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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION
14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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AQUILA GAS PIPELINE CORPORATION
(NAME OF SUBJECT COMPANY)
AQUILA GAS PIPELINE CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
03839B10
(CUSIP NUMBER OF CLASS OF SECURITIES)
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(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON
BEHALF OF THE PERSON FILING STATEMENT)
Donald J. LaBauve
Vice President - Regulatory and Administration
100 N.E. Loop 410, Suite 1000
San Antonio, Texas 78216-4754
(210) 476-1100
Gary L. Downey
4805 Augusta Drive
Frisco, Texas 75034
(972) 625-9510
With a copy to:
STEVEN K. COCHRAN, ESQ.
THOMPSON & KNIGHT
A Professional Corporation
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201-4693
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AQUILA GAS PIPELINE CORPORATION
SCHEDULE 14D-9
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Aquila Gas Pipeline Corporation, a
Delaware corporation (the "Company"). The address of the principal executive
offices of the Company is One International Center, 100 N.E. Loop 410, Suite
1000, San Antonio, Texas 78216-4754. The title of the class of equity
securities to which this Statement relates is the common stock, par value $.01
per share (the "Company Common Stock" or the "Shares"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer by AEC Acquisitions, Inc.,
a Delaware corporation ("Purchaser") and a wholly-owned subsidiary of Aquila
Energy Corporation, a Delaware corporation ("Energy"), which in turn is a
wholly-owned subsidiary of UtiliCorp United Inc., a Delaware corporation
("UtiliCorp"), to purchase all outstanding Shares not currently directly or
indirectly owned by Purchaser, Energy or UtiliCorp ("Publicly Held Shares"), for
a purchase price of $8.00 per share, net to the seller in cash, upon the terms
and subject to the conditions set forth in the Offer to Purchase, dated April 9,
1999 (the "Offer to Purchase"), and in the related Letter of Transmittal
(together with the Offer to Purchase, as each may be amended and supplemented
from time to time, the "Offer"). The Offer is disclosed in a Tender Offer
Statement on Schedule 14D-1, dated April 9, 1999 (as amended and supplemented
from time to time, the "Schedule 14D-1") and a Rule 13e-3 of Transaction
Statement on Schedule 13E-3, dated April 9, 1999, which have been filed with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934, as amended, and the rules promulgated by the Commission
thereunder. As set forth in the Schedule 14D-1 the address of the principal
executive offices of UtiliCorp, Energy and the Purchaser is 20 West Ninth
Street, Kansas City, Missouri 64105.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above. All information contained
in this Statement or incorporated herein by reference concerning the Purchaser,
Energy or UtiliCorp was provided by the Purchaser, Energy or UtiliCorp, and the
Company takes no responsibility for such information.
(b) References made to the information contained under the captions
"Certain Transactions" in the Company's Proxy Statement for the Annual Meeting
of Stockholders held on May 12, 1998 that was mailed to stockholders under
cover of letter dated April 20, 1998 regarding certain contracts, agreements,
arrangements and understandings and certain potential conflicts of interest
between the Company and its affiliates and (i) its executive officers,
directors and affiliates and (ii) UtiliCorp, Energy and the Purchaser and their
executive officers, directors and affiliates. The relevant sections thereof are
filed as Exhibit 1 hereto and are incorporated herein by reference. Except as
described in Exhibit 1 or elsewhere in this Statement, to the knowledge of the
Company, as of the date hereof, there are no material contracts, agreements,
arrangements or understandings or any actual or potential conflicts of interest
between the
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Company or its affiliates and (i) its executive officers, directors or
affiliates or (ii) the Purchaser, Energy or UtiliCorp or their respective
executive officers, directors or affiliates.
COMPOSITION OF THE BOARD OF DIRECTORS. The Company's Board of
Directors (the "Board") is composed of the following five members:
<TABLE>
<CAPTION>
Name Present Occupation or Employment
---- --------------------------------
<S> <C>
Charles K. Dempster* Chairman of the Board of the Company (since
August 1993); Chairman of the Board and Chief
Executive Officer of Energy (since November
1998); Senior Vice President of UtiliCorp (since
January 1996); and Chairman and Chief Executive
Officer of UtiliCorp U.K., Inc. (since November
1995)
F. Joseph Becraft* President and Chief Executive Officer of the
Company (since August 1997)
Edward K. Mills* Director (since February 1999); President and
Chief Operating Officer of Energy (since November
1998); and Vice President of UtiliCorp (since
July 1998);
Gary L. Downey Retired
Jon L. Mosle, Jr. Independent Consultant (since 1992)
</TABLE>
- ------------------
* Designates Director deemed to be affiliated with UtiliCorp
("Affiliated Director").
The Company is a party to Indemnification Agreements with directors
Mosle and Downey.
Each non-employee director of the Company receives $2,000 per Board
meeting attended and $500 for each committee meeting attended. In addition,
outside directors are reimbursed for their reasonable expenses in attending
meetings of the Board or any committee and are awarded $2,000 in value of
Common Stock each quarter under the Company's 1996 Non-Employee Director Stock
Option Plan. Also, each member of the Special Committee will receive $35,000
for his service on such committee in addition to payment of regular attendance
fees and expenses. The $35,000 payment was due upon completion, rejection by
the Special Committee or abandonment of the proposed purchase of the Publicly
Held Shares.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) NO RECOMMENDATION.
BACKGROUND. At the Company's November 10, 1998 board meeting, Mr.
Charles K. Dempster, Chairman of the Board of the Company advised the meeting
that he expected a Proposal from UtiliCorp in the near future regarding the
purchase of the Publicly Held
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Shares. The Board then formed the Special Committee consisting of Messrs. Mosle
and Downey, for the purpose of considering and responding to any such Proposal
from UtiliCorp.
On November 10, 1998, UtiliCorp sent a letter to the Board and
to the Special Committee stating its Proposal (the "Proposal") to acquire all
of the Publicly Held Shares at a price of $8.00 per share, the consideration to
consist of cash or UtiliCorp stock or a combination thereof, to be agreed upon
in negotiation. Thereafter, UtiliCorp representatives advised the Special
Committee that it was not interested in selling its controlling interest in the
Company to a third party and that it did not want to issue UtiliCorp stock in
any purchase transactions..
On November 12, 1998, UtiliCorp issued a press release
announcing its Proposal.
Pursuant to Board authorization, and at the Company's expense,
the Special Committee then selected Petrie Parkman & Co., Inc. ("Petrie
Parkman") as its financial advisor and Thompson & Knight as its legal counsel.
After analyzing the Company and the Proposal with the assistance
of its legal and financial advisors, the Special Committee determined that the
price offered in the Proposal would not adequately compensate the holders of the
Publicly Held Shares (the "Public Shareholders") for the long-term inherent
value of their Shares. Consequently, the Special Committee and UtiliCorp have
not been able to reach agreement as to a per share price for the Publicly Held
Shares that the Special Committee was willing to recommend that the Public
Shareholders accept.
POSITION OF THE COMPANY. At a meeting of the Board held on April
22, 1999, after a detailed report from the Special Committee, its counsel and
its financial advisers as to their activities since the Special Committee was
formed, the Board determined that the Company would not make a recommendation
as to whether the Public Shareholders should tender their Shares pursuant to
the terms of the Offer. As described in Item 3(b), three of the five members of
the Board are all also officers or directors of UtiliCorp and affiliates
thereof. Because a majority of the Board is affiliated with UtiliCorp, the
Board determined that the Company will express no opinion and will remain
neutral toward the Offer. The Board has not voted to approve or disapprove the
Offer or to recommend that the Public Shareholders tender or refuse to tender
their Shares in the Offer. At the April 22, 1999 meeting, the Special Committee
was encouraged to include in this Statement any information, recommendation or
other statement deemed necessary or appropriate by such Special Committee to
assist the Public Shareholders in determining whether or not to accept the
Offer.
POSITION OF THE UTILICORP AFFILIATED DIRECTORS. Because they are
affiliated with UtiliCorp, Messrs. Dempster, Mills and Becraft, who constitute
a majority of the Board, are expressing no opinion on the Offer as directors of
the Company. A copy of a letter to all shareholders, which communicates the
Company's neutrality and the position of the Special Committee with respect to
the Offer, is filed as Exhibit 2 to this Statement and is hereby incorporated
herein by reference.
POSITION OF THE SPECIAL COMMITTEE. As is described above under
the caption "Background," the Special Committee formed to evaluate the UtiliCorp
Proposal determined that the $8.00 per share price offered in the Proposal would
not adequately compensate the Public Shareholders for the long-term inherent
value of their shares. Further, the
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Special Committee was unable to come to agreement with UtiliCorp as to a price
that it would recommend to the Public Shareholders. Consequently, the Special
Committee now recommends that the Public Shareholders reject the Offer and not
tender their shares. See Item 5(b) below.
EXCEPT FOR THE SPECIAL COMMITTEE, CONSISTING OF DIRECTORS MOSLE
AND DOWNEY, WHO RECOMMEND THAT THE PUBLIC SHAREHOLDERS REJECT THE OFFER AND NOT
TENDER THEIR SHARES, NO PERSON OR ENTITY, INCLUDING THE COMPANY, ANY OTHER
MEMBER OF THE BOARD AND THE LEGAL OR FINANCIAL ADVISORS TO ANY MEMBER OF THE
BOARD IS MAKING ANY RECOMMENDATION TO THE PUBLIC SHAREHOLDERS IN THIS SCHEDULE
14D-9 AS TO WHETHER THEY SHOULD TENDER OR REFRAIN FROM TENDERING SHARES IN THE
OFFER. CONSEQUENTLY, EACH PUBLIC SHAREHOLDER MUST DECIDE, IN THE MANNER IN
WHICH SUCH PUBLIC SHAREHOLDER WISHES TO DO SO, WHETHER TO TENDER SHARES, AND IF
SO, HOW MANY SHARES TO TENDER.
PETRIE PARKMAN'S ANALYSES REFERRED TO HEREIN DO NOT CONSTITUTE
AN OPINION OF PETRIE PARKMAN OR A RECOMMENDATION AS TO WHETHER OR NOT YOU
SHOULD TENDER YOUR SHARES IN THE OFFER AND SHOULD NOT BE RELIED UPON AS SUCH.
THE BOARD URGES THE PUBLIC SHAREHOLDERS TO MAKE THEIR DECISIONS
AS TO WHETHER TO TENDER OR TO REFRAIN FROM TENDERING SHARES BASED ON ALL OF THE
AVAILABLE INFORMATION, INCLUDING THE INFORMATION SET FORTH IN THIS SCHEDULE
14D-9.
(b) REASONS FOR THE SPECIAL COMMITTEE'S POSITION WITH RESPECT TO THE
OFFER.
THE DILIGENCE AND NEGOTIATION PROCESSES. On November 17, 1998,
the Special Committee initially met with representatives of Petrie Parkman to
discuss a possible advisory assignment regarding the Proposal.
On December 17, 1998, the Special Committee held an organizational
meeting in Dallas, Texas at which time it engaged Petrie Parkman to provide
certain financial advisory services to the Special Committee in connection with
the Proposal, and, if requested by the Special Committee, to render an opinion
as to the fairness from a financial point of view to the Public Shareholders of
the consideration to be paid to the Public Shareholder pursuant to the Proposal,
if, and in the form, agreed to. Petrie Parkman is to receive a flat fee for its
services whether or not any transaction is consummated.
On January 11, 1999, a member of the Special Committee, representatives
of Petrie Parkman, legal counsel to the Special Committee, and representatives
of Donaldson, Lufkin & Jenrette ("DLJ"), financial advisors to UtiliCorp, met
with the Company's senior management and staff at the Company's headquarters in
San Antonio, Texas to review the business activities, financial performance and
business plans of the Company. Senior management presented an overview of the
Company. After the overview presentation, the Chairman of the Special Committee,
representatives of Petrie Parkman, and legal counsel to the Special Committee
met with members of management and staff to discuss the Company in more detail.
At this time, the Company provided, among other things, the Company's
projections of its future operating and financial performance that the Company
called the "Base Plan" (base operating and financial projections, excess cash
flow used to reduce the Company's debt balance) and "Savings Plan" (Base Plan
adjusted for a corporate cost savings initiative). Petrie Parkman requested
additional versions of the Company's projections of its future operating and
financial performance that the Company had developed since early 1998, including
plans discussed by management during due diligence that include aggressive
capital expenditure programs.
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During the remainder of January and into February, Petrie Parkman and
legal counsel to the Special Committee continued their due diligence efforts
and communications with the Company management and staff.
On January 19, 1999, the Special Committee met with representatives of
Petrie Parkman and legal counsel to the Special Committee in Dallas, Texas to
discuss, among other things, the due diligence process, the energy equity
markets and commodity environment, the preparation necessary for upcoming
meetings with UtiliCorp representatives, and Petrie Parkman's preliminary
analysis of the Company.
In its analysis, Petrie Parkman reviewed the current market
environment for energy companies, including companies whose principal activities
consist of the gathering and processing of natural gas, and how the environment
may impact the Company's current and future performance. Petrie Parkman reviewed
the Company's current and historical stock market performance versus (i)
companies with similar operating characteristics, (ii) the price of crude oil,
and (iii) UtiliCorp's Proposal of $8.00 per share. Petrie Parkman compared the
Company's historical financial performance to its projected financial
performance as set forth in the Company's Base Plan and Savings Plan. Petrie
Parkman also performed other analyses it deemed appropriate, including, (i) a
discounted cash flow analysis, (ii) a comparable transaction analysis, (iii) a
common stock comparison, and (iv) a going concern analysis.
On January 20, 1999, Petrie Parkman received from the Company an
additional set of the Company's projections of its future operating and
financial performance that the Company called the "Reinvestment Plan" (Savings
Plan, with excess cash flow invested in projects with certain rates of return).
On January 25, 1999, the Special Committee met with representatives of
Petrie Parkman and legal counsel to the Special Committee in Dallas, Texas to
discuss the current energy equity markets and commodity environment, to discuss
Petrie Parkman's updated preliminary analysis of the Company, and to further
develop the Special Committee's strategies for the upcoming meetings with
UtiliCorp and its representatives. Petrie Parkman presented an updated
preliminary analysis that incorporated the Reinvestment Plan and indicated to
the Special Committee that, based upon its updated preliminary analysis of the
Company and the assumptions made by Petrie Parkman in connection with the
preparation of its analysis, including with respect to the accuracy and
completeness of the information provided to Petrie Parkman, and the absence of
any facts that would make such information incomplete or misleading in any
material respect, the Proposal was toward the low end of Petrie Parkman's range
of reference values for the Company.
On January 26, 1999, representatives of Petrie Parkman and
representatives of DLJ met in Houston, Texas to discuss the status of the
Special Committee's and Petrie Parkman's analysis of the Proposal and to develop
a channel of communication for scheduling future meetings. Petrie Parkman
conveyed the Special Committee's view that the $8.00 per share Proposal was not
acceptable and that the Special Committee had reservations about whether it was
an appropriate time for the Public Shareholders to sell their shares in light of
the unusually poor commodity price environment at the time. DLJ asserted that
$8.00 per share was an aggressive Proposal and that, absent the Proposal, the
Company's stock price would be trading far below $8.00 per share. DLJ commented
that its various methods of analysis supported the $8.00 per share Proposal and
that DLJ had focused on the Company's Reinvestment Plan rather than the
Company's Upside Business Plan (developed in late 1998, assumed a large capital
expenditure program financed with excess cash flow and additional borrowings and
higher commodity prices.).
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The next day, Petrie Parkman requested from the Company the Company's
Upside Business Plan, which had been referred to by DLJ on January 26, 1999,
and other projections of its future operating and financial
performance that the Company had developed during 1998.
On February 4, 1999, Petrie Parkman received four additional sets of
projections of the Company's future operating and financial performance from
the Company, including the Upside Business Plan.
On February 19, 1999, the Special Committee met with representatives of
Petrie Parkman and legal counsel to the Special Committee in Dallas, Texas to
discuss the current energy equity markets and commodity environment and the
Special Committee's strategy for the afternoon meeting with UtiliCorp, and to
review Petrie Parkman's preliminary analysis. At that meeting, the Special
Committee concluded that 1998 was an unusually difficult year for the Company
for several reasons, including, (i) the commodity environment, (ii) the
distraction of and the effort put into the failed 1998 attempt by UtiliCorp to
sell the Company to a third party, (iii) the loss of key employees, and (iv) the
exaggerated volatility of the Company's stock price caused in part by short-term
investors speculating on the potential results of the failed attempt by
UtiliCorp to sell the Company in 1998 and then the aggressive selling of the
stock when the Company announced that the sales process had been terminated. The
Special Committee again expressed its concern about whether it was an
appropriate time to sell the Company considering the depressed conditions in the
oil and gas industry and the other factors noted above.
Later that day of February 19, 1999, the Special Committee met with
representatives of UtiliCorp in Dallas, Texas. Also present at the meeting were
representatives of Petrie Parkman, legal counsel to the Special Committee,
representatives of DLJ, and legal counsel for UtiliCorp. The Special Committee
made several observations regarding the Proposal, including the following: (i)
the performance of the Company's stock since its IPO has been below
expectations, (ii) the strategic plans of the Company presented during due
diligence appeared to be very conservative, and (iii) if a transaction were
consummated at or near $8.00 per share the Public Shareholders would be selling
near the bottom of a commodity cycle and at a value based on temporary
conditions. The remainder of the meeting consisted of a lengthy discussion of
DLJ's valuation of the Company and of the natural gas and natural gas liquids
price environment. The Special Committee did not instruct Petrie Parkman to
review its analysis of the Company with UtiliCorp or its representatives.
At the conclusion of the meeting, the Chairman of the Special
Committee told the UtiliCorp representatives that he did not believe that an
agreement could be reached unless UtiliCorp substantially increased the price
set forth in its Proposal. The Special Committee and the representatives of
UtiliCorp authorized Petrie Parkman and DLJ to review in detail DLJ's
presentation and valuation methodologies and assumptions.
In its review of DLJ's presentation and valuation methodologies and
assumptions, Petrie Parkman developed certain questions regarding DLJ's
analysis. Representatives of Petrie Parkman and representatives of DLJ spoke
several times during the two weeks following the February 19 meeting to clarify
the methodologies and assumptions used by DLJ in its analysis. After adjusting
its analysis for certain issues identified by Petrie Parkman, DLJ informed
Petrie Parkman that its conclusions had not materially changed.
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On March 18, 1999 Mr. Downey had a telephone conversation with Mr.
Robert K. Green, President of UtiliCorp, who inquired whether the Special
Committee was prepared to make a counter Proposal to UtiliCorp. Mr. Downey said
that the Special Committee would consider making a counter Proposal the next day
at the previously scheduled meeting in Dallas. Mr. Mosle also spoke by telephone
with Mr. Green. In both conversations, UtiliCorp was urged to increase its $8.00
per share Proposal. Mr. Green stated in his conversation with Mr. Mosle that he
had not seen any analytic work that supported a $10.00 per share value for the
Company and inquired as to whether Mr. Mosle could provide such analytic
support. Based upon his conversation with Mr. Green, Mr. Mosle instructed Petrie
Parkman to prepare materials demonstrating that the Company could be reasonably
valued at more than $10.00 per share.
On March 19, 1999, the Special Committee met with representatives of
Petrie Parkman and legal counsel to the Special Committee in Dallas, Texas to
discuss, among other things that, (i) by using certain of the DLJ methodologies
the Company could be reasonably valued at more than $10.00 per share, (ii) the
current energy equity markets and commodity environment and how they had both
strengthened recently; and (iii) a news article in early February in which Mr.
Richard Green, Chairman and Chief Executive Officer of UtiliCorp, commented that
the Company's business had bottomed out and that UtiliCorp was looking for a
slight recovery in the Company's business in 1999.
Later in the day on March 19, 1999, the Special Committee met with
representatives of UtiliCorp in Dallas, Texas and representatives of Petrie
Parkman, legal counsel to the Special Committee, representatives of DLJ, and
legal counsel for UtiliCorp. The Special Committee reiterated its concerns
about the Proposal. Mr. Mosle stated that he believed the Special Committee
would be prepared to recommend a Proposal at or above $10.00 per share. Mr.
Green responded that UtiliCorp had not seen any analytical work to support such
a per share value. The Special Committee then instructed Petrie Parkman to
present a demonstration that supported per share values greater than $10.00.
Based on Mr. Mosle's March 18 request, Petrie Parkman replicated for
its demonstration DLJ's discounted cash flow analysis from DLJ's February 19
presentation. DLJ's analysis, which was based on the Company's Reinvestment
Plan, yielded results ranging from $4.03 to $10.47 per share in which DLJ
highlighted a range of $5.47 to $8.69 per share using EBITDA terminal multiples
in year 2003 ranging from approximately 6.0 to 7.0x. Utilizing DLJ's discounted
cash flow analysis methodology Petrie Parkman demonstrated that per share values
above $10.00 could be realized by using EBITDA terminal multiples in year 2003
above 8.0x. Petrie Parkman noted that the mean and median EBITDA multiples from
DLJ's Comparable Merger and Acquisition Transaction analysis were 9.2x and 9.6x,
respectively, which, when used as the terminal multiples in DLJ's discounted
cash flow methodology, implied per share values for the Company of $10.88 and
$14.78. Petrie Parkman also noted that per share values above $10.00 could be
attained using as the 2003 terminal multiple either the 1998 actual or 1999
estimated EBITDA stock market trading multiples of Western Gas Resources, Inc.
(9.5x and 9.9x, respectively, as set forth in DLJ's February 19, 1999
presentation), a company that DLJ and Petrie Parkman agreed was the best
comparable of the Company and that DLJ utilized in its Comparable Company
analysis.
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Petrie Parkman has since delivered a letter to legal counsel to the
Special Committee stating that Petrie Parkman was prepared to issue an opinion
as to the fairness from a financial point of view of the Proposal to the public
shareholders of the Company at $8.00 per share.
SPECIAL COMMITTEE APPROACH TO VALUATION ANALYSIS. Set forth below are
Board Resolutions, adopted on February 11, 1999, delineating the duties of the
Special Committee:
"NOW, THEREFORE, BE IT RESOLVED, that the Board of
Directors of the Corporation hereby confirms and continues
the appointment of Jon L. Mosle, Jr. and Gary L. Downey to
serve as members of a Special Committee of independent
directors of the Board and authorizes and directs such
Special Committee to determine, direct, and conduct the
process to be undertaken by the Corporation with respect to a
possible purchase by UtiliCorp of the Common Stock of the
Corporation not owned by UtiliCorp and owned by public
stockholders of the Corporation with the assistance of
independent legal counsel and independent financial advisors;
to negotiate independently the terms and conditions of the
proposed transaction, and in that regard to reject any
Proposal for such transaction if not deemed in the best
interest of stockholders of the Corporation and to constitute
the best value reasonably available for the minority
stockholders of the Corporation; to inform itself to the
fullest extent possible regarding such Proposal; and in
connection with the foregoing, to review and take into
account all Proposals submitted to the Special Committee
regarding the Corporation or shares of Common Stock thereof."
As set forth in the Board resolutions, the charge to the Special
Committee was to reject any offer "not deemed . . . to constitute the best value
reasonably available for the minority stockholders of the Company." Upon
receiving that charge, the Committee determined to seek a price for the Publicly
Held Shares that was not merely fair in a technical analytical sense but one
that was the best value reasonably available to the Public Shareholders under
the circumstances. To obtain such a value, the Committee carefully reviewed
business plans prepared by the Company, analyses prepared by Petrie Parkman and
DLJ, and current industry prospects. Because the current state of the industry
is highly depressed, it also determined to ascertain the value of the shares on
a longer term basis than that provided in traditional valuation analyses.
Prior to announcement of the Offer, the Special Committee had met 20
times, 17 with its legal and financial advisors, once with the Company's
management, and twice with its advisors and UtiliCorp representatives.
SPECIAL COMMITTEE RECOMMENDATIONS AND REASONS THEREFOR. The Members of
the Special Committee unanimously agree that for the following reasons
UtiliCorp's Offer is not in the best interests of the Public Shareholder and
does not constitute the best value reasonably available to the Public
Shareholders and therefore should be rejected:
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(a) Timing. The Committee believes that this is not the right
time to sell the Publicly Held Shares. The oil and gas industry is
experiencing unusually depressed conditions, due primarily to
historically low commodity prices. These prices will not likely go
lower and, especially in light of conditions around the world, should
increase, perhaps over the near term. The Committee believes that a
price for the Publicly Held Shares based on such conditions, even if
supported by financial analyses based on current commodity prices, is
not the best price reasonably available to the Public Shareholders.
(b) UtiliCorp Indications of a Higher Price. In his letter to the
Company of July 15, 1998, which neither Mr. Mosle nor Mr. Downey
remember actually receiving, Mr. Richard C. Green, Jr., Chairman and
Chief Executive Officer of UtiliCorp, wrote that UtiliCorp would be
willing to acquire the Publicly Held Shares at "the current market
price, not to exceed $12.50 per share." The Special Committee does not
believe that the long-term inherent value of such shares has decreased
from $12.50 to $8.00, the price set forth in the Offer, in the several
months since that letter. Further, at the meeting between the Special
Committee and representatives of UtiliCorp on February 19, 1999, a
representative of UtiliCorp advised that it is customary for a buyer to
be prepared to increase its initial offer by approximately 10% in order
to consummate a transaction such as the Proposal. By the Committee's
calculation, this implies a price of approximately $8.80 per share; not
what the Special Committee would deem an acceptable offer, but
considerably better than the Offer itself.
(c) Factors Affecting Historical Stock Prices. Due to the fact
that UtiliCorp has held an overwhelming control position in the
Company, the Company has received very little coverage from Wall Street
analysts and that, along with the lack of liquidity resulting from a
reduced public float, has contributed to a continuing depressed stock
price. The Special Committee believes that since the failed attempt by
UtiliCorp to sell the Company in 1998, there has existed in the market
a perception of lack of interest and enthusiasm for the Company on the
part of UtiliCorp. This too has contributed to the poor performance of
the Company Common Stock during the last several months. Finally, the
Committee notes that, since February 19, 1999, the date of the first
meeting among the Special Committee and representatives of UtiliCorp,
the market prices of Western Gas Resources, Inc., comparable to the
Company has risen approximately 71%. Applying this percentage increase
to the $8.00 price set forth in the Proposal implies a price for the
Company Common Stock of $13.68 per share.
(d) (4) Business Plans; Affiliation of UtiliCorp. The basic
business plans provided by the Company, were very conservative. The
Special Committee believes that neither UtiliCorp nor the Company will
actually follow that course in the future. Because UtiliCorp holds over
80% of the Common Stock of the Company, the Special Committee does not
believe that it will continue to let the Company languish and that, to
the contrary, it will provide both direction and financing to the
Company over the long term. The result should be enhanced performance.
(e) Financial Analyses. In reviewing the financial analyses
prepared by financial advisors for both UtiliCorp and the Special
Committee, the Special Committee noted several factors:
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In general, the Special Committee believes that the
$8.00 per share price set forth in the Proposal does not
accurately reflect comparable transactions; does not reflect
more growth oriented projections utilized by the Special
Committee; does not reflect an improving environment in the
industry; does not reflect the fact that the Shares have traded
at or above $8.00 almost 90% of the time since the Company's
initial public offering; and does not reflect any value that
UtiliCorp would obtain upon achieving full control of the
Company. Although the Special Committee does not believe that a
traditional financial analytical approach necessarily results in
the true long-term inherent value of the Company under
distressed industry conditions, the more aggressive business
plans of the Company justify a price well above the $8.00 per
share set forth in the Offer. In addition, although Petrie
Parkman did not render an opinion as to the Fairness from a
financial point of view of the Proposal, as described above
Petrie Parkman indicated to the Special Committee that the
Proposal fell toward the low end of Petrie Parkmans range of the
reference values for the Company.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
As described above in Item 4, in connection with UtiliCorp's November
10, 1998 Proposal, Petrie Parkman was retained as financial advisor to the
Special Committee. The terms of the Company's Engagement Letter with Petrie
Parkman are described above in Item 4(b).
Except as disclosed herein, neither the Company nor any person acting
on its behalf has employed, retained or compensated any person to make
solicitations or recommendations to the Company's stockholders on its behalf
with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past
60 days by the Company, or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company.
(b) According to information set forth in the Offer to Purchase, all
of the Company's directors who are directors, executive officers or affiliates
of UtiliCorp intend to tender their Shares in accordance with the Offer. The
Company has no knowledge of whether any other of its directors, executive
officers, affiliates or subsidiaries intend to tender their Shares in
accordance with the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) To the knowledge of the Company, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any affiliate or subsidiary of the
Company; (ii) a purchase, sale or transfer of a material amount of assets by
the Company or any subsidiary of the Company; (iii) a tender offer for or other
acquisition of securities by or of the Company; or (iv) any material change in
the present capitalization or dividend policy of the Company.
(b) Except as described in Items 3 and 4 above (the provisions of
which are hereby incorporated by reference), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred to
in paragraph (a) of this Item 7.
10
<PAGE> 12
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Following UtiliCorp's November 1, 1998 announcement of its intention
to make an offer of $8.00 per share for the Publicly Held Shares, four lawsuits
were filed in the Court of Chancery of the State of Delaware against UtiliCorp,
the Company and the Board. The suits alleged that $8.00 was an inadequate price
for the Shares, that the Board and any special committee of the Board had a
duty to act in the interests of the Company's stockholders, and that there was
a conflict between the interests of UtiliCorp as majority stockholder and the
fiduciary obligations of the Board to the minority stockholders. The suits all
sought class action status and asked that any proposed transaction be enjoined
and that unspecified compensatory damages be awarded. On January 11, 1999, the
actions were consolidated as In Re: Aquila Gas Pipeline Corporation
Shareholders Litigation, Consolidated Case No. 16775. By agreement of the
parties, no response from the defendants in the suits has been filed. On April
16, 1999, plaintiffs filed an amended class action complaint, naming as
defendants UtiliCorp, Aquila, and the members of the board of directors of
Aquila who are not members of the Special Committee. The amended complaint
alleges that the price offered by UtiliCorp for shares of Aquila is inadequate
and constitutes unfair dealing. The amended complaint also alleges that
UtiliCorp is using its position as a majority holder of Aquila to prevent any
auction or market check, and to engage in wrongful dealing and coercive
conduct. Plaintiffs further allege that the Schedule 14D-1 filed by UtiliCorp
fails to disclose information which plaintiffs claim is material to the
decision of Aquila's public shareholders whether to tender. The Amended
Complaint requests injunctive and other equitable relief, as well as damages.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1.
Excerpts from Proxy Statement dated April 20, 1998 relating to the
Company's 1998 Annual Meeting of Stockholders.
Exhibit 2.
Form of Letter to Stockholders of the Company, dated April 23, 1999.*
Exhibit 3.
Amended Consolidated Class Action Complaint filed in the Court of
Chancery of the State of Delaware in In Re: Aquila Gas Pipeline Corporation
Shareholders Litigation (Consolidated Civil Action No. 16775).
- ------------
* Included in copies of the Schedule 14D-9 mailed to stockholders.
11
<PAGE> 13
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
Dated: April 22, 1999 AQUILA GAS PIPELINE CORPORATION
By: /s/ DONALD J. LABAUVE
-------------------------------------------
Name: Donald J. LaBauve
Vice President, Regulatory
and Administration
F. Joseph Becraft
President and Chief Executive Officer
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
Exhibit 99.1. Excerpts from Proxy Statement dated April 20, 1998 relating to
the Company's 1998 Annual Meeting of Stockholders.
Exhibit 99.2. Form of Letter to Stockholders of the Company, dated April 23,
1999.*
Exhibit 99.3. Amended Consolidated Class Action Complaint filed in the Court
of Chancery of the State of Delaware in In Re: Aquila Gas
Pipeline Corporation Shareholders Litigation (Consolidated
Civil Action No. 16775).
</TABLE>
- ------------
* Included in copies of the Schedule 14D-9 mailed to stockholders.
<PAGE> 1
CERTAIN TRANSACTIONS EXHIBIT 99.1
Aquila Energy and UtiliCorp Services Agreement. The Company has
entered into services agreements with each of Aquila Energy and UtiliCorp (the
"Services Agreements") effective August 1, 1993, pursuant to which Aquila
Energy and UtiliCorp provide various services to the Company, including certain
treasury, legal, tax, accounting, human resources, corporate secretarial,
investor relations, risk management, management information, marketing,
administrative and other services. Such services have historically been
supplied to the Company by Aquila Energy and UtiliCorp and the Services
Agreements provide for the further delivery of such services substantially
similar in nature and quality to those services previously provided. The
Company has agreed to reimburse Aquila Energy and UtiliCorp for all direct
costs incurred in rendering such services and to pay Aquila Energy and
UtiliCorp for allocated indirect costs incurred in rendering such services. The
initial term of each of the Services Agreements is until December 31, 1994, and
automatically renews for successive periods of one fiscal year unless
terminated by either party. The Services Agreements are reviewed annually by
the Affiliate Transaction Review Committee.
Gas Sales Agreements. The Company has entered into two gas sales
agreements (the "Gas Sales Agreements") effective September 1, 1993, pursuant
to which the Company sells to a subsidiary of Aquila Energy substantially all
of its gas quantities available from its Elk City and Mooreland systems located
in Oklahoma. The Gas Sales Agreements provide pricing terms for the gas based
on published monthly index prices of interstate pipelines connected to the Elk
City and Mooreland systems. The pricing terms for such gas may be redetermined
to .be effective on any successive six month anniversary of the date of the
agreements. If the parties cannot agree on a redetermination as provided in the
Gas Sales Agreements, the agreements shall terminate at such six month
anniversary date. The Gas Sales Agreements each have a term of five years.
Tax Sharing Agreement. The Company, Aquila Energy and UtiliCorp have
entered into a tax sharing -agreement (the "Tax Sharing Agreement") which
provides for the allocation of liabilities, procedures to be followed land
other matters with respect to certain taxes for tax years beginning after
December 31, 1992, in which UtiliCorp, Aquila Energy, the Company and its
subsidiaries (the "Combined Consolidated Group") are included in a consolidated
federal income tax return filed for the Combined Consolidated Group.
Under the Tax Sharing Agreement, UtiliCorp has sole and exclusive
responsibility for the preparation and filing of the consolidated U.S. federal
income tax return of the Combined Consolidated Group beginning in 1993.
UtiliCorp is responsible for making all federal income tax payments on behalf
of the Combined Consolidated Group. Estimated tax sharing payments will be made
by the Company to UtiliCorp for each taxable year in which a combined
consolidated return is filed. If a return reflects a net operating loss, net
capital loss, excess tax credit or other tax attributes, UtiliCorp will pay the
Company the refund which the Company would have received as a result of the
carryback of such attribute to any taxable year or years subsequent to December
3 1, 1992 in which the Company and its subsidiaries are included in die
Combined Consolidated Group. An amendment to the Tax Sharing Agreement was
signed effective December 1, 1995, that specifies the manner in which the
Company would be liable to UtiliCorp in the event of a potential adjustment by
the Internal Revenue Service (IRS) relating to UtiliCorp's consolidated federal
income tax returns for a certain depreciation expense issue through 1992. The
amendment also provides for UtiliCorp to pay the interest. if any, relating to
the potential adjustment up to $1.5 million.
The principles expressed above with respect to federal income tax
matters apply equally to state and local income and franchise tax matters under
the Tax Sharing Agreement.
Aquila Revolvers. A Company subsidiary, Aquila Southwest Energy
Corporation ("ASW'), has entered into a $50 million revolving credit agreement
between ASW and Aquila Energy (the "Aquila Revolver"). As of December 31, 1997,
there was $50 million outstanding under this credit agreement. This revolver
bears interest at ASW's election of either a base rate (the higher of a bank
prime rate or one-half of 1% above the Federal Funds rate), an adjusted
certificate of deposit rate or a Eurodollar rate. The maturity date on this
revolver automatically renews in one-year periods from each commitment period
(October of each year) unless Aquila Energy gives at least a one-year notice
not to renew from the commitment period. Currently, the maturity date is
October of 1999. ASW is obligated to pay a commitment fee on any unused portion
of the Aquila Revolver at the rate of one-fourth of 1% per annum. All principal
outstanding is due at the end of the Aquila Revolver's term. Amounts may be
prepaid at any time.
12
<PAGE> 2
Under the Aquila Revolver, ASW may not pledge its assets to secure
indebtedness except for certain permitted liens. Amounts outstanding under the
Aquila Revolver are expressly subordinate to the Aquila Southwest 8.29%. Senior
Notes due 2002 ("8.29% Senior Notes"). Certain limitations are placed on ASW's
obligation to make payments on the Aquila Revolver in the event of default
under the terms of the 8.29% Senior Notes.
In September 1994, the Company entered into an additional agreement
with Aquila Energy that provides an unsecured revolving credit facility for
borrowing up to an amount equal to the difference between $ 125 million and the
balance outstanding on the $50 million revolving credit facility described
above. On June 1, 1997, the Company voluntarily reduced its commitment by $40
million from $165 million to $125 million. As of December 31, 1997, there was
$57.7 million outstanding under this credit agreement. On February 1, 1998, the
revolving credit facility's commitment was voluntarily reduced again by $10
million to $115 million. This revolver bears interest at the Company's election
of either a base rate (the higher of a bank prime rate or one-half of 1% above
the Federal Funds rate), an adjusted certificate of deposit rate or -a
Eurodollar rate. The maturity date on this revolver automatically renews in
one-year periods from each commitment period (December of each. year) unless
Aquila Energy gives at least a one-year notice not to renew from the commitment
period. Currently, the maturity date is December of 1999. The Company must pay
an annual commitment fee to Aquila Energy of one-fourth of 1% on the unutilized
portion of the revolving credit facility.
In July 1996, a Company subsidiary, AQP Holdings L.P. ("Holdings"),
entered into an unsecured $3 million revolving note agreement with Aquila
Energy. The note bears interest at a bank prime rate and matures in December of
1999. In February 1997, the revolving note agreement was paid off and there was
not a balance outstanding at December 3 1, 1997.
Aquila Loan Agreements. In September 1995, the Company entered into a
Loan Agreement (the "Loan") with Aquila Energy for an amount of $50 million.
The Loan is unsecured and bears interest at 6.47% due semiannually. The
principal amount of the Loan is required to be repaid to Aquila Energy by June
1, 2005. The Loan contains various covenants including certain financial
covenants related to net worth. As of December 31, 1997, there was $50 million
outstanding under the Loan.
In April 1997, the Company entered into another Loan Agreement (the
"Loan Agreement") with Aquila Energy for an amount of $16.3 million. The Loan
Agreement is unsecured and bears interest at 6,83% due semiannual The principal
amount of the Loan Agreement shall be repaid to Aquila Energy by October 15,
2006. The Loan Agreement also requires the Company to comply with certain
financial covenants and limits the activities of the Company in other ways. As
of December 31, 1997, there was $16.3 million outstanding under the Loan
Agreement.
<PAGE> 1
Exhibit 99.2
[AQUILA GAS PIPELINE CORPORATION LETTERHEAD]
April 22, 1999
Dear Shareholder:
As you know, on April 9, 1999, UtiliCorp United Inc., the 82%
shareholder of Aquila Gas Pipeline Corporation, commenced a tender offer to
acquire for $8.00 per share in cash all of the outstanding shares of common
stock of the Company that it does not currently own (the "Offer").
As you may also know, three of the members of the Company's Board of
Directors are also affiliates of UtiliCorp. Because a majority of the Company's
Board is affiliated with UtiliCorp, the Board has determined that the Company
will express no position and will remain neutral with respect to the Offer.
The enclosed Solicitation/Recommendation Statement on Schedule 14D-9,
which was filed today with the Securities and Exchange Commission, describes
the Company's position with respect to the Offer and contains other information
relating to the Company, UtiliCorp and the Offer. Although the Company is not
expressing a position and is remaining neutral with respect to the Offer, the
Company's Board has encouraged the directors of the Company who are
unaffiliated with UtiliCorp to include in the Schedule 14D-9 any information,
recommendation or other statement that they deem necessary or appropriate to
assist you in determining whether to accept the Offer. Accordingly, Messrs. Jon
L. Mosle, Jr. and Gary L. Downey, the directors of the Company who are not
affiliated with UtiliCorp and who have been serving as a Special Committee
appointed with respect to a possible UtiliCorp stock purchase, have advised the
Company that it is their recommendation that shareholders reject the Offer and
not tender their shares. The Schedule 14D-9 contains information as to the
reasons for that position.
Because the Company is not making a recommendation with respect to the
Offer, you must make your own decision as to the adequacy, fairness and
acceptability of the Offer in the manner in which you wish. The Company's Board
strongly urges you to make your decision based on all of the information
available to you and, to that end, to read the enclosed materials carefully and
in their entirety.
For your information, the Company will publish quarterly financial
results on May 3, 1999. Shareholders should consider that information in making
a decision on whether to tender shares.
<PAGE> 2
Sincerely,
/s/ F. Joseph Becraft
F. Joseph Becraft
President and Chief Executive Officer
-2-
<PAGE> 1
EXHIBIT 99.3
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ---------------------------------------- X
IN RE AQUILA GAS PIPELINE CORPORATION CONSOLIDATED
SHAREHOLDERS LITIGATION CIVIL ACTION NO. 16775
- ---------------------------------------- X
AMENDED CLASS ACTION COMPLAINT
Plaintiffs allege upon personal knowledge with respect to themselves,
and upon information and belief as to all other allegations herein, as follows:
NATURE OF THE ACTION
1. This is a stockholders' class action on behalf of the public
stockholders of Aquila Gas Pipeline Corporation ("Aquila" or the "Company"), in
connection with the acquisition of the publicly owned shares of Aquila common
stock by its majority controlling shareholder, defendant Utilicorp United Inc.
("Utilicorp").
2. Utilicorp is attempting to take advantage of its position of
control over Aquila. Through representation on Aquila's Board of Directors and
Utilicorp's collaboration with Aquila in business ventures, Utilicorp is well
aware that Aquila is poised for explosive growth in the near future.
3. The consideration that Utilicorp has offered to members of the
Class (as defined below) in the proposed acquisition is unfair and inadequate
because, among other things, the intrinsic value of Aquila's common stock is
materially in excess of the amount offered, giving due consideration to the
Company's promising growth and anticipated operating results, net asset value
and profitability.
<PAGE> 2
4. The inadequacy of the offer has already been determined by the
special committee members appointed by the Aquila Board who have rejected the
offer. Despite this rejection, Utilicorp is now employing its control over
Aquila to cram-down its inadequate buy-out Proposal at the same price as
previously offered and rejected by the special committee, in violation of
Utilicorp's fiduciary obligations to be entirely fair to the Class.
5. Utilicorp has further breached its fiduciary duties owed to Aquila
shareholders by issuing tender offer materials that contain material
misrepresentations and omissions about the $8.00 offer.
THE PARTIES
6. Plaintiff Eugenia Gladstone Vogel is and at all relevant times has
been the owner of shares of Aquila common stock.
7. Plaintiff Brickell Partners is and at all relevant times has been
the owner of shares of Aquila common stock.
8. Plaintiff Joseph Leone is and at all relevant times has been the
owner of shares of Aquila common stock.
9. Plaintiff Robert Riccuiti is and at all relevant times has been
the owner of shares of Aquila common stock.
10. Aquila is a Delaware corporation. Aquila gathers, processes and
markets natural gas and natural gas liquids through its natural gas gathering
systems and gas processing plants.
11. (a) Defendant Utilicorp is a Delaware corporation with its
principal executive offices located at 20 West Ninth
2
<PAGE> 3
Street, Kansas City, Missouri. Utilicorp is an international electric and gas
company.
(b) Utilicorp and its affiliates hold approximately 24 million
shares -- or 82% of the outstanding common stock -- of Aquila. As such,
Utilicorp and its representatives on the Aquila board control and dominate
Aquila's affairs. Utilicorp, therefore, is a controlling shareholder and owes
fiduciary obligations of good faith, candor, loyalty and fair dealing to the
public shareholders of Aquila.
12. (a) Defendants Harvey J. Padewer, Robert L. Howell and Charles K.
Dempster are directors of Aquila (collectively, the "Individual Defendants").
(b) In addition, defendant Padewer is Vice Chairman of Aquila and
defendant Dempster is Chairman of the Company's Board.
(c) Defendants Padewer, Howell and Dempster, who constitute the
majority of the Aquila Board, are Utilicorp appointees to the Aquila Board of
Directors and are also employed and/or affiliated with Utilicorp-related
entities.
13. Gary L. Downey ("Downey") and Jon L. Mosle, Jr. ("Mosle") are also
directors of Aquila but are not named as defendants in this complaint.
14. By virtue of their positions as directors and/or officers of
Aquila and/or their exercise of control and dominant ownership over the business
and corporate affairs of Aquila, each and every one of the Individual Defendants
(who, collectively, constitute a majority of the Board) and Utilicorp have, and
at
3
<PAGE> 4
all relevant times had, the power to control and influence, and engage in the
practices complained of herein. Each Individual Defendant and Utilicorp owed and
owes Aquila's public stockholders fiduciary obligations and were and are
required to: use their ability to control and manage Aquila in a fair, just and
equitable manner; act in furtherance of the best interests of Aquila's public
stockholders; refrain from abusing their positions of control; and not favor
their own interests at the expense of Aquila's public stockholders.
15. As discussed in detail below, Utilicorp, in concert with the
Individual Defendants have breached their fiduciary duties to Aquila's public
stockholders by acting to cause or facilitate Utilicorp's acquisition of the
publicly-held minority shares of Aquila for unfair and inadequate consideration.
CLASS ACTION ALLEGATIONS
16. Plaintiffs bring this action pursuant to Rule 23 of the Rules of
this Court, on behalf of themselves and all other shareholders of the Company
(except the defendants herein and any person, firm, trust, corporation, or other
entity related to or affiliated with them and their successors in interest) who
are or will be threatened with injury arising from defendants' actions
complained of herein (the "Class").
17. This action is properly maintainable as a class action for the
following reasons:
a. The Class is so numerous that joinder of all members is
impracticable. There are in excess of 5.29 million
4
<PAGE> 5
shares of Aquila common stock held by hundreds if not thousands of stockholders
who are members of the Class.
b. There are questions of law and fact that are common to the Class and
that predominate over questions affecting any individual class member. The
common questions include, inter alia, the following:
i) Whether defendants have engaged in and are continuing to engage
in conduct which unfairly benefits Utilicorp at the expense of the members of
the Class;
ii) Whether the Individual Defendants, as officers and/or directors
of the Company, and Utilicorp, the controlling stockholder of Aquila, are
violating their fiduciary duties to plaintiffs and the other members of the
Class;
iii) Whether plaintiffs and the other members of the Class would be
irreparably damaged were defendants not enjoined from the conduct described
herein; and
iv) Whether defendants have initiated and timed Utilicorp's buy-out
of Aquila shares to unfairly benefit Utilicorp at the expense of Aquila's public
shareholders.
c. The claims of plaintiffs are typical of the claims of the other
members of the Class in that all members of the Class will be damaged alike by
defendants' actions.
d. Plaintiffs are committed to prosecuting this action and have
retained competent counsel experienced in litigation of this nature.
Accordingly, plaintiffs are adequate representatives of the Class.
5
<PAGE> 6
SUBSTANTIVE ALLEGATIONS
A. THE COMPANY
18. Aquila was founded in 1989 by Utilicorp to acquire natural gas
gathering and process assets. Aquila gathers, processes and markets natural gas
and natural gas liquids through eleven natural gas gathering systems and four
gas processing plants. In 1993, 5.4 million shares of the Company's stock were
sold to the public.
19. Prior to 1998, Aquila had enjoyed significant improving operating
revenues over the past several years. Operating revenues were $485.8 million,
$797.3 million and $1.014 billion for the years 1995 through 1997, respectively.
During 1996 and 1997, Aquila's stock was trading in a $10-$16 price range.
20. In spite of these gains, because of, inter alia, the relatively
warm 1997-1998 winter, fiscal 1998 was a difficult year for Aquila. In
particular, during 1998, the price for natural gas liquids was about $0.24 per
gallon or approximately $0.15 per gallon below 1997 prices. Each $0.10 change
decreases Aquila's earnings by almost $1.5 million or $.05 per share. Lower
prices not only negatively impact margins but also gas processing volume.
B. UTILICORP MAKES A PROPOSAL TO PURCHASE
THE PUBLICLY-HELD AQUILA SHARES
21. In July 1998, Richard C. Green, Jr. ("Green"), Utilicorp's
Chairman and Chief Executive Officer, wrote to the Company's Board and expressed
an interest in purchasing Aquila's
6
<PAGE> 7
publicly-held shares for a price "not to exceed $12.50 per share." Several weeks
later, Utilicorp withdrew its written expression of interest.
22. Thereafter, taking advantage of the short-term price weakness for
natural gas and natural gas liquids and the concomitant temporary downturn in
the Company's stock price, on or about November 10, 1998, Utilicorp proposed to
acquire Aquila's publicly owned shares at the artificially low price of $8 per
share. As recently as June 3, 1998, Oppenheimer analysts valued Aquila in an
acquisition transaction at $16-$18 per share.
23. In response to Utilicorp's acquisition Proposal, the Company
appointed a special committee of Aquila directors, consisting of Downey and
Mosle, to consider and respond to the proposed offer (the "Special Committee").
24. Thereafter, on numerous occasions, the Special Committee, along
with its financial advisor Petrie Parkman & Co. ("Petrie"), expressed its
concern that the Company's shares would likely be worth more in the future than
the $8.00 proposed for each Aquila share and that agreement could not be reached
unless Utilicorp substantially increased its offer. The Special Committee
repeatedly expressed its view that it was prepared to recommend an offer at or
above $10.00 per share based on Petrie's discounted cash flow analysis, which
valued the Company's shares up to $17.33 per share. Indeed, Donaldson, Lufkin &
Jenrette ("DLJ"), Utilicorp's financial advisor, valued Aquila's shares up to
$11.31 in its discounted cash flow analysis.
7
<PAGE> 8
25. On April 1, 1999, the Special Committee concluded that its
negotiations with Utilicorp were not going to result in an agreement and the
discussions broke-down.
C. UTILICORP LAUNCHES A TENDER OFFER
PER AQUILA'S PUBLICLY-HELD SHARES
26. On April 9, 1999, Utilicorp filed a Schedule 14D-1 Tender Offer
Statement (the "14D-1") with the Securities and Exchange Commission and made an
offer directly to the Company's stockholders to acquire the Company's
publicly-held shares for $8.00 per share.
27. At $8.00 per share, the Company is valued at less than $240
million or less than three times last year's earnings before interest, taxes and
depreciation ("EBITD") and less than five times 1998's projected EBITD. Natural
gas companies are typically valued at 8 to 9 times EBITD.
D. THE 14D-1 OMITS MATERIAL INFORMATION NECESSARY FOR
AQUILA'S PUBLIC SHAREHOLDERS TO MAKE AN INFORMED
DECISION WHETHER TO TENDER THEIR SHARES
26. In an attempt to cause Aquila's public shareholders to tender
their shares, defendants wrongfully and deliberately determined not to disclose
in the 14D-1 the following information:
a. the estimated or anticipated results from such Company assets
as the Oasis Pipe Line Company ("Oasis"), the South East Texas Pipeline System
("SETPS"), the Western Oklahoma pipeline system located in the Anadarko Basin
and the LaGrange, Texas natural gas processing plant, and the impact of these
8
<PAGE> 9
operations on the operating cash flow, earnings or share price of Aquila;
b. a description of the methodology by which the Special Committee
evaluated and ultimately rejected the $8.00 per share offer;
c. the current and future pricing terms relating to the gas sales
agreements pursuant to which the Company sells to a subsidiary substantially
all of its gas quantities available from its Elk City and Mooreland systems;
d. any Aquila or Utilicorp projections of Aquila's future results;
and
e. a description of or facts evidencing the method or manner by
which the $8.00 Tender Offer price was established.
29. Such information is highly material to Aquila's public shareholders'
decision as to whether to tender their shares in response to Utilicorp's offer
or whether to decline the offer.
E. DEFENDANTS' OTHER WRONGFUL CONDUCT
30. Any transaction to acquire the Company at the price being considered
does not represent the true value of the Company and is unfair and inadequate
and constitutes unfair dealing.
31. Because the inadequate offer has already been rejected by the Special
Committee, Utilicorp is now employing its control over Aquila to cram-down its
inadequate buy-out Proposal at the same price as previously offered.
9
<PAGE> 10
32. Because Utilicorp is in possession of proprietary corporate
information concerning Aquila's future financial prospects, the degree of
knowledge and economic power between Utilicorp and the class members is unequal,
making it grossly and inherently unfair for Utilicorp to obtain the remaining
18% of Aquila's shares at the unfair and inadequate price that it has proposed.
33. By offering a grossly inadequate price for Aquila's shares and
threatening or planning to use its control of Aquila to force consummation of
the transaction, Utilicorp is violating its fiduciary duties as majority
shareholder of Aquila.
34. Any buy-out of Aquila public shareholders by Utilicorp on the terms
offered will deny class members their right to share proportionately and
equitably in the true value of Aquila's valuable and profitable business, and
future growth in profits and earnings, at a time when the Company is poised to
increase its profitability.
35. Because Utilicorp controls 82% of Aquila and dominates its Board,
no auction or market check can be effected to establish Aquila's worth through
arm's-length bargaining. Thus, Utilicorp has the power and is exercising its
power to acquire Aquila's minority shares and dictate terms which are in
Utilicorp's best interest, without competing bids and regardless of the wishes
or best interests of the class members or the intrinsic value of Aquila's stock.
36. By reason of the foregoing, defendants have breached and will
continue to breach their duties to the minority
10
<PAGE> 11
public shareholders of Aquila and are engaging in improper, unfair dealing and
wrongful and coercive conduct.
37. Plaintiffs and the Class will suffer irreparable harm unless
defendants are enjoined from breaching their fiduciary duties and from carrying
out the aforesaid plan and scheme.
38. Plaintiffs have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment and preliminary and permanent
relief, including injunctive relief, in their favor and in favor of the Class
and against defendants as follows:
A. Declaring that this action is properly maintainable as a class
action, and certifying plaintiffs as class representatives;
B. Ordering that defendants make full, prompt corrective disclosures
of any and all material information not yet disclosed;
C. Enjoining the proposed transaction and, if the transaction is
consummated, rescinding the transaction;
D. Awarding plaintiffs and the Class compensatory damages and/or
rescissory damages;
E. Awarding plaintiffs the costs and disbursements of this action,
including a reasonable allowance for plaintiffs' attorneys' and experts' fees;
and
F. Granting such other, and further relief as this Court may deem to
be just and proper.
11
<PAGE> 12
ROSENTHAL MONHAIT GROSS & GODDESS, P.A.
By: [ILLEGIBLE]
------------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiffs
OF COUNSEL:
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
488 Madison Avenue
New York, NY 10022
(212) 935-7400
Plaintiffs' Co-Lead Counsel
12
