, are reputable and financially sound, and provide coverage for the
operations conducted by the Company and its subsidiaries of a reasonably
prudent scope and coverage.
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SECTION 3.18 Real Property.
(a) Section 3.18 of the Company Disclosure Schedule sets forth all of the
material real property owned in fee by the Company and its subsidiaries. Each
of the Company and its subsidiaries has good and marketable title to each
parcel of real property owned by it free and clear of all Liens, except (i)
taxes and general and special assessments not in default and payable without
penalty and interest, and (ii) other liens, mortgages, pledges, encumbrances
and security interests which do not materially interfere with the Company's or
any of its subsidiaries' use and enjoyment of such real property or materially
detract from or diminish the value thereof.
(b) Section 3.18 of the Company Disclosure Schedule sets forth all material
leases, subleases and other agreements (the "Company Real Property Leases")
under which the Company or any of its subsidiaries uses or occupies or has the
right to use or occupy, now or in the future, any real property. Each Company
Real Property Lease constitutes the valid and legally binding obligation of the
Company or its subsidiaries, enforceable in accordance with its terms (except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general
applicability relating to or affecting creditors' rights or by general equity
principles), and is in full force and effect. The consummation of the
transactions contemplated by this Agreement will not result in any termination
event or condition or default of a material nature on the part of the Company
or any such subsidiary under any Company Real Property Lease.
SECTION 3.19 Intellectual Property.
(a) The Company and its subsidiaries own or possess adequate licenses or
other valid rights to use all material Intellectual Property used or held for
use in connection with the business of the Company and its subsidiaries as
currently conducted or as contemplated to be conducted.
(b) No current or prior use of any Intellectual Property by the Company and
its subsidiaries infringes on or otherwise violates the rights of any person
and such use is and has been in accordance with all applicable licenses,
pursuant to which the Company or any of its subsidiaries acquired the right to
use such Intellectual Property other than as would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company.
(c) No Intellectual Property owned/or licensed by the Company or its
subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual Property
other than as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company. For purposes of this
Agreement, "Intellectual Property" means all trademarks, trademark rights,
trade names, trade name rights, trade dress and other indications of origin,
brand names, certification rights, service marks, applications for trademarks
and for service marks, know-how and other proprietary rights and information;
inventions, discoveries and ideas, whether patentable or not, in any
jurisdiction; patents, patent rights and trade secrets; writings and other
works, whether copyrightable or not, in any jurisdiction; and any similar
intellectual property or proprietary rights.
SECTION 3.20 Year 2000. (a) Except as disclosed in the Company SEC Reports,
the Computer Programs (as hereinafter defined), computer firmware, computer
hardware (whether general or special purpose) and other similar or related
items of automated, computerized and/or software system(s) that are used by the
Company or by any of its subsidiaries in the conduct of their respective
businesses will not malfunction, will not cease to function, will not generate
incorrect data, and will not provide incorrect results when processing,
providing, and/or receiving (i) date-related data into and between the
twentieth and twenty-first centuries and (ii) date-related data in connection
with any valid date in the twentieth and twenty-first centuries.
(b) Neither the Company nor any of its subsidiaries has made other
representations or warranties to third parties regarding the ability of any
product or service sold, licensed, rendered or otherwise provided by the
Company or by any of its subsidiaries in the conduct of their respective
businesses to operate without malfunction, to operate without ceasing to
function, to generate correct data and to produce correct results when
processing, providing and/or receiving (i) date-related data into and between
the twentieth and twenty-
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first centuries and (ii) date-related data in connection with any valid date in
the twentieth and twenty-first centuries. For the purposes of this Agreement,
"Computer Programs" means (i) any and all material computer software programs,
including all source and object code; (ii) material databases and compilations,
including any and all data and collections of data, whether machine readable or
otherwise; (iii) material billing, reporting, and other management information
systems; (iv) all material descriptions, flow-charts and other work product
used to design, plan, organize and develop any of the foregoing; (v) all
material content contained on any Internet site(s); and (vi) all material
documentation, including user manuals and training materials, relating to any
of the foregoing.
SECTION 3.21 Opinion of Financial Advisor. Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") has delivered to the Company Board its opinion,
dated the date of this Agreement, to the effect that, as of such date, the
Exchange Ratio is fair to the holders of Shares from a financial point of view,
and such opinion has not been withdrawn or modified.
SECTION 3.22 Brokers. No broker, finder or investment banker (other than
DLJ, a true and correct copy of whose engagement agreement has been provided to
Parent) is entitled to any brokerage, finder's or other fee or commission or
expense reimbursement in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of the Company or any
of its affiliates.
SECTION 3.23 Tax Treatment. Neither the Company nor, to the Company's
knowledge, any of its affiliates or stockholders, has taken or agreed to take
(or failed to so take or agree to take) any action or is aware of any fact or
circumstance that could reasonably be expected to prevent the Merger from
qualifying as a reorganization under Section 368 of the Code.
SECTION 3.24 Takeover Statute; Dissenters' Rights. The Company has taken all
action required to be taken by it in order to exempt this Agreement and the
transactions contemplated hereby from, and this Agreement and the transactions
contemplated hereby (the "Covered Transactions") are exempt from, the
requirements of any "moratorium", "control share", "fair price", "affiliate
transaction", "business combination" or other antitakeover Laws and regulations
of any state (collectively, "Takeover Statutes"), including, without
limitation, Section 203 of the DGCL, or any antitakeover provision in the
Company's certificate of incorporation or bylaws. The provisions of Section 203
of DGCL do not apply to the Covered Transactions as they have been approved by
the Company Board. Holders of Shares do not have dissenters' rights in
connection with the Merger.
SECTION 3.25 Amendment to Rights Agreement. The Company Board has taken all
necessary action (including any amendment thereof) under the Rights Agreement,
dated as of December 30, 1996, between the Company and National City Bank, as
Rights Agent (the "Rights Agreement"), so that (x) none of the execution or
delivery of this Agreement, the exchange of the shares of Parent Common Stock
for the Shares in accordance with Article II, or any other transaction
contemplated hereby will cause (i) the rights (the "Company Rights") issued
pursuant to the Rights Agreement to become exercisable under the Rights
Agreement, (ii) Parent or Merger Sub to be deemed an "Acquiring Person" (as
defined in the Rights Agreement), or (iii) the "Stock Acquisition Date" (as
defined in the Rights Agreement) to occur upon any such event and (y) the
"Expiration Date" (as defined in the Rights Agreement) of the Company Rights
shall occur immediately prior to the Effective Time.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Except as set forth in the disclosure schedule delivered by Parent to the
Company prior to the execution of this Agreement (the "Parent Disclosure
Schedule") (each section of which qualifies the correspondingly-numbered
representation and warranty or covenant to the extent specified therein),
Parent and Merger Sub hereby represent and warrant to the Company as follows:
SECTION 4.1 Organization and Qualification; Subsidiaries. (a) Parent and
each of its subsidiaries is a corporation or legal entity duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation and has all requisite corporate, partnership or similar power and
authority to own, lease and operate its properties and to carry on its
businesses as now conducted and proposed by Parent to be conducted.
(b) Section 4.1 of the Parent Disclosure Schedule identifies all
subsidiaries of Parent.
(c) Each of Parent and its subsidiaries is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
duly qualified or licensed and in good standing does not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent.
(d) Parent has heretofore made available to Company accurate and complete
copies of the certificate of incorporation and bylaws or equivalent constituent
documents, as currently in effect, of each of Parent and its subsidiaries which
on the date of determination is a Significant Subsidiary and of Merger Sub.
SECTION 4.2 Capitalization of Parent and Its Subsidiaries. (a) The
authorized capital stock of Parent consists of: (i) 100,000,000 shares of
Parent Common Stock, without par value, of which 32,913,540 shares were issued
and outstanding and 285,191 shares of which were held in Parent's treasury, in
each case, as of the close of business on February 28, 1999, (ii) 1,000 shares
of Restructuring Stock, without par value, no shares of which are outstanding,
(iii) 5,000,000 shares of Series Preference Stock, without par value, no shares
of which are outstanding and (iv) 5,000,000 shares of Series Preferred Stock,
without par value, no shares of which are outstanding. All of the issued and
outstanding shares of Parent Common Stock have been validly issued, and are
duly authorized, fully paid, non-assessable and free of preemptive rights. As
of February 28, 1999, 1,026,005 shares of Parent Common Stock were reserved for
issuance and issuable upon or otherwise deliverable in connection with the
exercise of outstanding stock options. Except for the Parent Rights and as set
forth above, as of the date hereof, there are outstanding (i) no shares of
capital stock or other voting securities of Parent, (ii) except as provided in
Section 4.2 of the Parent Disclosure Schedule, no securities of Parent or its
subsidiaries convertible into or exchangeable for shares of capital stock or
voting securities of Parent, (iii) no options or other rights to acquire from
Parent or its subsidiaries, and no obligations of Parent or its subsidiaries to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Parent, and (iv) except
as provided in Section 4.2 of the Parent Disclosure Schedule, no equity
equivalents, interests in the ownership or earnings of Parent or its
subsidiaries or other similar rights (including stock appreciation rights)
(collectively, "Parent Securities"). There are no outstanding obligations of
Parent or its subsidiaries to repurchase, redeem or otherwise acquire any
Parent Securities. There are no stockholder agreements, voting trusts or other
agreements or understandings to which Parent is a party or to which it is bound
relating to the voting of any shares of capital stock of Parent.
(b) Except as set forth in Section 4.2 of the Parent Disclosure Schedule,
all of the outstanding capital stock of Parent's subsidiaries is owned by
Parent, directly or indirectly, free and clear of any Lien or any other
limitation or restriction (including any restriction on the right to vote or
sell the same, except as may be provided as a matter of law). There are no
securities of Parent or its subsidiaries convertible into or
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exchangeable for, no options or other rights to acquire from Parent or its
subsidiaries, and no other contract, understanding, arrangement or obligation
(whether or not contingent) or granting a right of first refusal first
negotiation, last look or similar right with respect to, providing for the
issuance or sale, directly or indirectly, of, any capital stock or other
ownership interests in, or any other securities of, any subsidiary of Parent.
Except as provided in Section 4.2 of the Parent Disclosure Schedule, there are
no outstanding contractual obligations of Parent or its subsidiaries to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other ownership interests in any subsidiary of Parent.
SECTION 4.3 Authority Relative to This Agreement. Each of Parent and Merger
Sub has all necessary corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the boards of
directors of Parent and Merger Sub and by Parent as the sole stockholder of
Merger Sub, and no other corporate proceedings on the part of Parent or Merger
Sub are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby other than the approval of the issuance of Parent Common
Stock required by the terms of this Agreement (the "Share Issuance") by the
holders of a majority of the total votes cast on the Share Issuance proposal
(the "Parent Requisite Vote") at the meeting of Parent stockholders called for
such purpose. This Agreement has been duly and validly executed and delivered
by each of Parent and Merger Sub and constitutes a valid, legal and binding
agreement of each of Parent and Merger Sub, enforceable against each of Parent
and Merger Sub in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
SECTION 4.4 SEC Reports; Financial Statements. (a) Parent has filed all
required forms, reports and documents with the SEC since January 1, 1996, each
of which has complied in all material respects with all applicable requirements
of the Securities Act and the Exchange Act, each as in effect on the dates such
forms, reports and documents were filed. Parent has heretofore made available
to the Company, in the form filed with the SEC (including any amendments
thereto), (i) its Annual Reports on Form 10-K for each of the fiscal years
ended September 30, 1996, 1997 and 1998, (ii) all definitive proxy statements
relating to Parent's meetings of stockholders (whether annual or special) held
since January 1, 1996, and (iii) all other reports or registration statements
filed by Parent with the SEC since January 1, 1996 (the "Parent SEC Reports").
None of such forms, reports or documents, including, without limitation, any
financial statements or schedules included or incorporated by reference
therein, contained, when filed, any untrue statement of a material fact or
omitted to state a material fact required to be stated or incorporated by
reference therein or 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 included in Parent SEC Reports
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and fairly present, in conformity with GAAP applied on a consistent
basis (except as may be indicated in the notes thereto), the consolidated
financial position of Parent and its consolidated subsidiaries as of the dates
thereof and their consolidated results of operations and changes in financial
position for the periods then ended (subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments).
SECTION 4.5 No Undisclosed Liabilities. Except as and to the extent publicly
disclosed by Parent in the Parent SEC Reports or as disclosed in Section 4.5 of
the Parent Disclosure Schedule, none of Parent or its subsidiaries had any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, and there is no existing condition, situation or set of
circumstances which would reasonably be expected to result in such a liability
or obligation, other than liabilities or obligations provided for in the
consolidated balance sheet of Parent (including the notes thereto) as of
September 30, 1998, liabilities or obligations under this Agreement and
liabilities or obligations which would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
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SECTION 4.6 Absence of Changes. Except as and to the extent publicly
disclosed in the Parent SEC Reports or as expressly permitted by Section 5.1,
since September 30, 1998, Parent and its subsidiaries have conducted their
business in the ordinary and usual course consistent with past practice and
there has not been:
(a) any event, occurrence or development which does or would reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on Parent;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Parent (other
than payment of Parent's regular quarterly cash dividend on Parent Common
Stock), or any repurchase, redemption or other acquisition by Parent or any
subsidiary of Parent of any Parent Securities;
(c) any amendment of any term of any outstanding security of Parent or
any subsidiary of Parent that would materially increase the obligations of
Parent or such subsidiary under such security;
(d) (x) any incurrence or assumption by Parent or any subsidiary of
Parent of any indebtedness for borrowed money, other than borrowings under
existing credit facilities (or any renewals, replacements or extensions
that do not increase the aggregate commitments thereunder) that are
incurred (A) in the ordinary and usual course of business consistent with
past practice (it being understood that any indebtedness incurred prior to
the date hereof in respect of capital expenditures shall be considered to
have been in the ordinary and usual course of business consistent with past
practice) or (B) in connection with (1) any acquisition or capital
expenditure permitted by Section 5.1 or (2) the transactions contemplated
hereby, or (y) any guarantee, endorsement or other incurrence or assumption
of liability (whether directly, contingently or otherwise) by Parent or any
subsidiary of Parent for the obligations of any other person (other than
Parent or any wholly owned subsidiary of Parent), other than in the
ordinary and usual course of business consistent with past practice;
(e) any creation or assumption by Parent or any subsidiary of Parent of
any Lien on any material asset of Parent or any subsidiary of Parent other
than in the ordinary and usual course of business consistent with past
practice;
(f) any making of any loan, advance or capital contribution to or
investment in any person by Parent or any subsidiary of Parent other than
(i) loans, advances or capital contributions to or investments in wholly
owned subsidiaries of Parent or (ii) loans or advances to employees of
Parent or any subsidiary of Parent made in the ordinary and usual course of
business consistent with past practice;
(g) (i) any contract or agreement entered into by Parent or any
subsidiary of Parent on or prior to the date hereof relating to any
material acquisition or disposition of any assets or business other than in
the ordinary course of business or (ii) any modification, amendment,
assignment, termination or relinquishment by Parent or any subsidiary of
Parent of any contract, license or other right (including any insurance
policy naming it as a beneficiary or a loss payable payee) that does or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent;
(h) any material change in any method of accounting or accounting
principles or practice by Parent or any subsidiary of Parent, except for
any such change required by reason of a change in GAAP; or
(i) any (i) grant of any severance or termination pay to any director,
officer or employee of Parent or any of its subsidiaries, (ii) entering
into of any employment, deferred compensation, change in control or other
similar agreement (or any amendment to any such existing agreement) with
any director, officer or employee of Parent or any of its subsidiaries,
(iii) increase in benefits payable under any existing severance or
termination pay policies or employment agreements or (iv) increase in
compensation, bonus or other benefits payable to directors, officers or
employees of Parent or any of its subsidiaries other than, in the case of
clause (i) with respect to non-executive employees and clause (iv) only in
the ordinary and usual course of business consistent with past practice.
SECTION 4.7 Information Supplied. None of the information supplied or to be
supplied by Parent or Merger Sub for inclusion or incorporation by reference in
(i) the S-4 will, at the time the S-4 is filed with the
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SEC and at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and (ii) the Proxy Statement will, at the date mailed to stockholders and at
the times of the meetings of stockholders to be held in connection with the
Merger or the Share Issuance, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. If at any time prior to the Effective Time
any event with respect to Parent, its officers and directors or any of its
subsidiaries should occur which is required to be described in an amendment of,
or a supplement to, the S-4 or the Proxy Statement, Parent shall promptly so
advise the Company and such event shall be so described, and such amendment or
supplement (which the Company shall have a reasonable opportunity to review)
shall be promptly filed with the SEC and, as required by Law, disseminated to
the stockholders of Parent. The S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the rules and
regulations thereunder, and the Proxy Statement, insofar as it relates to the
Company Stockholder Meeting, will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder.
SECTION 4.8 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, the filing and recordation of the
Certificate of Merger as required by the DGCL and as otherwise set forth in
Section 4.8 to the Parent Disclosure Schedule, no filing with or notice to, and
no permit, authorization, consent or approval of, any Governmental Entity or
other third party is necessary for the execution and delivery by Parent or
Merger Sub of this Agreement or the consummation by Parent or Merger Sub of the
transactions contemplated hereby, except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings or give
such notice does not and would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Parent.
SECTION 4.9 No Default. Neither Parent nor any of its subsidiaries are in
violation of any term of (i) its certificate of incorporation, bylaws or other
organizational documents, (ii) any agreement or instrument related to
indebtedness for borrowed money or any other agreement to which it is a party
or by which it is bound, or (iii) any Law applicable to Parent, its
subsidiaries or any of their respective properties or assets, the consequence
of which violation does or would reasonably be expected to (A) have, in the
case of (ii) or (iii) individually or in the aggregate, a Material Adverse
Effect on Parent or (B) prevent or materially delay the performance of this
Agreement by Parent or Merger Sub. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
will not (i) violate the certificate of incorporation, bylaws or other
organizational documents of Parent or any of its subsidiaries, (ii) violate or
conflict with, constitute a default under, require any consent, waiver or
notice under any term of, or result in the reduction or loss of any benefit or
the creation or acceleration of any right or obligation under, any agreement,
note, bond, mortgage, indenture, contract, lease, Parent Permit (as hereinafter
defined) or other obligation or right to which Parent or any of its
subsidiaries is a party or by which any of the assets or properties of Parent
or any of its subsidiaries is bound, (iii) violate any applicable Law, or (iv)
result in the creation or imposition of any Lien upon any of the properties or
assets of Parent or any of its subsidiaries, except, in the case of clauses
(ii) through (iv) only, where any of the foregoing do not or would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent.
SECTION 4.10 Litigation. Except as and to the extent publicly disclosed by
Parent in the Parent SEC Reports, there is no suit, claim, action or proceeding
pending or, to Parent's knowledge, threatened, nor to the knowledge of Parent,
is there any investigation pending or threatened, against Parent or any of its
subsidiaries or any of their respective properties or assets which (a) would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent or (b) as of the date hereof, questions the validity
of this Agreement or any action to be taken by Parent in connection with the
consummation of the transactions contemplated hereby or is reasonably likely to
otherwise prevent or delay the consummation of the transactions
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contemplated by this Agreement. Except as and to the extent publicly disclosed
by Parent in the Parent SEC Reports, none of Parent or its subsidiaries is
subject to any outstanding order, writ, injunction or decree which does or
would reasonably be expected to have a Material Adverse Effect on Parent.
SECTION 4.11 Compliance with Applicable Law. Parent and its subsidiaries
hold all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Parent Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which do not or would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent. Parent and its subsidiaries are in compliance with
the terms of the Parent Permits, except where the failure so to comply does not
or would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on Parent. The businesses of Parent and its
subsidiaries (including Parent's share repurchase program) are not being
conducted in violation of any Law applicable to Parent or its subsidiaries
except for violations or possible violations which do not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent. To the knowledge of Parent, no investigation or
review by any Governmental Entity with respect to Parent or its subsidiaries is
pending or threatened, nor, to Parent's knowledge, has any Governmental Entity
indicated an intention to conduct the same, other than, in each case, those
which do not or would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on Parent.
SECTION 4.12 Employee Plans. (a) Section 4.12(a) of the Parent Disclosure
Schedule lists all material "employee benefit plans," as defined in Section
3(3) of ERISA, including any Multiemployer Plan, and all other material
employee benefit plans or other benefit arrangements, including, without regard
to materiality, all executive compensation, change in control, directors'
benefit, bonus or other incentive compensation, severance and deferred
compensation plans which Parent or any of its subsidiaries maintains,
contributes to or has any obligation to or liability for (each a "Parent
Employee Benefit Plan" and collectively, the "Parent Employee Benefit Plans").
(b) True, correct and complete copies of each Parent Employee Benefit Plan
(and, where applicable, the most recent summary plan description, actuarial
report, determination letter, most recent Form 5500 and trust agreement) have
been made available to the Company for review prior to the date hereof.
(c) As of the date hereof, (i) all payments required to be made by or under
any Parent Employee Benefit Plan, any related trusts, or any collective
bargaining agreement have been made; (ii) Parent and its subsidiaries have
performed all material obligations required to be performed by them under any
Parent Employee Benefit Plan; (iii) Parent Employee Benefit Plans have been
administered in material compliance with their terms and the requirements of
ERISA, the Code and other applicable Laws; (iv) there are no material actions,
suits, arbitrations or claims (other than routine claims for benefit) pending
or threatened with respect to any Employee Benefit Plan; and (v) Parent and its
subsidiaries have no material liability as a result of any "prohibited
transaction" (as defined in Section 406 of ERISA and Section 4975 of the Code)
for any excise tax or civil penalty.
(d) None of the Employee Benefit Plans is subject to Title IV of ERISA (the
"Parent Title IV Plans") and, as of the most recent plan valuation date, the
"accumulated benefit obligations", and the "projected benefit obligations" of
each Parent Title IV Plan that is currently sponsored by Parent or any of its
ERISA Affiliates using the actuarial assumptions used by each such plan's
actuary for FAS 87 purposes, does not exceed the fair market value of the
assets of each such Plan.
(e) Parent and its subsidiaries have not incurred any material withdrawal
liability with respect to any Parent Benefit Plan which is Multiemployer Plan.
(f) Each of Parent Benefit Plans which is intended to be "qualified" within
the meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so "qualified" and Parent knows of no fact which would
adversely affect the qualified status of any such plan.
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(g) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment becoming due, or materially increase the amount of
compensation due, to any current or former employee of Parent or any of its
subsidiaries; (ii) materially increase any benefits otherwise payable under any
Parent Employee Benefit Plan; or (iii) result in the acceleration of the time
of payment or vesting of any such material benefits.
SECTION 4.13 Labor Matters. (a) Section 4.13 of the Parent Disclosure
Schedule sets forth a list of all material employment, labor or collective
bargaining agreements to which Parent or any subsidiary of Parent is party and
except as set forth therein, there are no material employment, labor or
collective bargaining agreements which pertain to employees of Parent or any of
its subsidiaries. Parent has heretofore made available to the Company true and
complete copies of the (A) employment agreements listed on Section 4.13 of the
Parent Disclosure Schedule and the (B) labor or collective bargaining
agreements listed on Section 4.13 of the Parent Disclosure Schedule, together
with all amendments, modifications, supplements and side letters affecting the
duties, rights and obligations of any party thereunder.
(b) (i) No employees of Parent or any of its subsidiaries are represented by
any labor organization; no labor organization or group of employees of Parent
or any of its subsidiaries has made a pending written demand for recognition or
certification; and, to Parent's knowledge, there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened in writing to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority. To Parent's knowledge, there are no organizing activities involving
Parent or any of its Subsidiaries presently being engaged in by any labor
organization or group of employees of Parent or any of its subsidiaries;
(ii) There are no strikes, work stoppages, unfair labor practice charges,
grievances or complaints pending or threatened in writing by or on behalf of
any employee or group of employees of Parent or any of its subsidiaries other
than any such changes, grievances or complaints which do not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent; and
(iii) There are no complaints, charges, grievance or claims against Parent
or any of its subsidiaries pending, or threatened in writing to be brought or
filed, with any Governmental Entity or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment of any individual by Parent or any of its subsidiaries other than
any such complaints, charges or claims which do not and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on Parent.
(c) Parent and each of its subsidiaries is in compliance with all Laws
relating to the employment of labor, including all such laws and orders
relating to wages, hours, collective bargaining, discrimination, civil rights,
safety and health, workers' compensation and the collection and payment of
withholding and/or Social Security taxes and similar taxes other than any such
non-compliance which does not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
SECTION 4.14 Environmental Matters. (a) Except as disclosed in Parent SEC
Reports or as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect:
(i) The operations of Parent and its subsidiaries have been and are in
compliance with all Environmental Laws, and Parent is not aware of any
facts, circumstances or conditions, which would prevent compliance in the
future;
(ii) Parent and its subsidiaries have obtained and are in compliance
with all permits, authorizations, licenses or similar approvals required
under applicable Environmental Laws for the operations of their respective
businesses;
(iii) Parent and its subsidiaries are not subject to any outstanding
written orders or material contracts with any Governmental Entity or other
person respecting (A) Environmental Laws, (B) Remedial Action or (C) any
Release or threatened Release of a Hazardous Material;
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(iv) Neither Parent nor any of its subsidiaries has any actual or
contingent liability, and there are no facts, conditions, situations or set
of circumstances that could reasonably be expected to result in or be the
basis for any such liability in connection with the Release of any
Hazardous Material (whether on-site or off-site) nor have such entities
incurred or do such entities reasonably expect to incur any Environmental
Costs and Liabilities;
(v) The operations of Parent or its subsidiaries do not involve the
generation, transportation, treatment, storage or disposal of hazardous
waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in effect as
of the date of this Agreement) or any state equivalent;
(vi) No judicial or administrative proceedings are pending or, to
Parent's knowledge, threatened against Parent or its subsidiaries alleging
the violation of or seeking to impose liability pursuant to any
Environmental Law and no claim, summons or order has been received, no
complaint has been filed, no penalty has been assessed and no
investigations, actions, suits or proceedings are pending or, to Parent's
knowledge, threatened against Parent or any of its subsidiaries under
Environmental Laws; and
(vii) Parent has made available to the Company copies of all
environmentally related assessments, audits, investigations, sampling or
similar reports of which Parent has knowledge relating to Parent or its
subsidiaries or any real property currently or formerly owned, operated or
leased by or for Parent or its subsidiaries.
SECTION 4.15 Taxes. Except as disclosed on Section 4.15 of the Parent
Disclosure Schedule or except as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Parent:
(a) Each of Parent and each subsidiary has timely filed, or has caused
to be timely filed on its behalf (taking into account any extension of time
within which to file), all Tax Returns required to be filed by it, and all
such filed Tax Returns are true, complete and accurate in all material
respects. All Taxes shown to be due on such Tax Returns, or otherwise
required to be paid by Parent or a subsidiary, have been timely paid.
(b) The most recent financial statements contained in Parent SEC Reports
reflect an adequate reserve for all Taxes payable by Parent and its
subsidiaries for all Taxable periods and portions thereof through the date
of such financial statements. No deficiency with respect to Taxes has been
proposed, asserted or assessed against Parent or any subsidiary.
(c) The Federal income Tax Returns of Parent and each subsidiary have
been examined by and settled with the United States Internal Revenue
Service (or the applicable statue of limitations has expired) for all years
through 1994. All assessments for Taxes due with respect to such completed
and settled examinations or any concluded litigation have been fully paid.
(d) Neither Parent nor any subsidiary has any obligation under any
agreement (either with any person or any taxing authority) with respect to
Taxes.
(e) Neither Parent nor any subsidiary has constituted either a
"distributing corporation" or a "controlled corporation" (within the
meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock
qualifying for tax-free treatment under Section 355 of the Code since the
effective date of Section 355(e) of the Code.
(f) Since December 31, 1984, neither Parent nor any subsidiary has been
a member of an affiliated group of corporations within the meaning of
Section 1504 of the Code, other than the affiliated group of which Parent
is the common parent.
(g) No audit or other administrative or court proceedings are pending
with respect to Federal income or state income or franchise Taxes of Parent
or any subsidiary and no notice thereof has been received. No issue has
been raised by any taxing authority in any presently pending Federal income
or state income or
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franchise Tax audit that could be material and adverse to Parent or any
subsidiary for any period after the Effective Time.
(h) No claim has been made by a taxing authority in a jurisdiction where
neither Parent nor any subsidiary files state income or franchise Tax
Returns that Parent or any subsidiary is or may be subject to income or
franchise taxation in that jurisdiction.
(i) Neither Parent nor any subsidiary is a party to any contract,
agreement or other arrangement which provides for the payment of any amount
which would not be deductible by reason of Section 162(m) of the Code.
(j) Parent has made available to Company true and complete copies of (i)
all Federal income Tax Returns of Parent and its subsidiaries for the
preceding three taxable years and (ii) any audit report issued within the
last three years (or otherwise with respect to any audit or proceeding in
progress) relating to Federal income Taxes of Parent or any subsidiary.
SECTION 4.16 Material Contracts. Except as disclosed in Section 4.16 of the
Parent Disclosure Schedule, all of the material contracts of Parent and its
subsidiaries that are required to be described in the Parent SEC Reports or to
be filed as exhibits thereto are described in the Parent SEC Reports or filed
as exhibits thereto and are in full force and effect. Neither Parent nor any of
its subsidiaries nor any other party is in breach of or in default under any
such contract, except for such breaches and defaults as have not had and would
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent.
SECTION 4.17 Insurance. The insurance policies maintained by Parent or any
of its subsidiaries have been issued by insurers, which, to Parent's knowledge,
are reputable and financially sound, and provide coverage for the operations
conducted by Parent and its subsidiaries of a scope and coverage consistent
with customary industry practice.
SECTION 4.18 Real Property. (a) Section 4.18 of the Parent Disclosure
Schedule sets forth all of the material real property owned in fee by Parent
and its subsidiaries. Except as provided in Section 4.18 of the Parent
Disclosure Schedule, each of Parent and its subsidiaries has good and
marketable title to each parcel of real property owned by it free and clear of
all Liens, except (i) taxes and general and special assessments not in default
and payable without penalty and interest, and (ii) other liens, mortgages,
pledges, encumbrances and security interests which do not materially interfere
with Parent's or any of its subsidiaries' use and enjoyment of such real
property or materially detract from or diminish the value thereof.
(b) Section 4.18 of the Parent Disclosure Schedule sets forth all material
leases, subleases and other agreements (the "Parent Real Property Leases")
under which Parent or any of its subsidiaries uses or occupies or has the right
to use or occupy, now or in the future, any real property. Each Parent Real
Property Lease constitutes the valid and legally binding obligation of Parent
or its subsidiaries, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general
applicability relating to or affecting creditors' rights or by general equity
principles), and is in full force and effect. The consummation of the
transactions contemplated by this Agreement will not result in any termination
event or condition or default of a material nature on the part of Parent or any
such subsidiary under any Parent Real Property Lease.
SECTION 4.19 Intellectual Property.
(a) Parent and its subsidiaries own or possess adequate licenses or other
valid rights to use all material Intellectual Property used or held for use in
connection with the business of Parent and its subsidiaries as currently
conducted or as contemplated to be conducted.
(b) No current or prior use of any Intellectual Property by Parent and its
subsidiaries infringes on or otherwise violates the rights of any person and
such use is and has been in accordance with all applicable
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licenses pursuant to which Parent or any of its subsidiaries acquired the right
to use such Intellectual Property other than as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on Parent.
(c) No Intellectual Property owned/or licensed by Parent or its subsidiaries
is being used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of such Intellectual Property other than as
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent.
SECTION 4.20 Year 2000. (a) Except as disclosed in the Parent SEC Reports,
the Computer Programs, computer firmware, computer hardware (whether general or
special purpose) and other similar or related items of automated, computerized
and/or software system(s) that are used by Parent or by any of its subsidiaries
in the conduct of their respective businesses will not malfunction, will not
cease to function, will not generate incorrect data, and will not provide
incorrect results when processing, providing, and/or receiving (i) date-related
data into and between the twentieth and twenty-first centuries and (ii) date-
related data in connection with any valid date in the twentieth and twenty-
first centuries.
(b) Neither Parent nor any of its subsidiaries has made other
representations or warranties to third parties regarding the ability of any
product or service sold, licensed, rendered or otherwise provided by Parent or
by any of its subsidiaries in the conduct of their respective businesses to
operate without malfunction, to operate without ceasing to function, to
generate correct data and to produce correct results when processing, providing
and/or receiving (i) date-related data into and between the twentieth and
twenty-first centuries and (ii) date-related data in connection with any valid
date in the twentieth and twenty-first centuries.
SECTION 4.21 Opinion of Financial Advisor. Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") has delivered to the Board of Directors of
Parent (the "Parent Board") its opinion, dated the date of this Agreement, to
the effect that, as of such date, the Exchange Ratio is fair to Parent from a
financial point of view, and such opinion has not been withdrawn or modified.
SECTION 4.22 Brokers. No broker, finder or investment banker (other than
Merrill Lynch, a true and correct copy of whose engagement agreement has been
provided to the Company) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Parent or Merger Sub or any of
their affiliates.
SECTION 4.23 Tax Treatment. Neither Parent nor, to Parent's knowledge, any
of its affiliates, has taken or agreed to take (or failed to so take or agree
to take) any action or is aware of any fact or circumstance that could
reasonably be expected to prevent the Merger from qualifying as a
reorganization under Section 368 of the Code.
SECTION 4.24 No Prior Activities. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby, Merger
Sub has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind whatsoever or entered into any
agreement or arrangement with any person.
SECTION 4.25 Takeover Statute. Parent has taken all action required to be
taken by it in order to exempt the Covered Transactions from, and the Covered
Transactions are exempt from, the requirements of any Takeover Statutes or any
antitakeover provision in Parent's certificate of incorporation or bylaws. The
provisions of Section 2555 of the Pennsylvania Business Corporation Law
("PBCL") do not apply to the Covered Transactions as they have been approved by
the Parent Board.
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ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business of the Company and Parent. Except as
contemplated by this Agreement, during the period from the date hereof to the
Effective Time, each of the Company and Parent covenants and agrees that it
will, and will cause each of its subsidiaries to, conduct its operations in the
ordinary and usual course of business consistent with past practice and, to the
extent consistent therewith, with no less diligence and effort than would be
applied in the absence of this Agreement, seek to preserve intact its current
business organizations, seek to keep available the service of its current
officers and employees and seek to preserve its relationships with customers,
suppliers and others having business dealings with it to the end that goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement or in the Company Disclosure Schedule or the Parent
Disclosure Schedule, as the case may be, prior to the Effective Time, each of
the Company and Parent agrees that it will not, nor will any of its
subsidiaries, without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed:
(a) amend its certificate of incorporation or bylaws (or other similar
governing instrument) or in the case of the Company amend, modify or
terminate the Rights Agreement;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities convertible into
or exchangeable for any stock or any equity equivalents (including, without
limitation, any stock options or stock appreciation rights), except (i) for
the issuance or sale of shares pursuant to outstanding stock options as set
forth in Section 5.1(b) of the Company Disclosure Schedule or Section
5.1(b) of the Parent Disclosure Schedule, as the case may be, or (ii) the
issuance of other shares of Company Common Stock or Parent Common Stock, as
the case may be, upon the exercise of outstanding securities convertible
into or exchangeable for such shares;
(c) (i) split, combine or reclassify any shares of its capital stock,
(ii) declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of its
capital stock except, for the payment of regular quarterly cash dividends
with usual record and payment dates in accordance with past dividend
practice, in the case of the Company not to exceed $.05 per share of
Company Common Stock and, in the case of Parent not to exceed $.365 per
share of Parent Common Stock, (iii) make any other actual, constructive or
deemed distribution in respect of any shares of its capital stock or
otherwise make any payments to stockholders in their capacity as such, or
(iv) redeem, repurchase or otherwise acquire any of its securities or any
securities of any of its subsidiaries (including in the case of the Company
redeeming any Rights) other than the purchase by Parent of Parent Common
Stock in an aggregate amount not to exceed $250,000,000;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization (other than the Merger);
(e) alter through merger, liquidation, reorganization, restructuring or
in any other fashion the corporate structure or ownership of any
subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any
debt securities, except for borrowings under existing lines of credit in
the ordinary and usual course of business consistent with past practice;
(ii) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person, except in the ordinary and usual course of business
consistent with past practice and except for obligations of the wholly
owned subsidiaries; (iii) make any loans, advances or capital contributions
to, or investments in, any other person (other than to its wholly owned
subsidiaries or customary loans or advances to employees in the ordinary
and usual course of business consistent with past practice and in amounts
not material to the maker of such loan or
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advance); (iv) pledge or otherwise encumber shares of its capital stock or
its subsidiaries; or (v) mortgage or pledge any of its material assets,
tangible or intangible, or create or suffer to exist any material Lien
thereupon;
(g) except as may be required by law or as contemplated by this
Agreement, enter into, adopt or amend or terminate any bonus, profit
sharing, compensation, severance, termination, stock option stock,
appreciation right, performance unit, stock equivalent, stock purchase
agreement, pension, retirement, deferred compensation, employment,
severance or other employee benefit agreement, trust, plan, fund, award or
other arrangement for the benefit or welfare of any director, officer or
employee in any manner, or (except for normal increases in the ordinary and
usual course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to it, and as required under existing agreements) increase in any
manner the compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any plan and arrangement as in
effect as of the date hereof (including, without limitation, the granting
of stock appreciation rights or performance units);
(h) acquire, sell, lease or dispose of any assets outside the ordinary
and usual course of business consistent with past practice or any assets
which in the aggregate are material to it and its subsidiaries taken as a
whole, enter into any commitment or transaction outside the ordinary and
usual course of business consistent with past practice or grant any
exclusive distribution rights;
(i) except as may be required as a result of a change in Law or in GAAP,
change any of the accounting principles or practices used by it;
(j) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory or writing-off
notes or accounts receivable other than in the ordinary and usual course of
business consistent with past practice or as required by GAAP;
(k) (i) except as disclosed in Section 5.1(k) of the Parent Disclosure
Schedule, acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (ii) enter into any
contract or agreement, other than in the ordinary and usual course of
business consistent with past practice or, in the case of the Company,
amend in any material respect any of the Company Contracts or the
agreements referred to in Section 3.18 or, in the case of Parent, amend in
any material respect any of Parent Contracts or agreements referred to in
Section 4.18; (iii) authorize any new capital expenditure or expenditures
which, individually, is in excess of $30,000,000 or, in the aggregate, are
in excess of $95,000,000; or (iv) enter into or amend any contract,
agreement, commitment or arrangement providing for the taking of any action
that would be prohibited hereunder;
(l) make or revoke any tax election or settle or compromise any tax
liability material to it and its subsidiaries taken as a whole or change
(or make a request to any taxing authority to change) any material aspect
of its method of accounting for tax purposes;
(m) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary and usual course of business consistent with past practice of
liabilities incurred in the ordinary and usual course of business
consistent with past practice, or waive the benefits of, or agree to modify
in any manner, any confidentiality, standstill or similar agreement to
which it or any of its subsidiaries is a party;
(n) settle or compromise any material pending or threatened suit, action
or claim relating to the transactions contemplated hereby;
(o) take any action (including any action otherwise permitted by this
Section 5.1) that could reasonably be expected to prevent or impede the
Merger from qualifying as a reorganization under Section 368 of the Code;
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(p) enter into any agreement or arrangement that limits or otherwise
restricts it or any of its subsidiaries or any successor thereto or that is
reasonably likely to, after the Effective Time, limit or restrict the
Surviving Corporation and its affiliates (including Parent) or any
successor thereto, from engaging or competing in any line of business or in
any geographic area; or
(q) take, propose to take, or agree in writing or otherwise to take, any
of the actions described in Sections 5.1(a) through 5.1(p) or any action
which would make any of its representations or warranties contained in this
Agreement (i) which are qualified as to materiality untrue or incorrect or
(ii) which are not so qualified untrue or incorrect in any material
respect.
SECTION 5.2 Access to Information. (a) Between the date hereof and the
Effective Time, each of the Company and Parent shall give the other party and
their authorized representatives (including counsel, financial advisors and
auditors) reasonable access during normal business hours to all its and its
subsidiaries employees, plants, offices, warehouses and other facilities and to
all its and its subsidiaries books and records and will permit the other to
make such inspections as the other may reasonably require and will cause its
officers and those of its subsidiaries to furnish the other party with such
financial and operating data and other information with respect to its
business, properties and personnel and its subsidiaries as the other may from
time to time reasonably request, provided that no investigation pursuant to
this Section 5.2(a) shall affect or be deemed to modify any of the
representations or warranties contained herein.
(b) Between the date hereof and the Effective Time, each of the Company and
Parent shall furnish to the other party at the earliest time they are
available, such quarterly and annual financial statements as are prepared for
its Company SEC Reports or Parent SEC Reports, as the case may be, which shall
be in accordance with such entity's books and records.
(c) Each of the Company and Parent will hold and will cause its authorized
representatives to hold in confidence all documents and information concerning
the other in connection with the transactions contemplated by this Agreement
pursuant to the terms of that certain Confidentiality Agreement entered into
between the Company and Parent dated January 20, 1999 (the "Confidentiality
Agreement").
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of S-4 and the Proxy Statement. Parent and the
Company will, as promptly as practicable, jointly prepare and file with the SEC
the Proxy Statement in connection with the Company Requisite Vote with respect
to the Merger and the Parent Requisite Vote with respect to the Share Issuance.
Parent will, as promptly as practicable, prepare, following receipt of
notification from the SEC that it has no further comments on the Proxy
Statement, and file with the SEC the S-4, containing the Proxy Statement, in
connection with the registration under the Securities Act of the shares of
Parent Common Stock issuable upon conversion of the Shares. Parent and the
Company will, and will cause their accountants and lawyers to, use all
reasonable best efforts to have or cause the S-4 to be declared effective as
promptly as practicable after filing with the SEC and to maintain such
effectiveness until the Effective Time, including, without limitation, causing
their accountants to deliver necessary or required instruments such as
opinions, consents and certificates, and will take any other action required or
necessary to be taken under federal or state securities Laws or otherwise in
connection with the registration process (other than qualifying to do business
in any jurisdiction which it is not now so qualified or to file a general
consent to service of process in any jurisdiction). The Company and Parent
shall, as promptly as practicable after the receipt thereof, provide to the
other party copies of any written comments and advise the other party of any
oral comments received from the staff of the SEC with respect to the Proxy
Statement or the S-4. Each of Parent and the Company will use its reasonable
best efforts to cause the Proxy Statement to be mailed to its stockholders at
the earliest practicable date.
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SECTION 6.2 Meetings. (a) The Company shall take all lawful action to (i)
cause a special meeting of its stockholders (the "Company Stockholder Meeting")
to be duly called and held as soon as practicable after the date of this
Agreement for the purpose of voting on the approval and adoption of this
Agreement and (ii) solicit proxies from its stockholders to obtain the Company
Requisite Vote for the approval and adoption of this Agreement. The Company
Board shall recommend approval and adoption of this Agreement and the Merger by
the Company's stockholders and, subject to Section 6.4(b), the Company Board
shall not be permitted to withdraw, amend or modify in a manner adverse to
Parent such recommendation (or announce publicly its intention to do so).
(b) Parent shall take all lawful action to (i) cause a special meeting of
its stockholders (the "Parent Stockholder Meeting") to be duly called and held
as soon as practicable after the date of this Agreement for the purpose of
voting on the approval of the Share Issuance and (ii) solicit proxies from its
stockholders to obtain the Parent Requisite Vote. The Parent Board shall
recommend approval of the Share Issuance by Parent's stockholders and, subject
to Section 6.4(b), the Parent Board shall not be permitted to withdraw, amend
or modify in a manner adverse to the Company such recommendation (or announce
publicly its intention to do so).
SECTION 6.3 Reasonable Best Efforts. (a) Subject to the terms and conditions
of this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws to consummate the Merger
and the other transactions contemplated by this Agreement. In furtherance and
not in limitation of the foregoing, each party hereto agrees to make an
appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated hereby as promptly as practicable
and in any event within ten business days of the date hereof and to supply as
promptly as practicable any additional information and documentary material
that may be requested pursuant to the HSR Act and to take all other actions
necessary to cause the expiration or termination of the applicable waiting
periods under the HSR Act as soon as practicable.
(b) Each of Parent and the Company shall, in connection with the efforts
referenced in Section 6.3(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under the
HSR Act or any other Antitrust Law, use its reasonable best efforts to (i)
cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry, including
any proceeding initiated by a private party; (ii) keep the other party informed
in all material respects of any material communication received by such party
from, or given by such party to, the Federal Trade Commission (the "FTC"), the
Antitrust Division of the Department of Justice (the "DOJ") or any other
Governmental Entity and of any material communication received or given in
connection with any proceeding by a private party, in each case regarding any
of the transactions contemplated hereby; and (iii) permit the other party to
review any material communication given by it to, and consult with each other
in advance of any meeting or conference with, the FTC, the DOJ or any such
other Governmental Entity or, in connection with any proceeding by a private
party, with any other person, and to the extent permitted by the FTC, the DOJ
or such other applicable Governmental Entity or other person, give the other
party the opportunity to attend and participate in such meetings and
conferences. For purposes of this Agreement, "Antitrust Law" means the Sherman
Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, and all other Laws that are designed or intended to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade or lessening of competition through merger
or acquisition.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Sections 6.3(a) and (b), each of Parent and the Company shall use
its reasonable best efforts to resolve such objections, if any, as may be
asserted with respect to the transactions contemplated hereby under any
Antitrust Law. In connection with the foregoing, if any administrative or
judicial action or proceeding, including any proceeding by a private party, is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Antitrust Law, each of
Parent and the Company shall cooperate in all respects with each other and use
its respective reasonable best efforts to contest and resist any such action or
proceeding and to
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have vacated, lifted, reversed or overturned any decree, judgment, injunction
or other order, whether temporary, preliminary or permanent, that is in effect
and that prohibits, prevents or restricts consummation of the transactions
contemplated by this Agreement. Notwithstanding the foregoing or any other
provision of this Agreement, nothing in this Section 6.3 shall (i) limit a
party's right to terminate this Agreement pursuant to Section 8.2(i) so long as
such party has up to then complied in all material respects with its
obligations under this Section 6.3 or (ii) require Parent or the Company to
dispose or hold separate any part of its business or operations or agree not to
compete in any geographic area or line of business.
SECTION 6.4 Acquisition Proposals. (a) From the date hereof until the
Effective Time and except as expressly permitted by the following provisions of
this Section 6.4, the Company and Parent will not, nor will they permit any of
their subsidiaries to, nor will they authorize or permit any of their or their
subsidiaries' respective officers, directors or employees of or any investment
banker, attorneys, accountants or other advisors or representatives to,
directly or indirectly, (i) solicit, initiate or knowingly encourage the
submission of any Acquisition Proposal (as hereinafter defined) or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate,
any Acquisition Proposal or any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal; provided, however, that nothing contained in this Section 6.4(a)
shall prohibit the Board of either party from furnishing information to, or
entering into discussions or negotiations with, any person that makes an
unsolicited bona fide written Acquisition Proposal if, and only to the extent
that (A) in the case of the Company, the Company Stockholder Meeting shall not
have occurred, and in the case of Parent, Parent Stockholder Meeting shall not
have occurred, (B) the Board of such party, after consultation with and based
upon the advice of independent legal counsel, determines in good faith that
such action is necessary for such Board to comply with its fiduciary duties to
such party's stockholders under applicable Law, (C) the Board of such party,
after consultation with its financial advisor, determines in good faith that
such Acquisition Proposal, if accepted, is reasonably likely to be consummated,
taking into account all legal, financial and regulatory aspects of the proposal
and the person making the proposal and would, if consummated, result in a
transaction more favorable to such party's stockholders from a financial point
of view than the Merger (any such more favorable Acquisition Proposal being
referred to herein as a "Superior Proposal") and (D) prior to taking such
action, such party (x) provides reasonable notice to the other party to the
effect that it is taking such action and (y) receives from such person an
executed confidentiality/standstill agreement in reasonably customary form and
in any event containing terms at least as stringent as those contained in the
Confidentiality Agreement. Prior to providing any information to or entering
into discussions or negotiations with any person in connection with an
Acquisition Proposal by such person, the Company or Parent, as the case may be,
shall notify the other party of any Acquisition Proposal (including, without
limitation, the material terms and conditions thereof and the identity of the
person making it) as promptly as practicable (but in no case later than 12
hours) after its receipt thereof, shall thereafter inform the other party on a
prompt basis of the status of any discussions or negotiations with such a third
party and any material changes to the terms and conditions of such Acquisition
Proposal and shall promptly give the other party a copy of any information
delivered to such person which has not previously been reviewed by the other
party. Immediately after the execution and delivery of this Agreement, the
Company and Parent will, and will cause their respective subsidiaries,
affiliates, officers, directors, employees, investment bankers, attorneys,
accountants and other agents to, cease and terminate any existing activities,
discussions or negotiations with any third parties conducted heretofore with
respect to any possible Acquisition Proposal and shall notify each third party
that it, or any officer, director, investment advisor, financial advisor,
attorney or other representative retained by it, has had discussions with
during the 30 days prior to the date of this Agreement that the Company Board
or the Parent Board, as the case may be, no longer seeks the making of any
Acquisition Proposal. The Company and Parent agree that they 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 6.4(a).
(b) Neither the Company Board or the Parent Board, as the case may be, will
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
the other party, its approval or recommendation of this Agreement or the Merger
unless such Board determines in good faith, taking into account all legal,
financial
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and regulatory aspects, that the failure to do so would constitute a breach by
such Board of its fiduciary duties under applicable Law, provided, however,
neither the Company Board or the Parent Board, as the case may be, may approve
or recommend (and in connection therewith, withdraw or modify its approval or
recommendation of this Agreement or the Merger, in the case of the Company
Board, or the Share Issuance, in the case of the Parent Board) an Acquisition
Proposal unless such an Acquisition Proposal is a Superior Proposal (and the
Company or Parent, as the case may be, first shall have complied with its
obligations set forth in Section 8.3(a) or Section 8.4(a), as the case may be,
and the time period referred to in the last sentence of Section 8.3(a) or
8.4(a), as the case may be, has expired) and unless it shall have first
consulted with outside counsel, and have determined that the refusal to do so
would constitute a breach by such Board of its fiduciary duties under
applicable Laws. Nothing contained in this Section 6.4(b) shall prohibit the
Company and Parent from taking and disclosing to their stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making
any disclosure to their stockholders which, in the good faith reasonable
judgment of the Company Board or the Parent Board, as the case may be, based on
the advice of independent legal counsel, is required under applicable Law;
provided that, except as otherwise permitted in this Section 6.4(b), neither
the Company nor Parent may withdraw or modify, or propose to withdraw or
modify, its position with respect to the Merger or approve or recommend, or
propose to approve or recommend, an Acquisition Proposal. Notwithstanding
anything contained in this Agreement to the contrary, any action by the Company
Board or the Parent Board permitted by, and taken in accordance with, this
Section 6.4(b) shall not constitute a breach of this Agreement by the Company
or Parent. Nothing in this Section 6.4(b) shall (i) permit the Company or
Parent to terminate this Agreement (except as provided in Article VIII hereof)
or (ii) affect any other obligations of the Company or Parent under this
Agreement.
SECTION 6.5 Public Announcements. The initial press release concerning the
Merger and the transactions contemplated hereby shall be a joint press release
of Parent and the Company. Thereafter, each of Parent, Merger Sub and the
Company will consult with one another before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such
consultation, except as may be required by applicable Law or by obligations
pursuant to any listing agreement with any securities exchange, as determined
by Parent, Merger Sub or the Company, as the case may be.
SECTION 6.6 Indemnification; Directors' and Officers' Insurance. (a) From
and after the Effective Time, to the fullest extent permitted by applicable
Law, the Surviving Corporation shall, and Parent shall cause the Surviving
Corporation to, indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof, or who becomes prior to the
Effective Time, a director, officer or employee of the Company or any
subsidiary thereof (each an "Indemnified Party" and, collectively, the
"Indemnified Parties") against all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages, liabilities or, subject to the
proviso of the next succeeding sentence, amounts paid in settlement, arising
out of actions or omissions occurring at or prior to the Effective Time and
whether asserted or claimed prior to, at or after the Effective Time that are
in whole or in part (i) based on or arising out of the fact that such person is
or was a director, officer or employee of such party or a subsidiary of such
party or (ii) based on, arising out of or pertaining to the transactions
contemplated by this Agreement. In the event of any such loss, expense, claim,
damage or liability (whether or not arising before the Effective Time), (i) the
Surviving Corporation shall pay the reasonable fees and expenses of counsel
selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to Parent, promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request reimbursement of
documented expenses reasonably incurred, in either case to the extent not
prohibited by the DGCL and upon receipt of any affirmation and undertaking
required by the DGCL, (ii) the Surviving Corporation 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 the DGCL and the Surviving Corporation's articles of
incorporation or bylaws shall be made by independent counsel mutually
acceptable to Parent and the Indemnified Party; provided, however, that the
Surviving Corporation shall not be liable for any settlement effected without
its written consent (which
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consent shall not be unreasonably withheld). The Indemnified Parties as a group
may retain only one law firm with respect to each related matter 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 positions of any two or more Indemnified Parties.
(b) For a period of 6 years after the Effective Time, Parent shall cause to
be maintained in effect the policies of directors' and officers' liability
insurance maintained by the Company for the benefit of those persons who are
covered by such policies at the Effective Time (or Parent may substitute
therefor policies of at least the same coverage with respect to matters
occurring prior to the Effective Time), to the extent that such liability
insurance can be maintained or obtained annually at a cost to Parent not
greater than 200 percent of the premium for the current Company directors' and
officers' liability insurance; provided that if such insurance cannot be so
maintained or obtained at such cost, Parent shall maintain or obtain as much of
such insurance as can be so maintained or obtained at a cost equal to 200
percent of the current annual premiums of the Company for such insurance.
(c) In the event Parent or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then and in either such case, proper provision shall be made so that the
successors and assigns of Parent shall assume the obligations set for in this
Section 6.6.
(d) In addition to the indemnification provided pursuant to Section 6.6(a),
to the fullest extent permitted by Law, from and after the Effective Time, all
rights to indemnification now existing in favor of the employees, agents,
directors or officers of the Company and its subsidiaries with respect to their
activities as such prior to the Effective Time, as provided in the Company's
certificate of incorporation or bylaws, in effect on the date hereof, shall
survive the Merger and shall continue in full force and effect for a period of
not less than six years from the Effective Time.
(e) The provisions of this Section 6.6 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her representatives.
SECTION 6.7 Notification of Certain Matters. The Company shall give prompt
notice to Parent and Merger Sub, and Parent and Merger Sub shall give prompt
notice to the Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any
representation or warranty contained in this Agreement, which is qualified as
to materiality, to be untrue or inaccurate, or any representation or warranty
not so qualified, to be untrue or inaccurate in any material respect at or
prior to the Effective Time, (ii) any material failure of the Company, Parent
or Merger Sub, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder, (iii)
any notice of, or other communication relating to, a default or event which,
with notice or lapse of time or both, would become a default, received by it or
any of its subsidiaries subsequent to the date of this Agreement and prior to
the Effective Time under any contract or agreement to which it or any of its
subsidiaries is a party or is subject material to the financial condition,
business or results of operations of it and its subsidiaries, taken as a whole,
(iv) any notice or other communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement, or (v) any Material Adverse Effect
with respect to such party; provided, however, that the delivery of any notice
pursuant to this Section 6.7 shall not cure such breach or non-compliance or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 6.8 Tax-Free Reorganization Treatment. (a) The Company, Parent and
Merger Sub shall execute and deliver to Davis Polk & Wardwell, counsel to the
Company, and Weil, Gotshal & Manges LLP, counsel to Parent, certificates
substantially in the forms agreed to by the parties on or prior to the date
hereof (with such changes as reasonably requested by such law firms) at such
time or times as reasonably requested by such law firms in connection with
their respective deliveries of opinions with respect to the transactions
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contemplated hereby. Prior to the Effective Time, none of the Company, Parent
or Merger Sub shall take or cause to be taken any action which would cause to
be untrue any of the representations in such certificates.
(b) After the Effective Time, Parent shall not take any action that could
reasonably be expected to cause any of its representations contained in the
certificate delivered by Parent pursuant to Section 6.8(a) to be untrue in any
material respect.
SECTION 6.9 Employee Matters. Parent shall cause the Surviving Corporation
to honor the obligations of the Company or any of its subsidiaries under the
provisions of all collective bargaining, employment, consulting, termination,
severance, change in control and indemnification agreements between and among
the Company or any of its subsidiaries and any current or former officer,
director, consultant or employee of the Company or any of its subsidiaries as
set forth in the appropriate Sections of the Company Disclosure Schedule. For a
period of six (6) months following the Effective Time, Parent agrees that it
will maintain, or will cause the Surviving Corporation and its subsidiaries to
maintain, for the benefit of the employees of the Company and any of its
subsidiaries following the Effective Time compensation and benefit plans,
programs, arrangements and policies (other than equity based compensation
plans, programs, arrangements and policies) as will provide compensation and
benefits which in the aggregate are not materially less favorable than those
provided to such employees as of the date hereof under the Company Employee
Benefit Plans (other than such equity based compensation plans, programs,
arrangement and policies) in accordance with their written terms (except as set
forth on Sections 3.12 and 5.1 of the Company Disclosure Schedule with respect
to acceleration of options on termination of employment by the Company) as made
available to Parent and without regard to formal or informal discretionary
provisions; provided, however, the equity match in the Company's qualified
401(k) plan shall be continued during such period substituting a cash
contribution in lieu of Company Stock unless, at the discretion of Parent,
Parent elects to substitute Common Stock of Parent.
SECTION 6.10 Post-Merger Board of Directors; Executive Officer. (a) The
Parent Board shall take such action as may be necessary to cause the number of
directors comprising the Parent Board at the Effective Time to be increased to
ten directors, five of whom shall be current members of the Parent Board
designated by Parent, four of whom shall be current members of the Company
Board designated by the Company (the "Company Designees") and one of whom shall
be James W. Stratton.
(b) The Parent Board shall take such action as may be necessary to cause at
the Effective Time (i) at least one Company Designee to be added to each
committee of the Parent Board and (ii) a Company Designee, who may be the
person referred to in clause (i), reasonably acceptable to Parent, to be the
Chairman of the Compensation Committee and the Audit Committee.
(c) The Parent Board shall take such action as may be necessary to cause Lon
R. Greenberg to be the Chairman, President and Chief Executive Officer of
Parent at the Effective Time.
SECTION 6.11 Fees and Expenses. Whether or not the Merger is consummated,
all Expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such Expenses, except
(a) Expenses incurred in connection with the filing, printing and mailing of
the Proxy Statement, which shall be shared equally by Parent and the Company
and (b) if applicable, as provided in Section 8.5. As used in this Agreement,
"Expenses" includes all out-of-pocket expenses (including all fees and expenses
of counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the preparation, printing, filing and mailing of the Proxy Statement
and the solicitation of stockholder approvals and all other matters related to
the transactions contemplated hereby.
SECTION 6.12 Obligations of Merger Sub. Parent will take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement.
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SECTION 6.13 Listing of Stock. Parent shall use its best efforts to cause
the shares of Parent Common Stock to be issued in connection with the Merger
and upon the exercise of the Assumed Stock Options to be approved for listing
on the New York Stock Exchange on or prior to the Closing Date, subject to
official notice of issuance.
SECTION 6.14 Antitakeover Statutes. If any Takeover Statute is or may become
applicable to the Merger, each of Parent and Company shall take such actions as
are necessary so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of any Takeover Statute on
the Merger.
SECTION 6.15 Rule 145 Affiliates. Within 45 days of the date of this
Agreement, the Company shall deliver to Parent a list of those persons who are,
in the Company's reasonable judgment, "affiliates" of the Company within the
meaning of Rule 145 under the Securities Act (each such person, a "Rule 145
Affiliate"). The Company agrees that it shall use its reasonable best efforts
to deliver or cause to be delivered to Parent at or prior to the Effective Time
from each of the Rule 145 Affiliates a written agreement, substantially in the
form of Exhibit 6.15 hereto.
SECTION 6.16 Corporate Identity. At the Effective Time, the corporate name
of Parent shall be changed from "UGI Corporation" to a name that is mutually
acceptable to Parent and the Company, which name shall include the word
"Unisource" and shall not include the word "UGI."
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to
the Effective Time of each of the following conditions, any or all of which may
be waived in whole or in part by the party being benefitted thereby, to the
extent permitted by applicable Law:
(a) This Agreement shall have been approved and adopted by the Company
Requisite Vote and the Share Issuance shall have been approved by the
Parent Requisite Vote.
(b) Any waiting period applicable to the Merger under the HSR Act shall
have expired or early termination thereof shall have been granted without
any material limitation, restriction or condition.
(c) There shall not be in effect any Law of any Governmental Entity of
competent jurisdiction, restraining, enjoining or otherwise preventing
consummation of the transactions contemplated by this Agreement or
permitting such consummation only subject to any condition or restriction
that has or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company (or an effect on Parent
and its subsidiaries that, were such effect applied to the Company and its
subsidiaries, has or would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company), and no
Governmental Entity shall have instituted any proceeding which continues to
be pending seeking any such Law.
(d) The S-4 shall have been declared effective by the SEC and shall be
effective at the Effective Time, and no stop order suspending its
effectiveness shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have
been initiated and be continuing, and all necessary approvals under state
securities Laws or the Securities Act or Exchange Act relating to the
issuance or trading of Parent Common Stock shall have been received.
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(e) Parent Common Stock required to be issued hereunder and upon
exercise of the Assumed Stock Options shall have been approved for listing
on the NYSE, subject only to official notice of issuance.
SECTION 7.2 Conditions to the Obligations of Parent and Merger Sub. The
respective obligations of Parent and Merger Sub to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to
the Effective Time of each of the following additional conditions, any or all
of which may be waived in whole or part by Parent and Merger Sub, as the case
may be, to the extent permitted by applicable Law:
(a) The representations and warranties of the Company contained herein
shall be true and correct on and as of the Closing Date as though made on
and as of the Closing Date (except for representations and warranties made
as of a specified date, which need be true and correct only as of the
specified date); provided, however, that for the purposes of this Section
7.2(a) only, such representations and warranties shall be deemed to be true
and correct unless the failure or failures of such representations and
warranties to be so true and correct (without regard to materiality
qualifiers contained therein) has or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(b) The Company shall have performed or complied in all material
respects with all agreements and conditions contained herein required to be
performed or complied with by it prior to or at the time of the Closing.
(c) The Company shall have delivered to Parent a certificate, dated the
date of the Closing, signed by the President or any Vice President of the
Company (but without personal liability thereto), certifying as to the
fulfillment of the conditions specified in Sections 7.2(a) and 7.2(b).
(d) Parent shall have received an opinion of Weil, Gotshal & Manges LLP,
dated the Effective Time, to the effect that (i) the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code; (ii) each of Parent, Merger Sub and the Company
will be a party to the reorganization within the meaning of Section 368(b)
of the Code; (iii) no gain or loss will be recognized by the Company,
Parent or Merger Sub as a result of the Merger. In rendering such opinion,
Weil, Gotshal & Manges LLP may receive and rely upon representations
contained in the certificates of the Company, Parent and Merger Sub
referred to in Section 6.8.
SECTION 7.3 Conditions to the Obligations of the Company. The obligations of
the Company to consummate the transactions contemplated by this Agreement are
subject to the fulfillment at or prior to the Effective Time of each of the
following conditions, any or all of which may be waived in whole or in part by
the Company to the extent permitted by applicable law:
(a) The representations and warranties of Parent and Merger Sub
contained herein shall be true and correct on and as of the Closing Date as
though made on and as of the Closing Date (except for representations and
warranties made as of a specified date, which need be true and correct only
as of the specified date); provided, however, that for the purposes of this
Section 7.3(a) only, such representations and warranties shall be deemed to
be true and correct unless the failure or failures of such representations
and warranties to be so true and correct (without regard to materiality
qualifiers contained therein) has or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
(b) Parent and Merger Sub shall have performed or complied in all
material respects with all agreements and conditions contained herein
required to be performed or complied with by them prior to or at the time
of the Closing.
(c) Parent shall have delivered to the Company a certificate, dated the
date of the Closing, signed by the President or any Vice President of
Parent (but without personal liability thereto), certifying as to the
fulfillment of the conditions specified in Sections 7.3(a) and 7.3(b).
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(d) The Company shall have received an opinion of Davis Polk & Wardwell,
dated the Effective Time, to the effect that (i) the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code; (ii) each of Parent, Merger Sub and the Company
will be a party to the reorganization within the meaning of Section 368(b)
of the Code; and (iii) no gain or loss will be recognized by a stockholder
of the Company as a result of the Merger with respect to the shares of
Company Common Stock converted solely into shares of Parent Common Stock
(other than with respect to cash received in lieu of fractional shares of
Parent Common Stock). In rendering such opinion, Davis, Polk & Wardwell may
receive and rely upon representations contained in the certificates of the
Company, Parent and Merger Sub referred to in Section 6.8.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination by Mutual Agreement. 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 of this Agreement by the Company
Requisite Vote and the Share Issuance by the Parent Requisite Vote, by mutual
written consent of the Company and Parent by action of their respective Boards
of Directors.
SECTION 8.2 Termination by Either Parent or the Company. This Agreement may
be terminated and the Merger may be abandoned at any time prior to the
Effective Time by action of either the Parent Board or the Company Board if (i)
the Merger shall not have been consummated by September 30, 1999, whether such
date is before or after the date of approval of this Agreement by the Company
Requisite Vote or the Share Issuance by the Parent Requisite Vote (the
"Termination Date"); (ii) the Company Requisite Vote shall not have been
obtained at the Company Stockholder Meeting or at any adjournment or
postponement thereof; (iii) the Parent Requisite Vote shall not have been
obtained at the Parent Stockholder Meeting or at any adjournment or
postponement thereof; or (iv) any Law permanently restraining, enjoining or
otherwise prohibiting consummation of the Merger shall become final and non-
appealable (whether before or after the approval by the Company Requisite Vote
or the Parent Requisite Vote); provided, that the right to terminate this
Agreement pursuant to this Section 8.2 shall not be available to any party that
has breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the occurrence of the
failure of the Merger to be consummated.
SECTION 8.3 Termination by the Company. 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 of this Agreement by the Company Requisite Vote,
by action of the Company Board:
(a) If (i) the Company is not in breach of Section 6.4, (ii) the Merger
shall not have been approved by the Company Requisite Vote, (iii) the
Company Board authorizes the Company, subject to complying with the terms
of this Agreement, to enter into a binding written agreement concerning a
transaction that constitutes a Superior Proposal and the Company notifies
Parent in writing that it intends to enter into such an agreement,
attaching the most current version of such agreement to such notice, (iv)
Parent does not make, within five business days of receipt of the Company's
written notification of its intention to enter into a binding agreement for
a Superior Proposal, an offer that the Company Board determines, in good
faith after consultation with its financial advisors, is at least as
favorable, from a financial point of view, to the stockholders of the
Company as the Superior Proposal and (v) the Company prior to such
termination pays to Parent in immediately available funds the fee required
to be paid pursuant to Section 8.5. The Company agrees (x) that it will not
enter into a binding agreement referred to in clause (iii) above until at
least the sixth business day after it has provided the notice to Parent
required thereby and (y) to notify Parent promptly if its intention to
enter into the written agreement referred to in its notification shall
change at any time after giving such notification;
(b) Parent enters into a binding agreement for a Superior Proposal or
the Parent Board shall have withdrawn or adversely modified its approval or
recommendation of this Agreement or the Share Issuance;
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(c) If there is a breach by Parent or Merger Sub of any representation,
warranty, covenant or agreement contained in this Agreement that cannot be
cured and would cause a condition set forth in Section 7.3(a) or 7.3(b) to
be incapable of being satisfied as of the Termination Date.
SECTION 8.4 Termination by Parent. 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 of the Share Issuance by the Parent Requisite Vote, by
action of the Parent Board if:
(a) If (i) Parent is not in breach of Section 6.4, (ii) the Share
Issuance shall not have been approved by the Parent Requisite Vote, (iii)
the Parent Board authorizes Parent, subject to complying with the terms of
this Agreement, to enter into a binding written agreement concerning a
transaction that constitutes a Superior Proposal and Parent notifies the
Company in writing that it intends to enter into such an agreement,
attaching the most current version of such agreement to such notice, (iv)
the Company does not make, within five business days of receipt of Parent's
written notification of its intention to enter into a binding agreement for
a Superior Proposal, an offer that the Parent Board determines, in good
faith after consultation with its financial advisors, is at least as
favorable, from a financial point of view, to the stockholders of Parent as
the Superior Proposal and (v) Parent prior to such termination pays to the
Company in immediately available funds the fees required to be paid
pursuant to Section 8.5. Parent agrees (x) that it will not enter into a
binding agreement referred to in clause (iii) above until at least the
sixth business day after it has provided the notice to the Company required
thereby and (y) to notify the Company promptly if its intention to enter
into a written agreement referred to in its notification shall change at
any time after giving such notification;
(b) the Company enters into a binding agreement for a Superior Proposal
or the Company Board shall have withdrawn or adversely modified its
approval or recommendation of this Agreement or the Merger; or
(c) there is a breach by the Company of any representation, warranty,
covenant or agreement contained in this Agreement that cannot be cured and
would cause a condition set forth in Section 7.2(a) or 7.2(b) to be
incapable of being satisfied as of the Termination Date.
SECTION 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 this Section 8.5
or Sections 5.2(c), 6.11, 9.4, 9.8 and 9.9) 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 willful breach of
this Agreement.
(b) In the event that this Agreement is terminated by Parent pursuant to
Section 8.4(c), then the Company shall pay Parent an amount equal to all
documented Expenses incurred by Parent in connection with this Agreement, up to
an amount not to exceed $5,000,000. In addition, in the event that (i) this
Agreement is terminated by the Company pursuant to 8.3(a) or Parent pursuant to
8.4(b), or (ii) (x) this Agreement is terminated pursuant to Section 8.2(ii) or
terminated pursuant to Section 8.4(c) as a result of a willful breach by the
Company, (y) at the time of such termination or at the time of the Company
Stockholder Meeting there shall have been an Acquisition Proposal involving the
Company (which proposal shall not have been withdrawn prior to the time of such
termination or of such meeting) and (z) within 6 months of such termination an
Acquisition Proposal by a third party, or within 9 months of such termination
any Acquisition Proposal by the party that made the Acquisition Proposal
referred to above in clause (ii) (y) of this Section 8.5(b), is entered into,
agreed to or consummated by the Company, then the Company shall pay Parent a
termination fee of $25,000,000 in immediately available funds prior to such
termination, in the case of clause (i), or on the earlier of the date an
agreement is entered into with respect to an Acquisition Proposal or an
Acquisition Proposal is agreed to or consummated, in the case of clause (ii).
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(c) In the event that this Agreement is terminated by the Company pursuant
to Section 8.3(c), then Parent shall pay Company an amount equal to all
documented Expenses incurred by the Company in connection with this Agreement,
up to an amount not to exceed $5,000,000. In addition, in the event that (i)
this Agreement is terminated by Parent pursuant to Section 8.4(a) or the
Company pursuant to Section 8.3(b), or (ii) (x) this Agreement is terminated
pursuant to Section 8.2(iii) or terminated pursuant to Section 8.3(c) as a
result of a willful breach by Parent or Merger Sub, (y) at the time of such
termination or at the time of the Parent Stockholder Meeting there shall have
been an Acquisition Proposal involving Parent (which proposal shall not have
been withdrawn prior to the time of such termination or of such meeting) and
(z) within 6 months of such termination any Acquisition Proposal by a third
party, or within 9 months of such termination any Acquisition Proposal by the
party that made the Acquisition Proposal referred to above in clause (ii) (y)
of this Section 8.5(c), is entered into, agreed to or consummated by the
Company, then Parent shall pay Company a termination fee of $25,000,000 in
immediately available funds prior to such termination, in the case of clause
(i), or on the earlier of the date an agreement is entered into with respect to
an Acquisition Proposal or an Acquisition Proposal is agreed to or consummated,
in the case of clause (ii).
(d) The Company and Parent each acknowledge that the agreements contained in
Section 8.5(b) and (c) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, the Company, Parent and
Merger Sub would not have entered into this Agreement; accordingly, if either
the Company or Parent, as the case may be, fails to promptly pay any amount due
pursuant to Section 8.5(b) or 8.5(c), as the case may be, and, in order to
obtain such payment, the other party commences a suit which results in a
judgment against the defaulting party for any amount required to be paid
pursuant to this Section 8.5, the defaulting party shall pay the other party
its costs and expenses (including attorneys' fees) in connection with such
suit, together with interest from the date of termination of this Agreement on
the amount owed at the prime rate of Morgan Guaranty Trust Company of New York
in effect from time to time during such period plus two percent.
(e) Notwithstanding anything to the contrary set forth in this Section 8.5,
in no event shall the Expenses or termination fees paid pursuant to this
Section 8.5 exceed $25,000,000 in the aggregate.
SECTION 8.6 Amendment. This Agreement may be amended by action taken by the
Company, Parent and Merger Sub at any time before or after approval of the
Merger by the Company Requisite Vote and the approval of the Share Issuance by
the Parent Requisite Vote but, after any such approval, no amendment shall be
made which requires the approval of such stockholders under applicable Law
without such approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
SECTION 8.7 Extension; Waiver. At any time prior to the Effective Time, each
party hereto (for these purposes, Parent and Merger Sub shall together be
deemed one party and the Company shall be deemed the other party) may (i)
extend the time for the performance of any of the obligations or other acts of
the other party, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document, certificate
or writing delivered pursuant hereto or (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. Any agreement
on the part of either party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of either party hereto to assert any of its rights hereunder
shall not constitute a waiver of such rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants and agreements in this Agreement or in
any exhibit, schedule or instrument delivered pursuant to this Agreement shall
survive beyond the Effective Time, except for those covenants and agreements
contained
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herein and therein that by their terms apply or are to be performed in whole or
in part after the Effective Time. This Section 9.1 shall not limit any covenant
or agreement of the parties which by its terms contemplates performance after
the Effective Time.
SECTION 9.2 Entire Agreement; Assignment. (a) This Agreement and the
Confidentiality Agreement constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by operation of law (including, but not limited to,
by merger or consolidation) or otherwise; provided, however, that Merger Sub
may assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to any direct wholly owned subsidiary of
Parent, but no such assignment shall relieve Parent or Merger Sub of its
obligations hereunder if such assignee does not perform such obligations. Any
assignment in violation of the preceding sentence shall be void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
SECTION 9.3 Notices. All notices, requests, instructions or other documents
to be given under this Agreement shall be in writing and shall be deemed given,
(i) five business days following sending by registered or certified mail,
postage prepaid, (ii) when sent, if sent by facsimile; provided that the fax is
promptly confirmed by telephone confirmation thereof, (iii) when delivered, if
delivered personally to the intended recipient and (iv) one business day
following sending by overnight delivery via a national courier service, and in
each case, addressed to a party at the following address for such party:
if to Parent or to Merger Sub, to:
UGI Corporation
460 Gulph Road
King of Prussia, PA 19406
Attention: President
Facsimile: (610) 992-3254
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Stephen M. Besen, Esq.
Facsimile: (212) 310-8007
if to the Company, to: Unisource Worldwide
1100 Cassat Road
Berwyn, PA 19312
Attention: President
Facsimile: (610) 296-4470
with a copy to: Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Carole Schiffman, Esq.
Facsimile: (212) 450-4800
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 9.4 Governing Law; Waiver of Jury Trial. (a) This Agreement shall be
governed by and construed in accordance with the Laws of the Commonwealth of
Pennsylvania, applicable to contracts executed
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in and to be fully performed in such state, without giving effect to the choice
of law principles thereof, and except to the extent the provisions of this
Agreement (including any documents or instruments referred to herein) are
expressly governed by the DGCL.
(b) Each of the parties hereto hereby waives any right to trial by jury in
any action or proceeding in connection with this Agreement or any transaction
relating hereto.
SECTION 9.5 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
SECTION 9.6 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and, except as provided in Section 6.6, nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.7 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.
SECTION 9.8 Specific Performance. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the Commonwealth of Pennsylvania or in Pennsylvania state court,
this being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any federal court located in the
Commonwealth of Pennsylvania or any Pennsylvania state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated
hereby, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated hereby in any court other than a federal or state
court sitting in the Commonwealth of Pennsylvania.
SECTION 9.9 Brokers. Except as otherwise provided in Section 6.6, the
Company agrees to indemnify and hold harmless Parent and Merger Sub, and Parent
and Merger Sub agree to indemnify and hold harmless the Company, from and
against any and all liability to which Parent and Merger Sub, on the one hand,
or the Company, on the other hand, may be subjected by reason of any brokers,
finder's or similar fees or expenses with respect to the transactions
contemplated by this Agreement to the extent such similar fees and expenses are
attributable to any action undertaken by or on behalf of the Company, or Parent
or Merger Sub, as the case may be.
SECTION 9.10 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 9.11 Interpretation. (a) The words "hereof," "herein" and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and article, section, paragraph, exhibit and schedule references are
to
A-40
<PAGE>
the articles, sections, paragraphs, exhibits and schedules of this Agreement
unless otherwise specified. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, qualified or supplemented,
including (in the case of agreements and instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
all attachments thereto and instruments incorporated therein. References to a
person are also to its permitted successors and assigns.
(b) The phrases "the date of this Agreement," "the date hereof" and terms of
similar import, unless the context otherwise requires, shall be deemed to refer
to February 28, 1999. The phrase "made available" in this Agreement shall mean
that the information referred to has been actually delivered to the party to
whom such information is to be made available.
(c) The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
SECTION 9.12 Definitions. (a) "Acquisition Proposal" means an inquiry, offer
or proposal regarding any of the following (other than the transactions
contemplated by this Agreement) involving the Company or Parent, as the case
may be, or any of its subsidiaries: (w) any merger, consolidation, share
exchange, recapitalization, business combination or other similar transaction;
(x) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of all or substantially all the assets of the Company or Parent, as the case
may be, and its subsidiaries, taken as a whole, in a single transaction or
series of related transactions; (y) any tender offer or exchange offer for 20
percent or more of the outstanding Shares or shares of Parent Common Stock, as
the case may be, or the filing of a registration statement under the Securities
Act in connection therewith; or (z) any public announcement of a proposal, plan
or intention to do any of the foregoing or any agreement to engage in any of
the foregoing.
(b) "beneficial ownership" or "beneficially own" shall have the meaning
provided in Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
(c) "know" or "knowledge" means, with respect to any party, the knowledge of
such party's executive officers.
(d) "Material Adverse Effect" means with respect to any party, a material
adverse effect on (i) the business, results of operations or financial
condition of such party and its subsidiaries, taken as a whole, other than any
effect arising out of or attributable to the economy, the securities markets in
general or the industries generally in which a party and its subsidiaries
operate or (ii) the ability of such party to consummate the transactions
contemplated by this Agreement.
(e) "person" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
(f) "subsidiary" means, when used with reference to any entity, any
corporation or other organization, whether incorporated or unincorporated, (i)
of which such entity or any other subsidiary of such entity is a general or
managing partner or (ii) the outstanding voting securities or interests of,
which having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization, is directly or indirectly owned or
controlled by such entity or by any one or more of its subsidiaries.
[signature page follows]
A-41
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
UGI Corporation
By: /s/ Lon R. Greenberg
---------------------------------
Name: Lon R. Greenberg
Title: Chairman, President and
Chief Executive Officer
Vulcan Acquisition Corp.
By: /s/ Michael J. Cuzzolina
---------------------------------
Name: Michael J. Cuzzolina
Title: President
Unisource Worldwide, Inc.
By: /s/ Ray B. Mundt
---------------------------------
Name: Ray B. Mundt
Title: Chairman and Chief
Executive Officer
A-42
<PAGE>
ANNEX B-1
[Donaldson, Lufkin & Jenrette Securities Corporation Letterhead]
February 28, 1999
Board of DirectorsUnisource Worldwide, Inc.
1100 Cassatt Road
Berwyn, PA 19312
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Unisource Worldwide, Inc. (the "Company") of the
Exchange Ratio (as defined below) pursuant to the terms of the Agreement and
Plan of Merger, dated as of February 28, 1999 (the "Agreement"), by and among
UGI Corporation ("UGI"), the Company and Vulcan Acquisition Corp., a wholly
owned subsidiary of UGI ("Merger Sub"), pursuant to which Merger Sub will be
merged (the "Merger") with and into the Company.
Pursuant to the Agreement, each share of common stock, par value $.001 per
share ("Company Common Stock"), of the Company (other than (i) shares held by
the Company and (ii) shares held by UGI or any of its subsidiaries) will be
converted into the right to receive 0.566 shares (the "Exchange Ratio") of
common stock, without par value per share ("UGI Common Stock"), of UGI.
In arriving at our opinion, we have reviewed the draft dated February 26,
1999 of the Agreement and the exhibits thereto. We also have reviewed financial
and other information that was publicly available or furnished to us by the
Company and UGI including information provided during discussions with their
respective managements. Included in the information provided during discussions
with the respective managements were certain financial projections of the
Company for the period beginning September 30, 1999 and ending September 30,
2003 prepared by the management of the Company and certain financial
projections under various scenarios of UGI and of AmeriGas, Inc., a wholly
owned subsidiary of UGI that has a 58% ownership interest in AmeriGas Partners,
L.P. ("AmeriGas"), a publicly traded Delaware limited partnership, for the
period beginning September 30, 1999 and ending September 30, 2003 prepared by
the management of UGI. In addition, we have compared certain financial and
securities data of the Company, UGI and AmeriGas with various other companies
whose securities are traded in public markets, reviewed the historical stock
prices and trading volumes of the common stock of the Company and UGI and the
historical unit prices and trading volumes of the common units of AmeriGas, and
conducted such other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by the Company and UGI or
their respective representatives, or that was otherwise reviewed by us. We have
also reviewed certain business information prepared by the management of UGI
relating to AmeriGas. With respect to the financial projections supplied to us,
we have assumed that they have been reasonably prepared on the basis reflecting
the best currently available estimates and judgments of the management of the
Company and UGI as to the future operating and financial performance of the
Company and of UGI and AmeriGas, respectively, under the various scenarios
presented. We have not assumed any responsibility for making an independent
evaluation of any assets or liabilities or for making any independent
verification of any of the information reviewed by us. We have relied as to
certain legal matters on advice of counsel to the Company.
<PAGE>
You have also advised us that concurrent with the announcement of the Merger,
UGI will also announce that it intends to dispose of UGI Utilities, Inc., a
wholly owned subsidiary of UGI, that it will reduce its common stock dividend
in the amount as provided by management and that it has cash and credit
facilities sufficient to fund a stock buyback of up to 6.6 million shares if
advisable.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which UGI Common Stock or the Company Common Stock will actually
trade at any time. Our opinion does not address the relative merits of the
Merger and the other business strategies being considered by the Company's
Board of Directors, nor does it address the Board's decision to proceed with
the Merger. Our opinion does not constitute a recommendation to any stockholder
as to how such stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services for the Company in the past and
has been compensated for such services. In October 1998, DLJ was retained by
the Company to assist in the valuation and sale of the Company's Mexican
operations, for which it received usual and customary compensation. Over the
past two years DLJ has also been retained by UGI on a number of business
matters, including serving as the placement agent with respect to the issue and
sale from time to time by UGI Utilities, Inc. of up to $107 million aggregate
principal amount of Series B Medium-Term Notes, for which DLJ received usual
and customary compensation.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to the holders of Company Common
Stock from a financial point of view.
Very truly yours,
Donaldson, Lufkin & Jenrette
Securities Corporation
By: /s/ Michael A. Wildish
-------------------------------
Michael A. Wildish
Managing Director
B-1-2
<PAGE>
ANNEX B-2
[Merrill Lynch, Pierce, Fenner & Smith Incorporated Letterhead]
February 28, 1999
Board of Directors
UGI Corporation
460 North Gulph Road
King of Prussia, PA 19406
Members of the Board of Directors:
Unisource Worldwide, Inc. (the "Company"), UGI Corporation (the "Acquiror")
and Vulcan Acquisition Corp, a newly formed, wholly owned subsidiary of the
Acquiror (the "Acquisition Sub"), propose to enter into an Agreement and Plan
of Merger, dated as of February 28, 1999 (the "Agreement") pursuant to which
the Acquisition Sub will be merged with and into the Company in a transaction
(the "Merger") in which each outstanding share of the Company's common stock,
par value $0.001 per share (the "Company Shares"), will be converted into the
right to receive 0.566 shares (the "Exchange Ratio") of the common stock,
without par value, of the Acquiror (the "Acquiror Shares").
You have asked us whether, in our opinion, the Exchange Ratio is fair from a
financial point of view to the Acquiror.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Company and the Acquiror that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of the Company and the Acquiror, as well as the amount and timing of the
cost savings and related expenses expected to result from the Merger
furnished to us by the Company and the Acquiror, respectively;
(3) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the matters
described in clauses 1 and 2 above, as well as their respective
businesses and prospects before and after giving effect to the Merger;
(4) Reviewed the market prices and valuation multiples for the Company
Shares and the Acquiror Shares and compared them with those of certain
publicly traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and the Acquiror and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
<PAGE>
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed a draft dated February 25, 1999 of the Agreement; and
(10) Reviewed such other financial studies and analyses, including the
Unisource Worldwide Profit Improvement Project Final Report Executive
Summary dated June 30, 1998 prepared by Coopers & Lybrand Consulting,
and took into account such other matters as we deemed necessary,
including our assessment of general economic, market and monetary
conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Acquiror or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or the Acquiror. With respect to the financial forecast information furnished
to or discussed with us by the Company or the Acquiror, we have assumed that
they have been reasonably prepared and reflect the best currently available
estimates and judgment of the Company's or the Acquiror's management as to the
expected future financial performance of the Company or the Acquiror, as the
case may be. We have further assumed that the Merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes. We have also assumed that
the final form of the Agreement will be substantially similar to the last draft
reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.
In connection with the preparation of this opinion, we have not been
authorized by the Acquiror or the Board of Directors to solicit, nor have we
solicited, third party indications of interest for the acquisition of all or
any part of the Acquiror.
We are acting as financial advisor to the Acquiror in connection with the
Merger and will receive a fee from the Acquiror for our services, a significant
portion of which is contingent upon the consummation of the Merger. In
addition, the Acquiror has agreed to indemnify us for certain liabilities
arising out of our engagement. We are currently providing financing services to
the Acquiror, the proceeds of which may be used by the Acquiror in the
repurchase of Acquiror Shares, and may continue to do so and may receive fees
for the rendering of such services. In addition, in the ordinary course of our
business, we may actively trade the Company Shares, as well as the Acquiror
Shares and other securities of the Acquiror, 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.
This opinion is for the use and benefit of the Board of Directors of the
Acquiror. Our opinion does not address the merits of the underlying decision by
the Acquiror to engage in the Merger and does not constitute a recommendation
to any shareholder of the Acquiror as to how such shareholder should vote on
the proposed Merger or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Merger.
B-2-2
<PAGE>
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Exchange Ratio is fair from a financial point of view
to the Acquiror.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
/s/ Merrill Lynch, Pierce, Fenner &
Smith
-------------------------------------
Incorporated
-------------------------------------
B-2-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Sections 1741 and 1742 of the Pennsylvania Business Corporation Law of 1988,
as amended (the "PBCL"), provide that a business corporation may indemnify
directors and officers against liabilities they may incur as such provided that
the particular person acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal proceeding, had no reasonable cause to
believe his or her conduct was unlawful. In general, the power to indemnify
under these sections does not exist in the case of actions against a director
or officer by or in the right of the corporation if the person otherwise
entitled to indemnification shall have been adjudged to be liable to the
corporation unless it is judicially determined that, despite the adjudication
of liability but in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnification for specified expenses. The
corporation is required to indemnify directors and officers against expenses
they may incur in defending actions against them in such capacities if they are
successful on the merits or otherwise in the defense of such actions.
Section 1713 of the PBCL permits the stockholders to adopt a bylaw provision
relieving a director (but not an officer) of personal liability for monetary
damages except where (i) the director had breached the applicable standard of
care, and (ii) such conduct constitutes self-dealing, willful misconduct or
recklessness. The statute provides that a director may not be relieved of
liability for the payment of taxes pursuant to any federal, state or local law
or responsibility under a criminal stature. Section 4.01 of the UGI bylaws
limits the liability of any director of UGI to the fullest extent permitted by
Section 1713 of the PBCL.
Section 1746 of the PBCL grants a corporation broad authority to indemnify
its directors, officers and other agents for liabilities and expenses incurred
in such capacity, except in circumstances where the act or failure to act
giving rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness. Article VII of the UGI bylaws
provides for indemnification of directors, officers and other agents of UGI to
the extent otherwise permitted by Section 1741 of the PBCL and pursuant to the
authority of Section 1746 of the PBCL.
Article VII of the UGI bylaws provides, except as expressly prohibited by
law, an unconditional right to indemnification for expenses and any liability
paid or incurred by any director or officer of UGI or any other person
designated by the board of directors as an indemnified representative, in
connection with any actual or threatened claim, action, suit or proceeding
(including derivative suits) in which he or she may be involved by reason of
being or having been a director, officer, employee or agent of UGI or at the
request of UGI of another corporation, partnership, joint venture, trust,
employee benefit plan or other entity. The UGI bylaws specifically authorize
indemnification against both judgments and amounts paid in settlement of
derivative suits, unlike Section 1742 of the PBCL which authorizes
indemnification only of expenses incurred in defending a derivative action.
Article VII of UGI's bylaws also allows indemnification for punitive damages
and liabilities incurred under federal securities laws.
Unlike the provisions of PBCL Sections 1741 and 1742, Article VII does not
require UGI to determine the availability of indemnification by the procedures
or the standard of conduct specified in Sections 1741 and 1742 of the PBCL. A
person who had incurred an indemnifiable expense or liability has a right to be
indemnified independent of any procedures or determinations that otherwise
would be required, and that right is enforceable against UGI as long as
indemnification is not prohibited by law. To the extent indemnification is
permitted only for a portion of a liability, the UGI bylaws require UGI to
indemnify such portion. If the indemnification provided for in Article VII is
unavailable for any reason in respect of any liability or portion thereof, the
UGI bylaws require UGI to make a contribution toward the liability.
Indemnification rights under the UGI bylaws do not depend upon the approval of
any future board of directors.
II-1
<PAGE>
Section 7.04 of the UGI bylaws authorizes UGI to further effect or secure
its indemnification obligations by entering into indemnification agreements,
maintaining insurance, creating a trust fund, granting a security interest in
its assets or property, establishing a letter of credit or using any other
means that may be available from time to time.
Section 5.01(c) of the UGI bylaws limits the personal liability of officers
to UGI to the same extent directors are relieved of such liabilities pursuant
to Section 4.01 of the bylaws, with the exception that the limitation of the
liability of officers applies only to liabilities arising out of derivative
claims by shareholders asserting a right of UGI and not to liabilities arising
out of third party claims.
UGI maintains, on behalf of its directors and officers, insurance protection
against certain liabilities arising out of the discharge of their duties, as
well as insurance covering UGI for indemnification payments made to its
directors and officers for certain liabilities. The premiums for such insurance
are paid by UGI.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- -----------------------
<C> <S>
2 Agreement and Plan of Merger among Unisource Worldwide, Inc., UGI
Corporation and Vulcan Acquisition Corp., dated as of February 28,
1999.
3(a) (Second) Amended and Restated Articles of Incorporation of the UGI
incorporated by reference to Exhibit 3.(3)(a) filed as Amendment
No. 1 on Form 8 to Form 8-B (4/10/92).
3(b) Bylaws of UGI as in effect since October 27, 1998 incorporated by
reference to Exhibit 3.2 to UGI's Annual Report on Form 10-K for
the fiscal year ended September 30, 1999 as Amendment No. 1 on
Form 8 to Form 8-B (4/10/92).
4(a) Instruments defining the rights of security holders, including
indentures. (The Company agrees to furnish to the Commission upon
request a copy of any instrument defining the rights of holders of
its long-term debt not required to be filed pursuant to Item
601(b)(4) of Regulation S-K) incorporated by reference to Exhibit
3.(3)(a) filed as Amendment No. 1 on Form 8 to Form 8-B (4/10/92).
4(b) Rights Agreement, as amended as of April 17, 1996, between UGI and
Mellon Bank, N.A., successor to Mellon Bank (East), N.A., as
Rights Agent, and Assumption Agreement dated April 7, 1992,
incorporated by reference to Exhibit 4.1 to Current Report on Form
8-K (4/17/96).
4(c) The description of the Company's Common Stock contained in the
Company's registration statement filed under the Securities
Exchange Act of 1934, as amended, incorporated by reference to
Exhibit 3.4 on Form 8-B/A (4/17/96).
4(d) UGI's (Second) Amended and Restated Articles of Incorporation and
Bylaws referred to in 3(a) and 3(b) above.
4(e) Utilities' Articles of Incorporation incorporated by reference to
Exhibit 4(a) of Utilities' Form 8-K (9/22/94).
4(f) Note Agreement dated as of April 12, 1995 among The Prudential
Insurance Company of America, Metropolitan Life Insurance Company,
and certain other institutional investors and AmeriGas Propane,
L.P., New AmeriGas Propane, Inc. and Petrolane Incorporated
incorporated by reference to Exhibit 10.8 of AmeriGas Partners
L.P. Form 10-Q (3/31/95).
4(g) First Amendment dated as of September 12, 1997 to Note Agreement
dated as of April 12, 1995 incorporated by reference to Exhibit
4.5 of AmeriGas Partners L.P. Form 10-K (9/30/97).
4(h) Second Amendment dated as of September 15, 1998 to Note Agreement
dated as of April 12, 1995 incorporated by reference to Exhibit
4.6 of AmeriGas Partners L.P. Form 10-K (9/30/98).
4(i) Third Amendment dated as of March , 1999 incorporated by
reference to Amendment No. 1 to this Joint Proxy
Statement/Prospectus [to be filed].
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- -----------------------
<C> <S>
5 Opinion of Brendan P. Bovaird, Esq.*
8(a) Opinion of Weil, Gotshal & Manges, LLP.*
8(b) Opinion of Davis Polk & Wardwell.*
10(a) Service Agreement (Rate FSS) dated as of November 1, 1989 between
Utilities and Columbia, as modified pursuant to the orders of the
Federal Energy Regulatory Commission at Docket No. RS92-5-000
reported at Columbia Gas Transmission Corp., 64 FERC P. 61,060
(1993), order on rehearing, 64 FERC P. 61,365 (1993) incorporated
by reference to Exhibit 10.5 on Form 10-K (9/30/95).
10(b) Service Agreement (Rate FTS) dated June 1, 1987 between Utilities
and Columbia, as modified by Supplement No. 1 dated October 1,
1988; Supplement No. 2 dated November 1, 1989; Supplement No. 3
dated November 1, 1990; Supplement No. 4 dated November 1, 1990;
and Supplement No. 5 dated January 1, 1991, as further modified
pursuant to the orders of the Federal Energy Regulatory Commission
at Docket No. RS92-5-000 reported at Columbia Gas Transmission
Corp., 64 FERC P. 61,060 (1993), order on rehearing, 64 FERC P.
61,365 (1993) incorporated by reference to Exhibit (10)o on
Utilities Form 10-K (12/31/90).
10(c) Transportation Service Agreement (Rate FTS-1) dated November 1,
1989 between Utilities and Columbia Gulf Transmission Company, as
modified pursuant to the orders of the Federal Energy Regulatory
Commission in Docket No. RP93-6-000 reported at Columbia Gulf
Transmission Co., 64 FERC P. 61,060 (1993) incorporated by
reference to Exhibit (10)p on Utilities Form 10-K (12/31/90).
10(d) Amended and Restated Sublease Agreement dated April 1, 1988
between Southwest Salt Co. and AP Propane, Inc. (the "Southwest
Salt Co. Agreement") incorporated by reference to Exhibit 10.35 on
Form 10-K (9/30/94).
10(e) Letter dated September 26, 1994 pursuant to Article 1, Section 1.2
of the Southwest Salt Co. Agreement re: option to renew for period
of June 1, 1995 to May 31, 2000 incorporated by reference to
Exhibit 10.36 on Form 10-K (9/30/94).
10(f) UGI Corporation Directors Deferred Compensation Plan dated August
26, 1993 incorporated by reference to Exhibit 10.39 on Form 10-K
(9/30/94).
10(g) UGI Corporation 1992 Stock Option and Dividend Equivalent Plan, as
amended May 19, 1992 incorporated by reference to Exhibit (10)ee
on Form 10-Q (6/30/92).
10(h) UGI Corporation Annual Bonus Plan dated March 8, 1996 incorporated
by reference to Exhibit 10.4 on Form 10-Q (6/30/96).
10(i) UGI Corporation Directors' Equity Compensation Plan incorporated
by reference to Exhibit 10.1 on Form 10-Q (3/31/97).
10(j) UGI Corporation 1997 Stock Option and Dividend Equivalent Plan
incorporated by reference to Exhibit 10.2 on Form 10-Q (3/31/97).
10(k) UGI Corporation 1992 Stock Directors' Stock Plan incorporated by
reference to Exhibit (10)ff on Form 10-Q (6/30/92).
10(l) UGI Corporation Senior Executive Employee Severance Pay Plan
effective January 1, 1997 incorporated by reference to Exhibit
10.12 on Form 10-K (9/30/97).
10(m) Change of Control Agreement between UGI Corporation and Lon R.
Greenberg incorporated by reference to Exhibit 10.13 on Form 10-K
(9/30/97).
10(n) Form of Change of Control Agreement between UGI Corporation and
Mr. Chaney filed in Amendment No. to this Joint Proxy
Statement/Prospectus [to be filed].
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- -----------------------
<C> <S>
10(o) Form of Change of Control Agreement between UGI Corporation and
each of Messrs. Bovaird, Cuzzolina, Hall and Mendicino
incorporated by reference to Exhibit 10.15 on Form 10-K (9/30/97).
10(p) 1997 Stock Purchase Loan Plan incorporated by reference to Exhibit
10.10 on Form 10-K (9/30/97).
10(q) UGI Corporation Supplemental Executive Retirement Plan Amended and
Restated effective October 1, 1996 incorporated by reference to
Exhibit on Form 10-Q (6/30/98).
10(r) Amended and Restated Credit Agreement dated as of September 15,
1997 among AmeriGas Propane, L.P., AmeriGas Propane, Inc.,
Petrolane Incorporated, Bank of America National Trust and Savings
Association, as Agent, First Union National Bank, as Syndication
Agent and certain banks incorporated by reference to Exhibit 10.1
on AmeriGas Partners, L.P. Form 10-K (9/30/97).
10(s) First Amendment dated as of September 15, 1998 to Amended and
Restated Credit Agreement incorporated by reference to Exhibit
10.2 on AmeriGas Partners, L.P. Form 10-K (9/30/98).
10(t) Second Amendment dated as of March 25, 1999 to Amended and
Restated Credit Agreement incorporated by reference to Amendment
No. to this Joint Proxy Statement/Prospectus [to be filed].
10(u) Intercreditor and Agency Agreement dated as of April 19, 1995
among AmeriGas Propane, Inc., Petrolane Incorporated, AmeriGas
Propane, L.P., Bank of America National Trust and Savings
Association ("Bank of America") as Agent, Mellon Bank, N.A. as
Cash Collateral Sub-Agent, Bank of America as Collateral Agent and
certain creditors of AmeriGas Propane, L.P., incorporated by
reference to Exhibit 10.2 on AmeriGas Partners, L.P. Form 10-Q
(3/31/95).
10(v) General Security Agreement dated as of April 19, 1995 among
AmeriGas Propane, L.P., Bank of America National Trust and Savings
Association and Mellon Bank, N.A. incorporated by reference to
Exhibit 10.3 on AmeriGas Partners, L.P. Form 10-Q (3/31/95).
10(w) Subsidiary Security Agreement dated as of April 19, 1995 among
AmeriGas Propane, L.P., Bank of America National Trust and Savings
Association as Collateral Agent and Mellon Bank, N.A. as Cash
Collateral Agent incorporated by reference to Exhibit 10.4 on
AmeriGas Propane, L.P. Form 10-Q (3/31/95).
10(x) Restricted Subsidiary Guarantee dated as of April 19, 1995 by
AmeriGas Propane, L.P. for the benefit of Bank of America National
Trust and Savings Association, as Collateral Agent incorporated by
reference to Exhibit 10.5 on AmeriGas Partners, L.P. Form 10-Q
(3/31/95).
10(y) Trademark License Agreement dated April 19, 1995 among UGI
Corporation, AmeriGas, Inc., AmeriGas Propane, Inc., AmeriGas
Partners, L.P. and AmeriGas Propane, L.P. incorporated by
reference to Exhibit 10.6 on AmeriGas Partners, L.P. Form 10-Q
(3/31/95).
10(z) Trademark License Agreement, dated April 19, 1995 among AmeriGas
Propane, Inc., AmeriGas Partners, L.P. and AmeriGas Propane, L.P.
incorporated by reference to Exhibit 10.7 on AmeriGas Partners
L.P. Form 10-Q (3/31/95).
10(aa) Agreement dated as of May 1, 1996 between TE Products Pipeline
Company, L.P. and AmeriGas Propane, L.P. incorporated by reference
to Exhibit 10.2 on AmeriGas Partners, L.P. Form 10-K (9/30/97).
21 List of Subsidiaries.
23(a) Consent of Ernst & Young LLP, independent auditors.**
23(b) Consent of Arthur Andersen LLP, independent public accountants.**
23(c) Consent of PricewaterhouseCoopers LLP, independent auditors.**
23(d) Consent of Brendan P. Bovaird (included in Exhibit 5 above).
23(e) Consent of Weil, Gotshal & Manges, LLP (included in Exhibit 8
above).
23(f) Consent of Davis Polk & Wardwell (included in Exhibit 8 above).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- -----------------------
<C> <S>
23(g) Form of Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.**
23(h) Consent of Donaldson, Lufkin & Jenrette.**
99(a) Press Release issued by UGI dated March 1, 1999 incorporated by
reference to Exhibit 99 to Current Report on Form 8-K dated March
1, 1999.
99(b) Consent of Ray B. Mundt.**
99(c) Consent of Gary L. Countryman.**
99(d) Consent of Paul J. Darling II.**
99(e) Consent of James P. Kelly.**
</TABLE>
- --------
** Filed herewith
* To be filed by amendment
(b) Financial Statement Schedules
All schedules are omitted as the received information is presented in the
Registrant's consolidated financial statements or related notes or such
schedules are not applicable.
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
1. That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
2. That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
3. That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
4. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is assessed by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE>
5. To respond to requests for information that is incorporated by
reference into this Joint Proxy Statement/Prospectus pursuant to Items 4,
10(b), 11 or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of this Registration
Statement through the date of responding to the request.
6. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this Registration Statement
when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Valley Forge, Pennsylvania, on March
25, 1999.
UGI Corporation
/s/ Lon R. Greenberg
By: _________________________________
Lon R. Greenberg
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby authorizes Lon R. Greenberg, Brendan P. Bovaird or Anthony J.
Mendicino to execute and file, in the name of and as attorney-in-fact for such
person, any amendments or post-effective amendments to this registration
statement as the registrant deems appropriate.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Lon R. Greenberg Chairman, President and March 25, 1999
______________________________________ Chief Executive Officer
Lon R. Greenberg (Principal Executive
Officer) and Director
/s/ Anthony J. Mendicino Vice President--Finance March 25, 1999
______________________________________ and Chief Financial
Anthony J. Mendicino Officer (Principal
Financial Officer)
/s/ Michael J. Cuzzolina Vice President--Accounting March 25, 1999
______________________________________ and Financial Control
Michael J. Cuzzolina (Principal Accounting
Officer)
/s/ Stephen D. Ban Director March 25, 1999
______________________________________
Stephen D. Ban
/s/ Thomas F. Donovan Director March 25, 1999
______________________________________
Thomas F. Donovan
/s/ Richard C. Gozon Director March 25, 1999
______________________________________
Richard C. Gozon
</TABLE>
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby authorizes Lon R. Greenberg, Brendan P. Bovaird or Anthony J.
Mendicino to execute and file, in the name of and as attorney-in-fact for such
person, any amendments or post-effective amendments to this registration
statement as the registrant deems appropriate.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Marvin O. Schlanger Director March 25, 1999
______________________________________
Marvin O. Schlanger
/s/ James W. Stratton Director March 25, 1999
______________________________________
James W. Stratton
/s/ David I. J. Wang Director March 25, 1999
______________________________________
</TABLE> David I. J. Wang
II-8
<PAGE>
Exhibit 23(a)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the captions "Unisource Summary
Selected Historical Consolidated Financial Information," "Unisource Selected
Historical Consolidated Financial Information," and "Experts" in the Preliminary
Joint Proxy Statement/Prospectus of UGI Corporation and Unisource Worldwide,
Inc. that is made a part of the Registration Statement (Form S-4, No. 333-00000)
and related Prospectus of UGI Corporation for the registration of 39,788,898
shares of its common stock and to the incorporation by reference therein of our
reports dated October 28, 1998, with respect to the consolidated financial
statements and schedule of Unisource Worldwide, Inc. incorporated by reference
and included in its Annual Report (Form 10-K) for the year ended September 30,
1998, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 25, 1999
<PAGE>
Exhibit 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated November 13, 1998, on our audits of the
consolidated financial statements and financial statement schedules of UGI
Corporation and subsidiaries for the years ended September 30, 1998 and 1997,
included in UGI Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998, into this Joint Proxy Statement/Prospectus of UGI
Corporation and Unisource Worldwide, Inc.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Chicago, Illinois
March 25, 1999
<PAGE>
Exhibit 23(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus of UGI Corporation and Unisource Worldwide, Inc. on
Form S-4 of our report dated November 22, 1996, on our audit of the consolidated
financial statements and financial statement schedules of UGI Corporation and
subsidiaries for the year ended September 30, 1996. We also consent to the
reference to our firm under the caption "Experts."
PRICEWATERHOUSECOOPERS LLP
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 25, 1999
<PAGE>
Exhibit 23(g)
FORM OF CONSENT OF
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our opinion letter dated February 28, 1999
to the Board of Directors of UGI Corporation included as Appendix B-2 to the
Joint Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of a wholly-owned
subsidiary of UGI Corporation with and into Unisource Worldwide, Inc., and to
the references to such opinion in such Joint Proxy Statement/Prospectus under
the captions "SUMMARY" and "THE MERGER -- Opinion of UGI's Financial Advisor."
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder, nor do we thereby admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BY:____________________________
Name:
Title:
New York, New York
____________, 1999
<PAGE>
Exhibit 23(h)
We hereby consent to (i) the inclusion of our opinion letter, dated
February 28, 1999, to the Board of Directors of Unisource Worldwide, Inc. (the
"Company") as Annex B-1 to the Joint Proxy Statement/Prospectus of the Company
and UGI Corporation relating to their planned merger and (ii) all references to
Donaldson Lufkin and Jenrette in the sections captioned "Summary - Opinion of
Unisource's Financial Advisor", "The Merger - Background Of The Merger", "-
Recommendation of the Board of Directors of Unisource And Reasons of Unisource
for the Merger" and "- Opinion of Unisource's Financial Advisor", of the Joint
Proxy Statement/Prospectus of the Company which forms a part of this
Registration Statement on Form S-4. In giving such consent, we do not admit
that we come within the category of persons whose consent is required under, and
we do not admit that we are "experts" for purposes of, the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Donaldson, Lufkin & Jenrette
Securities Corporation
New York, New York
March 25, 1999
<PAGE>
Exhibit 99(b)
CONSENT OF RAY B. MUNDT
The undersigned hereby consents to the inclusion of his name in the
Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of UGI Corporation upon
consummation of the merger of Vulcan Acquisition Corp.; a direct, wholly-owned
subsidiary of UGI Corporation, with and into Unisource Worldwide, Inc.
Signature: /s/ Ray B. Mundt
----------------
Ray B. Mundt
Date: March 15, 1999
<PAGE>
Exhibit 99(c)
CONSENT OF GARY L. COUNTRYMAN
The undersigned hereby consents to the inclusion of his name in the
Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of UGI Corporation upon
consummation of the merger of Vulcan Acquisition Corp.; a direct, wholly-owned
subsidiary of UGI Corporation, with and into Unisource Worldwide, Inc.
Signature: /s/ Gary L. Countryman
------------------------
Gary L. Countryman
Date: March 25, 1999
<PAGE>
Exhibit 99(d)
CONSENT OF PAUL J. DARLING II
The undersigned hereby consents to the inclusion of his name in the Joint
Proxy Statement/Prospectus constituting a part of this Registration Statement on
Form S-4 as a person to become a director of UGI Corporation upon consummation
of the merger of Vulcan Acquisition Corp., a direct, wholly-owned subsidiary of
UGI Corporation, with and into Unisource Worldwide, Inc.
Signature: /s/ Paul J. Darling II
----------------------
Paul J. Darling II
Date: March 25, 1999
<PAGE>
Exhibit 99(e)
CONSENT OF JAMES P. KELLY
The undersigned hereby consents to the inclusion of his name in the Joint
Proxy Statement/Prospectus constituting a part of this Registration Statement on
Form S-4 as a person to become a director of UGI Corporation upon consummation
of the merger of Vulcan Acquisition Corp., a direct, wholly-owned subsidiary of
UGI Corporation, with and into Unisource Worldwide, Inc.
Signature: /s/ James P. Kelly
------------------
James P. Kelly
Date: March 25, 1999
