AGREEMENT OF MERGER
between
SOUTHERN UNION COMPANY
and
FALL RIVER GAS COMPANY
Dated as of October 4, 1999
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
Section 1.1 Certain Defined Terms
Section 1.2 Other Defined Terms
ARTICLE II THE MERGER; OTHER TRANSACTIONS
Section 2.1 The Merger
Section 2.2 Effective Time of the Merger
Section 2.3 Closing
Section 2.4 Certificate of Incorporation; Bylaws
Section 2.5 Directors and Officers
ARTICLE III CONVERSION OF SHARES
Section 3.1 Effect of the Merger
Section 3.2 Exchange of FAL Common Stock Certificates
Section 3.3 Dissenting Shares
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SUG
Section 4.1 Organization, Existence and Qualification
Section 4.2 Capitalization
Section 4.3 Subsidiaries; Investments
Section 4.4 Authority Relative to this Agreement and
Binding Effect
Section 4.5 Governmental Approvals
Section 4.6 Public Utility Holding Company Status;
Regulation as a Public Utility
Section 4.7 Compliance with Legal Requirements;
Governmental Authorizations
Section 4.8 Legal Proceedings; Orders
Section 4.9 SEC Documents
Section 4.10 Taxes
Section 4.11 Intellectual Property
Section 4.12 Contracts
Section 4.13 Indebtedness
Section 4.14 Employee Benefit Plans
Section 4.15 Environmental Matters
Section 4.16 No Material Adverse Change
Section 4.17 Brokers
Section 4.18 Proxy Statement; Registration Statement
Section 4.19 No Vote Required
Section 4.20 Disclaimer of Representations and
Warranties
ARTICLE V REPRESENTATIONS AND WARRANTIES OF FAL
Section 5.1 Organization, Existence and Qualification
Section 5.2 Capitalization
Section 5.3 Subsidiaries; Investments
Section 5.4 Authority Relative to this Agreement
and Binding Effect
Section 5.5 Governmental Approvals
Section 5.6 Public Utility Holding Company Status;
Regulation as a Public Utility
Section 5.7 Compliance with Legal Requirements;
Governmental Authorizations
Section 5.8 Legal Proceedings; Orders
Section 5.9 SEC Documents
Section 5.10 Taxes
Section 5.11 Intellectual Property
Section 5.12 Title to Assets
Section 5.13 Indebtedness
Section 5.14 Machinery and Equipment
Section 5.15 Applicable Contracts
Section 5.16 Insurance
Section 5.17 Employees
Section 5.18 Employee Benefit Plans
Section 5.19 Environmental Matters
Section 5.20 No Material Adverse Change
Section 5.21 Brokers
Section 5.22 Regulatory Proceedings
Section 5.23 Proxy Statement; Registration Statement
Section 5.24 Vote Required
Section 5.25 Opinion of Financial Advisor
Section 5.26 Disclaimer of Representations and
Warranties
ARTICLE VI COVENANTS
Section 6.1 Covenants of FAL
(a) Conduct of the Business Prior to the
Closing Date
(b) Customer Notifications
(c) Access to the Acquired Companies' Offices,
Properties and Records; Updating Information
(d) Governmental Approvals; Third Party Consents
(e) Dividends
(f) Issuance of Securities
(h) No Shopping
(i) Solicitation of Proxies; FAL Proxy Statement
(j) FAL Stockholders' Approval
(k) Rule 145 Letters
(l) Financing Activities
(m) FAL Disclosure Schedule
(n) FAL Bondholders' Consent
Section 6.2 Covenants of SUG
(a) Governmental Approvals; Third Party Consents
(b) Employees; Benefits
(c) Blue Sky Permits
(d) Listing Application
(e) Collective Bargaining Agreements
(f) SUG Disclosure Schedule
(g) Conduct of the Business Prior to the
Closing Date
(h) Access to SUG's Offices, Properties and
Records; Updating Information
Section 6.3 Additional Agreements
(a) The Registration Statement and the FAL
Proxy Statement
(b) Further Assurances
(c) Financial Statements to be Provided
ARTICLE VII CONDITIONS
Section 7.1 Conditions to SUG's Obligation to Effect
the Merger
(a) Representations and Warranties True as
of the Closing Date
(b) Compliance with Agreements
(c) Certificate
(d) Governmental Approvals
(e) Third Party Consents
(f) Injunctions
(g) Resignations
(h) Opinion of Tax Counsel
(i) FAL Stockholders' Approval
(j) Appraisal Rights
(k) Rule 145 Letters
(l) Registration Statement
(m) Listing of SUG Common Stock
(n) FAL Bondholders' Consent
Section 7.2 Conditions to FAL's Obligations to Effect
the Merger
(a) Representations and Warranties True as of
the Closing Date
(b) Compliance with Agreements
(c) Certificate
(d) Governmental Approvals
(e) Injunctions
(f) Opinion of Counsel
(g) FAL Stockholders' Approval
(h) Registration Statement
(i) Listing of SUG Common Stock
ARTICLE VIII TERMINATION
Section 8.1 Termination Rights
Section 8.2 Effect of Termination
Section 8.3 Termination Fee; Expenses
(a) Termination Fee
(b) Expenses
ARTICLE IX INDEMNIFICATION; REMEDIES
Section 9.1 Directors' and Officers' Indemnification
(a) Indemnification and Insurance
(b) Successors
(c) Survival of Indemnification
Section 9.2 Representations and Warranties
ARTICLE X GENERAL PROVISIONS
Section 10.1 Expenses
Section 10.2 Notices
Section 10.3 Assignment
Section 10.4 Successor Bound
Section 10.5 Governing Law; Forum; Consent to
Jurisdiction
Section 10.6 Waiver of Trial By Jury
Section 10.7 Cooperation; Further Documents
Section 10.8 Construction of Agreement
Section 10.9 Publicity; Organizational and Operational
Announcements
Section 10.10 Waiver
Section 10.11 Parties in Interest
Section 10.12 Specific Performance
Section 10.13 Section and Paragraph Headings
Section 10.14 Amendment
Section 10.15 Entire Agreement
Section 10.16 Counterparts
Disclosure Schedules:
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FAL Disclosure Schedule
SUG Disclosure Schedule
AGREEMENT OF MERGER
This AGREEMENT OF MERGER (this "Agreement") is made as of the 4th
day of October, 1999, by and between SOUTHERN UNION COMPANY, a
Delaware corporation ("SUG"), and FALL RIVER GAS COMPANY, a
Massachusetts corporation ("FAL").
RECITALS
WHEREAS, the Board of Directors of each of SUG and FAL has
approved and deems it advisable and in the best interests of
their respective stockholders to consummate the merger of FAL
with and into SUG upon the terms and subject to the conditions
set forth herein; and
WHEREAS, in furtherance thereof, the Board of Directors of each
of SUG and FAL has approved this Agreement and the merger of FAL
with and into SUG, with SUG being the surviving corporation (the
"Merger");
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be
legally bound hereby, SUG and FAL hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms. For purposes of this
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Agreement, the following terms have the meanings specified or
referred to in this Article I (such definitions to be equally
applicable to both the singular and plural forms of the terms
defined):
"Acquired Companies" -- FAL and its Subsidiaries, collectively,
------------------
and each, an "Acquired Company."
"Affiliate" -- with respect to any Person, any other Person that
---------
directly, or through one or more intermediaries, controls or is
controlled by or is under common control with such first Person.
As used in this definition, "control" (including with correlative
meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership
interests, by contract or otherwise).
"Applicable Contract" -- any Contract (a) under which any
-------------------
Acquired Company has any rights, (b) under which any Acquired
Company has any obligation or liability, or (c) by which any
Acquired Company or any of the assets owned or used by it is
bound.
"Average Trading Price" -- of SUG Common Stock, as of any date,
---------------------
will equal the average of the reported closing market prices of
such stock for the ten consecutive trading days ending on the
third trading day prior to such date (counting from and including
the trading day immediately preceding such date). The closing
market price for each day in question will be the last sale
price, regular way or, if no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction
reporting system of the principal national securities exchange on
which SUG Common Stock is listed or admitted to trading.
"CERCLA" -- the Comprehensive Environmental Response, Compensa-
------
tion and Liability Act of 1980, as amended.
"Closing Date" -- the date on which the Closing actually takes
------------
place.
"Contract" -- any agreement, contract, document, instrument,
--------
obligation, promise or undertaking (whether written or oral) that
is legally binding.
"DGCL" -- the Delaware General Corporation Law.
----
"Encumbrance" -- any charge, adverse claim, lien, mortgage,
-----------
pledge, security interest or other encumbrance.
"Environment" -- soil, land surface or subsurface strata, surface
-----------
waters (including navigable waters, ocean waters, streams, ponds,
drainage basins, and wetlands), groundwaters, drinking water
supply, stream sediments, ambient air (including indoor air),
plant and animal life, and any other environmental medium or
natural resource.
"Environmental Law" -- any Legal Requirement that requires or
-----------------
relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or
hazardous substances or materials, violations of
discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction
or construction, that could have significant impact on
the Environment;
(b) preventing or reducing to acceptable levels the release
of pollutants or hazardous substances or materials into
the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that
are generated;
(d) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil,
or other potentially harmful; or
(e) making responsible parties pay private parties, or groups
of them, for damages done to their health or the
Environment, or permitting self-appointed representatives
of the public interest to recover for injuries done to
public assets or for damages to natural resources.
"ERISA" -- the Employee Retirement Income Security Act of 1974,
-----
as amended, or any successor law, and regulations and rules
issued pursuant to that act or any successor law.
"Exchange Act" -- the Securities Exchange Act of 1934, as
------------
amended, or any successor law, and regulations and rules issued
by the SEC pursuant to that act or any successor law.
"Facilities" -- any real property, leaseholds, or other interests
----------
currently or formerly owned or operated by any Acquired Company
and any buildings, plants, structures, or equipment (including
motor vehicles, tank cars, and rolling stock) currently or
formerly owned or operated by any Acquired Company.
"FAL Balance Sheet" -- the audited consolidated balance sheet of
-----------------
the Acquired Companies at September 30, 1998 (including the notes
thereto), provided by FAL to SUG as part of the FAL Financial
Statements.
"FAL Common Stock" -- the common stock, par value $.831/3 per
----------------
share, of FAL.
"FAL Disclosure Schedule" -- the disclosure schedule delivered by
-----------------------
FAL to SUG concurrently with the execution and delivery of this
Agreement.
"FAL Material Adverse Effect" -- a material adverse effect (i) on
---------------------------
the business, operations, financial condition or results of
operations of FAL and its Subsidiaries, taken as a whole, or (ii)
on the ability of FAL and its Subsidiaries to consummate the
Merger in accordance with this Agreement.
"FAL Permitted Liens" -- Encumbrances securing Taxes, assess-
-------------------
ments, governmental charges or levies, or the claims of material-
men, mechanics, carriers and like persons, all of which are not
yet due and payable or which are being contested in good faith;
Encumbrances (other than any Encumbrance imposed by ERISA) incurred
on deposits made in the Ordinary Course of Business in
connection with worker's compensation, unemployment insurance or
other types of social security; the Encumbrances created by the
Indenture of First Mortgage, dated as of December 1, 1952,
between FAL and State Street Bank and Trust Company, successor in
interest to the First National Bank of Boston, successor by
merger to Old Colony Trust Company, as Trustee, as amended or
supplemented from time to time; in the case of leased real
property, Encumbrances (not attributable to an Acquired Company
as lessee) affecting the landlord's (and any underlying land-
lord's) interest in any leased real property; and such other
Encumbrances which are not, individually or in the aggregate,
reasonably likely to have a FAL Material Adverse Effect.
"Final Order" -- an action by a Governmental Body as to which:
-----------
(a) no request for stay of the action is pending, no such stay is
in effect and if any time period is permitted by statute or
regulation for filing any request for such stay, such time period
has passed; (b) no petition for rehearing, reconsideration or
application for review of the action is pending and the time for
filing any such petition or application has passed; (c) such
Governmental Body does not have the action under reconsideration
on its own motion and the time in which such reconsideration is
permitted has passed; and (d) no appeal to a court, or a request
for stay by a court of the Governmental Body's action is pending
or in effect and the deadline for filing any such appeal or
request has passed.
"GAAP" -- generally accepted United States accounting principles,
----
applied on a consistent basis.
"Governmental Authorization" -- any approval, consent, license,
--------------------------
franchise, certificate of public convenience and necessity,
permit, waiver or other authorization issued, granted, given, or
otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement.
"Governmental Body" -- any:
-----------------
(a) nation, state, county, city, town, village, district or
other jurisdiction of any nature;
(b) federal, state, county, local, municipal or other
government;
(c) governmental or quasi-governmental authority of any
nature (including any governmental agency, branch,
department, official or entity and any court or other
tribunal); or
(d) body exercising, or entitled to exercise, any administra-
tive, executive, judicial, legislative, police, regula-
tory or taxing authority or power of any nature.
"Hazardous Activity" -- the distribution, generation, handling,
------------------
importing, management, manufacturing, processing, production,
refinement, Release, storage, transfer, transportation,
treatment, or use (including any withdrawal or other use of
groundwater) of Hazardous Materials in, on, under, about, or from
the Facilities or any part thereof into the Environment, any
other act, business, operation, or thing that increases the
danger, or risk of danger, or poses an unreasonable risk of harm
to persons or property on or off the Facilities, or that may
affect the value of the Facilities or the Acquired Companies.
"Hazardous Materials" -- any waste or other substance that is
-------------------
listed, defined, designated, or classified as, or otherwise
determined to be, hazardous, radioactive, or toxic or a pollutant
or a contaminant under or pursuant to any Environmental Law,
including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing
materials.
"HSR Act" -- the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended, or any successor law, and regulations and rules
issued by the U.S. Department of Justice or the Federal Trade
Commission pursuant to that act or any successor law.
"IRC" -- the Internal Revenue Code of 1986, as amended.
---
"IRS" -- the Internal Revenue Service or any successor agency.
---
"Knowledge" -- an individual will be deemed to have "Knowledge"
---------
of a particular fact or other matter if such individual is
actually aware of such fact or other matter. A Person (other
than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving
as a director or officer of such Person or any material Sub-
sidiary of it or other management employee with direct responsi-
bility for such particular fact or other matter of such Person or
any material Subsidiary of it (or in any similar capacity) has
actual knowledge of such fact or other matter.
"Legal Requirement" -- any federal, state, county, local,
-----------------
municipal, foreign, international, multinational, or other
administrative order, constitution, law, ordinance, principle of
common law, regulation, rule, tariff, franchise agreement,
statute or treaty.
"Material Contract" -- a Contract involving a total commitment by
-----------------
or to any party thereto of at least $65,000 on an annual basis or
at least $250,000 on its remaining term which cannot be termi-
nated on no more than sixty (60) days' notice without penalty or
additional cost to the Acquired Company as the terminating party.
"MBCL" -- the Massachusetts Business Corporation Law.
----
"Order" -- any award, decision, decree, injunction, judgment,
-----
order, writ, ruling, subpoena, or verdict entered, issued, made,
or rendered by any court, administrative agency, or other
Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will
---------------------------
be deemed to have been taken in the "Ordinary Course of Business"
only if:
(a) such action and authorization therefor is consistent with
the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of
such Person; and
(b) such action is not required by law to be authorized by
the board of directors (or similar authority) of such
Person or of such Person's parent company (if any).
"Organizational Documents" -- (a) the articles or certificate of
------------------------
incorporation or organization and the bylaws of a corporation;
(b) the partnership agreement and any statement of partnership of
a general partnership; (c) the limited partnership agreement and
the certificate of limited partnership of a limited partnership;
(d) the certificate of formation and the members, operating or
similar agreement of a limited liability company; (e) any charter
or similar document adopted or filed in connection with the
creation, formation or organization of a Person; and (f) any
amendment to any of the foregoing.
"Person" -- any individual, corporation (including any non-profit
------
corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization,
labor union, organized group of persons, entity of any other
type, or Governmental Body.
"Proceeding" -- any action, arbitration, hearing, litigation or
----------
suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before,
or otherwise involving, any Governmental Body or arbitrator.
"PUHCA" -- the Public Utility Holding Company Act of 1935, as
-----
amended, or any successor law, and regulations and rules issued
by the SEC pursuant to that act or any successor law.
"Related Documents" -- any Contract provided for in this Agree-
-----------------
ment to be entered into by one or more of the parties hereto or
their respective Subsidiaries in connection with the Merger.
"Release" -- any spilling, leaking, emitting, discharging,
-------
depositing, escaping, leaching, dumping, or other releasing into
the Environment, whether intentional or unintentional.
"Representative" -- with respect to a particular Person, any
--------------
director, officer, employee, agent, consultant, advisor, or other
representative of such Person, including legal counsel,
accountants, and financial advisors.
"SEC" -- the United States Securities and Exchange Commission or
---
any successor agency.
"Securities Act" -- the Securities Act of 1933, as amended, or
--------------
any successor law, and regulations and rules issued by the SEC
pursuant to that act or any successor law.
"Subsidiary" -- with respect to any Person (the "Owner"), any
----------
Person of which securities or other interests having the power to
elect a majority of that other Person's board of directors or
similar governing body, or otherwise having the power to direct
the business and policies of that corporation or other Person
(other than securities or other interests having such power only
upon the happening of a contingency that has not occurred) are
held by the Owner or one or more of its Subsidiaries; when used
without reference to a particular Person, "Subsidiary" means a
Subsidiary of FAL.
"SUG Balance Sheet" -- the audited consolidated balance sheet of
-----------------
SUG at June 30, 1999 (including the notes thereto), provided by
SUG to FAL as part of the SUG Financial Statements.
"SUG Common Stock" -- the common stock, par value $1.00 per
----------------
share, of SUG.
"SUG Disclosure Schedule" -- the disclosure schedule delivered by
-----------------------
SUG to FAL concurrently with the execution and delivery of this
Agreement.
"SUG Material Adverse Effect" -- a material adverse effect (i) on
---------------------------
the business, operations, financial condition or results of
operations of SUG and its Subsidiaries, taken as a whole, or (ii)
on the ability of SUG to consummate the Merger in accordance with
this Agreement.
"Tax" -- any tax (including any income tax, capital gains tax,
---
value-added tax, sales and use tax, franchise tax, payroll tax,
withholding tax or property tax), levy, assessment, tariff, duty
(including any customs duty), deficiency, franchise fee or
payment, payroll tax, utility tax, gross receipts tax or other
fee or payment, and any related charge or amount (including any
fine, penalty, interest or addition to tax), imposed, assessed or
collected by or under the authority of any Governmental Body or
payable pursuant to any tax-sharing agreement or any other
Contract relating to the sharing or payment of any such tax,
levy, assessment, tariff, duty, deficiency or fee.
"Tax Return" -- any return (including any information return),
----------
report, statement, schedule, notice, form, or other document or
information filed with or submitted to, or required to be filed
with or submitted to, any Governmental Body in connection with
the determination, assessment, collection, or payment of any Tax
or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating
to any Tax.
"Threatened" -- a claim, Proceeding, dispute, action, or other
----------
matter will be deemed to have been "Threatened" if any demand or
statement has been made (orally or in writing) or any notice has
been given (orally or in writing), or if any other event has
occurred or any other circumstance exists, that would lead a
director, officer or management employee of a comparable gas
distribution company to conclude that such a claim, Proceeding,
dispute, action, or other matter is likely to be asserted,
commenced, taken or otherwise pursued in the future.
Section 1.2 Other Defined Terms. In addition to the terms
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defined in Section 1.1, certain other terms are defined elsewhere
in this Agreement as indicated below and, whenever such terms are
used in this Agreement, they shall have their respective defined
meanings.
Term Section
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Agreement Introductory Paragraph
Business Combination 6.1(h)(4)
Cash Consideration 3.1(a)
Cash Election 3.1(b)
Cash Election Number 3.1(b)
Cash Election Shares 3.1(c)
Cash Fraction 3.1(c)
Certificates 3.2(c)
Closing 2.3
Confidentiality Agreement 6.1(c)(1)
Dissenting Shares 3.3
Effective Time 2.2
Election Deadline 3.2(b)
Employees 6.2(b)
Exchange Ratio 3.1(a)
FAL Introductory Paragraph
FAL Benefit Plans 5.18(a)
FAL Commonly Controlled Entity 5.18(e)
FAL Financial Statements 5.9
FAL Meeting 6.1(j)(1)
FAL Proxy Statement 4.18
FAL SEC Documents 5.9
FAL Stockholders' Approval 5.24
Form of Election 3.2(b)
Indemnified Parties 9.1(a)
Initial Termination Date 8.1(k)
Maximum Value 3.1(a)
Merger Recitals
Merger Consideration 3.1(a)
Minimum Value 3.1(a)
NYSE 3.1(e)
Paying Agent 3.2(a)
PBGC 4.14(b)
PEI 4.2
PEI Merger Agreement 4.2
Registration Statement 4.18
Rule 145 Affiliates 6.1(k)
Rule 145 Letters 6.1(k)
Stock Consideration 3.1(a)
SUG Introductory Paragraph
SUG Benefit Plans 4.14(a)
SUG Commonly Controlled Entity 4.14(d)
SUG Financial Statements 4.9
SUG SEC Documents 4.9
Superior Proposal 6.1(h)(4)
Surviving Corporation 2.1
Third Party Beneficiary 10.11
Total Consideration 3.1(e)
ARTICLE II
THE MERGER; OTHER TRANSACTIONS
Section 2.1 The Merger. Upon the terms and subject to the
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conditions of this Agreement, at the Effective Time, FAL will be
merged with and into SUG in accordance with the laws of the State
of Delaware and the Commonwealth of Massachusetts. SUG will be
the surviving corporation in the Merger (the "Surviving Corpora-
tion") and will continue its corporate existence under the laws
of the State of Delaware. The Merger will have the effect as
provided in the applicable provisions of the DGCL and the MBCL.
Without limiting the generality of the foregoing, upon the
Merger, all the rights, privileges, immunities, powers and
franchises of FAL and SUG will vest in the Surviving Corporation
and all obligations, duties, debts and liabilities of FAL and SUG
will be the obligations, duties, debts and liabilities of the
Surviving Corporation.
Section 2.2 Effective Time of the Merger. On the Closing Date,
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with respect to the Merger, (i) a duly executed certificate of
merger complying with the requirements of the DGCL will be
executed and filed with the Secretary of State of the State of
Delaware and (ii) duly executed articles of merger complying with
the requirements of the MBCL will be filed with the Secretary of
State of the Commonwealth of Massachusetts. The Merger will
become effective upon filing the certificate of merger with the
Secretary of State of the State of Delaware and the articles of
merger with the Secretary of State of the Commonwealth of
Massachusetts (the "Effective Time").
Section 2.3 Closing. Unless this Agreement has been terminated
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and the transactions contemplated herein have been abandoned
pursuant to Article VIII hereof, the closing of the transactions
contemplated by this Agreement (the "Closing") will take place at
10:00 a.m., Eastern Time, on the Closing Date to be specified by
the parties, which shall be no later than the tenth business day
after satisfaction or waiver of all of the conditions set forth
in Article VII hereof (other than Sections 7.1(a), 7.1(b),
7.1(c), 7.1(f), 7.1(g), 7.1(h), 7.1(k), 7.1(l), 7.2(a), 7.2(b),
7.2(c), 7.2(e), 7.2(f) and 7.2(h), which shall be satisfied or
waived on the Closing Date) at the offices of Hughes Hubbard &
Reed LLP, New York, counsel to SUG, unless another date or place
is agreed to in writing by the parties hereto.
Section 2.4 Certificate of Incorporation; Bylaws. Pursuant to
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the Merger, the Restated Certificate of Incorporation of SUG, as
in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and (ii) the bylaws of SUG
as in effect immediately prior to the Effective Time, shall be
the bylaws of the Surviving Corporation until thereafter amended
as provided by law.
Section 2.5 Directors and Officers. The directors and officers
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of SUG immediately prior to the Effective Time will be the
directors and officers of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and
bylaws of the Surviving Corporation.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Effect of the Merger. As of the Effective Time, by
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virtue of the Merger and without any action on the part of the
holders of any shares of FAL Common Stock:
(a) Each issued and outstanding share of FAL Common Stock
(other than Dissenting Shares) will be converted into the
right of each holder thereof to receive (i) that number
of fully paid and nonassessable shares of SUG Common
Stock (the "Stock Consideration") equal to $23.50 divided
by the Exchange Ratio rounded to the nearest hundred-
thousandth or (ii) upon a valid Cash Election as provided
in Section 3.1(b), $23.50 in cash (the "Cash Considera-
tion"), subject to the limitations set forth in Section
3.1(b), 3.1(c), and 3.1(e). In the case of the con-
sideration to be received by the holders of FAL Common
Stock in the aggregate, "Merger Consideration" shall mean
the Cash Consideration together with the Stock Considera-
tion. In the case of the consideration to be received by
an individual holder of FAL Common Stock, "Merger Con-
sideration" shall mean the Cash Consideration and/or the
Stock Consideration to be received by such holder, as the
case may be.
"Exchange Ratio" shall mean the Average Trading Price of SUG
Common Stock as of the Closing Date. Notwithstanding the
foregoing, if the Exchange Ratio as calculated pursuant to the
preceding sentence and without regard to this sentence (i) is
less than the Minimum Value, then the Exchange Ratio will be
equal to the "Minimum Value," or (ii) is greater than the
"Maximum Value," then the Exchange Ratio will be equal to the
"Maximum Value." "Minimum Value" will be $16.875 and "Maximum
Value" will be $19.6875.
(b) Subject to the immediately following sentence and to
Section 3.1(c) and 3.1(e), each record holder of shares
of FAL Common Stock immediately prior to the Effective
Time shall be entitled to elect to receive cash for all
or any part of such shares of FAL Common Stock (a "Cash
Election"). Notwithstanding the foregoing, the aggregate
number of shares of FAL Common Stock that may be con-
verted into the right to receive cash consideration shall
not exceed the Cash Election Number. To the extent not
covered by a properly given Cash Election, all shares of
FAL Common Stock issued and outstanding immediately prior
to the Effective Time shall, except as provided in
Section 3.1(g), be converted solely into shares of SUG
Common Stock.
"Cash Election Number" shall equal, subject to reduction pursuant
to Section 3.1(e), the amount by which (i) 50% of the number of
shares of FAL Common Stock outstanding immediately prior to the
Effective Time, exceeds (ii) the sum of (a) the number of shares
of FAL Common Stock to be exchanged for cash in lieu of frac-
tional shares pursuant to Section 3.1(g), and (b) the number of
Dissenting Shares.
(c) If the aggregate number of shares of FAL Common Stock
covered by Cash Elections (the "Cash Election Shares")
exceeds the Cash Election Number, each Cash Election
Share shall be converted into (i) the right to receive an
amount in cash, without interest, equal to the product of
(a) $23.50 and (b) a fraction (the "Cash Fraction"), the
numerator of which shall be the Cash Election Number and
the denominator of which shall be the total number of
Cash Election Shares, and (ii) a number of shares of SUG
Common Stock equal to the product of (a) $23.50 divided
by the Exchange Ratio and (b) a fraction equal to one
minus the Cash Fraction.
(d) SUG will make all computations to give effect to this
Section 3.1.
(e) If, after having made the calculation under Section
3.1(b), the value of the SUG Common Stock (excluding
fractional shares to be paid in cash) to be issued in the
Merger, valued at the lesser of the Average Trading Price
as of the Closing Date and the closing price of SUG Com-
mon Stock on the last trading day before the Closing Date
(or, if determined to be more appropriate to ensure the
status of the Merger as a reorganization under Section
368(a)(1)(A) of the IRC, the trading price as of the time
of the Closing), as reported on the New York Stock Ex-
change ("NYSE"), is less than 50% of the total considera-
tion to be paid in exchange for the shares of FAL Common
Stock (including, without limitation, the amount of cash
to be paid in lieu of fractional shares and treating any
Dissenting Shares as having been exchanged for the Cash
Consideration) (the "Total Consideration"), then the Cash
Election Number shall be reduced to the extent necessary
so that the value of the SUG Common Stock to be issued in
the Merger (as determined above) is 50% of the Total
Consideration.
(f) Each holder of FAL Common Stock shall surrender all such
holder's certificates formerly representing ownership of
FAL Common Stock in the manner provided in Section 3.2.
All such shares of FAL Common Stock, when so converted,
shall no longer be outstanding and shall be canceled and
automatically converted into the right to receive the
Merger Consideration (and cash in lieu of fractional
shares) therefor upon the surrender of such certificate
in accordance with Section 3.2. Any payment made pursu-
ant to this Section 3.1 shall be made net of applicable
withholding taxes to the extent such withholding is
required by law.
(g) No fractional share of SUG Common Stock shall be issued
in connection with the Merger. Each holder of shares of
FAL Common Stock shall be entitled to receive in lieu of
any fractional share of SUG Common Stock to which such
holder otherwise would have been entitled pursuant to
this Section 3.1 (after taking into account all shares of
FAL Common Stock then held of record by such holder) a
cash payment in an amount equal to the product of (i) the
fractional interest of a share of SUG Common Stock to
which such holder otherwise would have been entitled and
(ii) the closing price of a share of SUG Common Stock on
the NYSE on the trading day immediately prior to the
Effective Time. Payment of such amounts shall be made by
SUG.
Section 3.2 Exchange of FAL Common Stock Certificates.
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(a) SUG's registrar and transfer agent, or such other bank or
trust company as may be selected by SUG and be reasonably
acceptable to FAL, will act as paying agent ("Paying
Agent") for the holders of FAL Common Stock in connection
with the Merger, pursuant to an agreement providing for
the matters set forth in this Section 3.2 and such other
matters as may be appropriate and the terms of which
shall be reasonably satisfactory to SUG and FAL.
(b) (i) Not fewer than 15 business days prior to the Closing
Date, SUG will cause the Paying Agent to mail a form of
election (the "Form of Election") to holders of record of
shares of FAL Common Stock (as of a record date as close
as practicable to the date of mailing). In addition, the
Paying Agent will use its reasonable efforts to make the
Form of Election available to the Persons who become
stockholders of FAL during the period between such record
date and the Election Deadline. Any election to receive
Cash Consideration contemplated by Section 3.1(b) will
have been properly made only if the Paying Agent shall
have received at its designated office or offices, by
4:00 p.m., Eastern Time, on the third business day prior
to the Closing Date (the "Election Deadline"), a Form of
Election properly completed, as set forth in such Form of
Election. An election may be revoked only by written
notice received by the Paying Agent prior to the Election
Deadline. In addition, all elections shall automatically
be revoked if the Paying Agent is notified by SUG and FAL
that the Merger has been abandoned. SUG shall have the
discretion, which it may delegate in whole or in part to
the Paying Agent, to determine whether Forms of Election
have been properly completed, signed and submitted or
revoked pursuant to this Section 3.2(b), and to disregard
immaterial defects in Forms of Election. The decision of
SUG (or the Paying Agent, as the case may be) in such
matters shall be conclusive and binding.
(c) At the Effective Time of the Merger, SUG will instruct
the Paying Agent to promptly, and in any event not later
than three (3) business days following the Effective
Time, mail (and to make available for collection by hand)
to each holder of record of a certificate or certifi-
cates, which immediately prior to the Effective Time
represented outstanding shares of FAL Common Stock (the
"Certificates"), whose shares of FAL Common Stock were
converted pursuant to Section 3.1(a) into the right to
receive the Merger Consideration (and cash in lieu of
fractional shares) (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Paying Agent and
shall be in such form and have such other provisions as
SUG may reasonably specify) and (ii) instructions (which
shall provide that at the election of the surrendering
holder Certificates may be surrendered, and payment
therefor collected, by hand delivery) for use in
effecting the surrender of the Certificates in exchange
for payment of the Merger Consideration (and cash in lieu
of fractional shares). Upon surrender of a Certificate
for cancellation to the Paying Agent or to such other
agent or agents as may be appointed by SUG, together with
such letter of transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in exchange
therefor the Merger Consideration for each share of FAL
Common Stock formerly represented by such Certificate
(and cash in lieu of fractional shares), to be mailed (or
made available for collection by hand if so elected by
the surrendering holder) within three (3) business days
of receipt thereof, and the Certificate so surrendered
shall forthwith be canceled. If payment of the Merger
Consideration (and cash in lieu of fractional shares) is
to be made to a Person other than the Person in whose
name the surrendered Certificate is registered, it shall
be a condition of payment that the Certificate so sur-
rendered shall be properly endorsed or shall be otherwise
in proper form for transfer and that the Person
requesting such payment shall have paid any transfer and
other Taxes required by reason of the payment of the
Merger Consideration (and cash in lieu of fractional
shares) to a Person other than the registered holder of
the Certificate surrendered or shall have established to
the satisfaction of the Surviving Corporation that such
Tax either has been paid or is not applicable. Until
surrendered as contemplated by this Section 3.2, each
Certificate (other than Certificates representing FAL
Common Stock held by SUG or Dissenting Shares) shall be
deemed at any time after the Effective Time to represent
only the right to receive the Merger Consideration (and
cash in lieu of fractional shares) as contemplated by
this Section 3.2.
(d) In the event 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, the Paying Agent will issue in
exchange for such lost, stolen or destroyed Certificate
the Merger Consideration (and cash in lieu of fractional
shares) deliverable in respect thereof as determined in
accordance with this Article III, provided that the
-------- ----
Person to whom the Merger Consideration (and cash in lieu
of fractional shares) is paid shall, as a condition
precedent to the payment thereof, give the Paying Agent a
bond in such sum as it may ordinarily require and indem-
nify the Surviving Corporation in a manner satisfactory
to it against any claim that may be made against the
Surviving Corporation with respect to the Certificate
claimed to have been lost, stolen or destroyed.
(e) After the Effective Time, the stock transfer books of FAL
shall be closed and there shall be no transfers on the
stock transfer books of the Surviving Corporation of
shares of FAL Common Stock that were outstanding
immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the
Surviving Corporation, they shall be canceled and
exchanged for the Merger Consideration (and cash in lieu
of fractional shares) as provided in this Article III.
(f) The Surviving Corporation shall not be liable to any
holder of FAL Common Stock for Merger Consideration (and
cash in lieu of fractional shares) delivered to a public
official pursuant to any applicable abandonment, escheat
or similar law. Any amounts remaining unclaimed by
holders of any such shares of FAL Common Stock seven
years after the Effective Time (or such earlier date
immediately prior to the time at which such amounts would
otherwise escheat to or become property of any Governmen-
tal Body) shall, to the extent permitted by applicable
law, become the property of the Surviving Corporation,
free and clear of any claims or interest of any such
holders or their successors, assigns or personal repre-
sentatives previously entitled thereto.
Section 3.3 Dissenting Shares. Notwithstanding any provision of
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this Agreement to the contrary, the shares of any holder of FAL
Common Stock who has demanded and perfected appraisal rights for
such shares in accordance with the MBCL and who, as of the
Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares"), shall not be converted
into or represent a right to receive the Merger Consideration
(and cash in lieu of fractional shares) pursuant to Section 3.1,
but the holder thereof shall only be entitled to such rights as
are granted by the MBCL. Notwithstanding the foregoing, if any
holder of shares of FAL Common Stock who demands appraisal of
such shares under the MBCL shall effectively withdraw the request
for appraisal or lose the right to appraisal, then, as of the
later of the Effective Time and the occurrence of such event,
such holder's shares shall automatically be converted into and
represent only the right to receive the Merger Consideration and
cash in lieu of fractional shares, without interest thereon, upon
surrender of the certificate representing such shares. FAL shall
give SUG prompt notice of any demands received by FAL for
appraisal of FAL Common Stock, and, prior to the Effective Time,
SUG shall have the right to participate in all negotiations and
proceedings with respect to such demands. Prior to the Effective
Time, FAL shall not, except with the prior written consent of
SUG, make any payment with respect to or offer to settle, any
such demands.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SUG
SUG, as to SUG and its Subsidiaries, represents and warrants to
FAL that:
Section 4.1 Organization, Existence and Qualification. SUG is a
- ------------------------------------------------------
corporation duly incorporated, validly existing, and in good
standing under the laws of the State of Delaware, with full cor-
porate power and authority to conduct its business as it is now
being conducted, to own or use the properties and assets that it
purports to own or use, to perform its obligations under all Con-
tracts to which it is a party, and to execute and deliver this
Agreement. SUG is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state
or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the business
conducted by it, requires such qualification as a foreign corpo-
ration except for such failures to be so qualified or in good
standing as are not, individually or in the aggregate, reasonably
likely to have a SUG Material Adverse Effect.
Section 4.2 Capitalization. As of the date of this Agreement,
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the authorized capital stock of SUG consists of (i) 50,000,000
shares of SUG Common Stock, of which 31,288,321 shares were
issued and 31,236,696 were outstanding on September 30, 1999, and
(ii) 1,500,000 shares of Cumulative Preferred Stock, no par
value, none of which are issued or outstanding. The issued and
outstanding shares of SUG Common Stock have been validly issued
and are fully paid and nonassessable. The shares of SUG Common
Stock to be issued as the Merger Consideration have been duly
authorized and when issued and delivered in accordance with the
terms of this Agreement, will have been validly issued and will
be fully paid and nonassessable and the issuance thereof is not
subject to any preemptive or other similar right. Except as
specifically described in the SUG SEC Documents delivered to FAL
prior to the date of this Agreement, as of the date of this
Agreement, no shares of SUG Common Stock are held, in treasury or
otherwise, by SUG or any of its Subsidiaries and except as set
forth in Section 4.2 of the SUG Disclosure Schedule, as of the
date of this Agreement, there are no outstanding (i) securities
convertible into SUG Common Stock or other capital stock of SUG
or any of its material Subsidiaries, (ii) warrants or options to
purchase SUG Common Stock or other securities of SUG or any of
its material Subsidiaries or (iii) commitments to issue shares of
SUG Common Stock (other than pursuant to the Merger and other
than pursuant to the Agreement of Merger, dated as of June 7,
1999 (the "PEI Merger Agreement"), by and between SUG and
Pennsylvania Enterprises, Inc. ("PEI")) or other securities of
SUG or any of its material Subsidiaries.
Section 4.3 Subsidiaries; Investments. Except as set forth in
- --------------------------------------
Section 4.3 of the SUG Disclosure Schedule, as of the date of
this Agreement, SUG has no Subsidiaries or investments in any
Person except for marketable securities reflected in the SUG SEC
Documents delivered to FAL prior to the date of this Agreement,
and SUG is the registered owner and holder of all of the issued
and outstanding shares of capital stock of its Subsidiaries and
has good title to such shares. The outstanding capital stock of
each material Subsidiary of SUG has been validly issued and is
fully paid and nonassessable.
Section 4.4 Authority Relative to this Agreement and Binding
- -------------------------------------------------------------
Effect. The execution, delivery and performance of this Agree-
- ------
ment and the Related Documents by SUG have been duly authorized
by all requisite corporate action. The execution, delivery and
performance of this Agreement and the Related Documents by SUG
will not result in a violation or breach of any term or provision
of, constitute a default, or require a consent, approval or
notification, or accelerate the performance required under, the
Organizational Documents of SUG, any indenture, mortgage, deed of
trust, security agreement, loan agreement, or other Contract to
which SUG is a party or by which its assets are bound, or violate
any Order, with such exceptions as are not, individually or in
the aggregate, reasonably likely to have a SUG Material Adverse
Effect. This Agreement constitutes and the Related Documents to
be executed by SUG when executed and delivered will constitute
valid and binding obligations of SUG, enforceable against SUG in
accordance with their terms, except as enforceability may be
limited by (i) bankruptcy or similar laws from time to time in
effect affecting the enforcement of creditors' rights generally
or (ii) the availability of equitable remedies generally.
Section 4.5 Governmental Approvals. Except as set forth in
- -----------------------------------
Section 4.5 of the SUG Disclosure Schedule and as required by the
HSR Act, no approval or authorization of any Governmental Body
with respect to performance under this Agreement or the Related
Documents by SUG is required to be obtained by SUG in connection
with the execution and delivery by SUG of this Agreement or the
Related Documents or the consummation by SUG of the transactions
contemplated hereby or thereby, the failure to obtain which are,
individually or in the aggregate, reasonably likely to have a SUG
Material Adverse Effect.
Section 4.6 Public Utility Holding Company Status; Regulation as
- -----------------------------------------------------------------
a Public Utility. SUG is a "gas utility company" (as such term
- ----------------
is defined in PUHCA). SUG indirectly owns a minority interest in
a "foreign utility company" (as such term is defined in PUHCA)
that is exempt from, and is deemed not to be a public utility
company for purposes of, PUHCA pursuant to Section 33 thereof
with respect to which SUG has filed with the SEC a Form U-57
notification of foreign utility company status. Except as stated
above in this Section 4.6, neither SUG nor any of its Sub-
sidiaries is a "holding company," a "subsidiary company," a
"public utility company" or an "affiliate" of a "public utility
company," or a "holding company" within the meaning of such terms
in PUHCA.
Section 4.7 Compliance with Legal Requirements; Governmental
- -------------------------------------------------------------
Authorizations.
- --------------
(a) Except as set forth in Section 4.7 of the SUG Disclosure
Schedule or specifically described in the SUG SEC Docu-
ments delivered to FAL prior to the date of this Agree-
ment, and subject to Section 4.15 of this Agreement, to
the Knowledge of SUG, SUG is not in violation of any
Legal Requirement that is applicable to it, to the con-
duct or operation of its business, or to the ownership or
use of any of its assets, other than such violations, if
any, which are not, individually or in the aggregate,
reasonably likely to have a SUG Material Adverse Effect.
(b) The SUG SEC Documents delivered to FAL prior to the date
of this Agreement accurately describe all material regu-
lation of SUG that relates to the utility business of SUG
as of the date of this Agreement. Except as set forth in
Section 4.7 of the SUG Disclosure Schedule, SUG has, and
is in material compliance with, all material Governmental
Authorizations necessary to conduct its business and to
own, operate and use all of its assets as currently
conducted.
Section 4.8 Legal Proceedings; Orders. Except as set forth in
- --------------------------------------
Section 4.8 of the SUG Disclosure Schedule or as specifically
described in the SUG SEC Documents delivered to FAL prior to the
date of this Agreement, there is no pending Proceeding:
(1) that has been commenced by or against, or that
otherwise relates to, SUG or, if the merger with PEI
is consummated, PEI, that is reasonably likely to
have a SUG Material Adverse Effect; or
(2) as of the date of this Agreement, that challenges,
or that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, the
Merger or any of the transactions contemplated
hereby.
To the Knowledge of SUG, no such Proceedings, audits or investi-
gations have been Threatened that are, individually or in the
aggregate, reasonably likely to have a SUG Material Adverse
Effect. As of the date of this Agreement, SUG is not subject to
any Orders that are, individually or in the aggregate, reasonably
likely to have a SUG Material Adverse Effect.
Section 4.9 SEC Documents. SUG has made (and, with respect to
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such documents filed after the date hereof through the Closing
Date, will make) available to FAL a true and complete copy of
each report, schedule, registration statement (other than on Form
S-8), and definitive proxy statement filed by SUG with the SEC
since September 16, 1999 and through the Closing Date in sub-
stantially the form filed with the SEC (the "SUG SEC Documents").
As of their respective dates, the SUG SEC Documents, including
without limitation any financial statements or schedules included
therein, complied (or will comply), in all material respects with
the requirements of the Securities Act or the Exchange Act, as
the case may be, and the rules and regulations of the SEC there-
under applicable to such SUG SEC Documents, and did not (or will
not) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances
under which they were made, not misleading. The audited consoli-
dated financial statements and unaudited interim financial state-
ments of SUG included in the SUG SEC Documents (collectively, the
"SUG Financial Statements") were (or will be) prepared in
accordance with GAAP applied on a consistent basis (except as may
be indicated therein or in the notes thereto and except with
respect to unaudited statements as permitted by Form 10-Q) and
fairly present (or will fairly present) in all material respects
the financial position of SUG as of the respective dates thereof
or the results of operations and cash flows for the respective
periods then ended, as the case may be, subject, in the case of
unaudited interim financial statements, to normal, recurring
adjustments which are not material in the aggregate.
Section 4.10 Taxes. Except as set forth in Section 4.10 of the
- -------------------
SUG Disclosure Schedule:
(a) SUG and its Subsidiaries have timely filed all United
States federal, state and local income Tax Returns re-
quired to be filed by or with respect to them or requests
for extensions to file such Tax Returns have been timely
filed, granted and have not expired, and SUG and its Sub-
sidiaries have timely paid and discharged all Taxes due
in connection with or with respect to the periods or
transactions covered by such Tax Returns and have paid
all other Taxes as are due or made adequate provision
therefor in accordance with GAAP except where the
failures to so file, pay or discharge are not,
individually or in the aggregate, reasonably likely to
have a SUG Material Adverse Effect. As of the date of
this Agreement, there are no pending audits or other
examinations relating to any Tax matters. There are no
Tax liens on any assets of SUG or its Subsidiaries. As
of the date of this Agreement, SUG and its Subsidiaries
have not granted any waiver of any statute of limitations
with respect to, or any extension of a period for the
assessment of, any Tax. The accruals and reserves
(including deferred taxes) reflected in the SUG Balance
Sheet are in all material respects adequate to cover all
material Taxes accruable through the date thereof
(including interest and penalties, if any, thereon and
Taxes being contested) in accordance with GAAP.
(b) Neither SUG nor any of its Subsidiaries is obligated
under any Contract with respect to industrial development
bonds or other obligations with respect to which the
excludability from gross income of the holder for federal
or state income tax purposes could be affected by the
Merger or any of the transactions contemplated by this
Agreement.
(c) SUG has no present plan or intention after the Merger to
(i) sell or otherwise dispose of any of the assets of the
Surviving Corporation, including the assets of FAL
acquired pursuant to the Merger, except for dispositions
made in the ordinary course of business or to a corpora-
tion controlled by the Surviving Corporation within the
meaning of Section 368(a)(2)(C) of the IRC, or (ii)
reacquire any of the SUG Common Stock included in the
Merger Consideration, other than repurchases in the open
market pursuant to stock repurchase plans undertaken for
reasons unrelated to the transactions contemplated by
this Agreement.
Section 4.11 Intellectual Property. SUG has no Knowledge of (i)
- -----------------------------------
any infringement or claimed infringement by it of any patent
rights or copyrights of others or (ii) any infringement of the
patent or patent license rights, trademarks or copyrights owned
by or under license to it, except for any such infringements of
the type described in clause (i) or (ii) that are not,
individually or in the aggregate, reasonably likely to have a SUG
Material Adverse Effect.
Section 4.12 Contracts. Except as described in Section 4.12 of
- -----------------------
the SUG Disclosure Schedule or as specifically described in the
SUG SEC Documents delivered to FAL prior to the date of this
Agreement, and with such exceptions as are not, individually or
in the aggregate, reasonably likely to have a SUG Material
Adverse Effect, all of SUG's Contracts are in full force and
effect and neither SUG nor, to the Knowledge of SUG, any other
party thereto is in default thereunder nor has any event occurred
or is any event occurring that, with notice or the passage of
time or otherwise, is reasonably likely to give rise to an event
of default thereunder by any party thereto.
Section 4.13 Indebtedness. All outstanding principal amounts of
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indebtedness for borrowed money of SUG as of October 1, 1999 are
set forth in Section 4.13 of the SUG Disclosure Schedule.
Section 4.14 Employee Benefit Plans.
- ------------------------------------
(a) Except as set forth in Section 4.14 of the SUG Disclosure
Schedule, each of the SUG Benefit Plans has been operated
and administered in all material respects in accordance
with its governing documents and applicable federal and
state laws (including, but not limited to, ERISA and the
IRC). For purposes of this Agreement, "SUG Benefit
Plans" shall mean all employee retirement, welfare, stock
option, stock ownership, deferred compensation, bonus or
other benefit plans, agreements, practices, policies,
programs, or arrangements that are applicable to any
employee, director or consultant of SUG or its Subsidi-
aries or maintained by or contributed to by SUG or its
Subsidiaries.
(b) Except as set forth in Section 4.14 of the SUG Disclosure
Schedule, as to any SUG Benefit Plan subject to Title IV
of ERISA, there is no event or condition which presents
the material risk of plan termination, no accumulated
funding deficiency, whether or not waived, within the
meaning of Section 302 of ERISA or Section 412 of the IRC
has been incurred for which any liability is outstanding,
no reportable event within the meaning of Section 4043 of
ERISA (for which the notice requirements of Regulation
Section 4043 promulgated by the Pension Benefit Guaranty
Corporation ("PBGC") have not been waived) has occurred
within the last six years, no notice of intent to termi-
nate the SUG Benefit Plan has been given under Section
4041 of ERISA, no proceeding has been instituted under
Section 4042 of ERISA to terminate the SUG Benefit Plan,
there has been no termination or partial termination of
the SUG Benefit Plan within the meaning of Section
411(d)(3) of the IRC within the last six years, except
with respect to the conversion of the retirement income
plan to a cash balance plan for which full vesting was
granted with respect to affected employees, no event
described in Sections 4062 or 4063 of ERISA has occurred,
all PBGC premiums have been timely paid and no liability
to the PBGC has been incurred, except for PBGC premiums
not yet due.
(c) Except as set forth in Section 4.14 of the SUG Disclosure
Schedule, each trust funding a SUG Benefit Plan, which
trust is intended to be exempt from federal income taxa-
tion pursuant to Section 501(c)(9) of the IRC, satisfies
the requirements of such section and has, whenever
required by law, received a favorable determination
letter from the IRS regarding such exempt status, and to
the Knowledge of SUG has not, since receipt of the most
recent favorable determination letter, been amended or
operated in any way which would adversely affect such
exempt status.
(d) Except as set forth in Section 4.14 of the SUG Disclosure
Schedule, with respect to any SUG Benefit Plan or any
other "employee benefit plan" as defined in Section 3(3)
of ERISA which is established, sponsored, maintained or
contributed to, or has been established, sponsored, main-
tained or contributed to or, to the Knowledge of SUG,
with respect to any such plan which has been established,
sponsored, maintained or contributed to within six years
prior to the Closing Date, by SUG or its Subsidiaries or
any corporation, trade, business or entity under common
control or being a part of an affiliated service group
with SUG, within the meaning of Section 414(b), (c) or
(m) of the IRC or Section 4001 of ERISA ("SUG Commonly
Controlled Entity"), (i) no withdrawal liability, within
the meaning of Section 4201 of ERISA, has been incurred,
which withdrawal liability has not been satisfied and no
such withdrawal liability is reasonably expected to be
incurred, (ii) no liability under Title IV of ERISA
(including, but not limited to, liability to the PBGC)
has been incurred by SUG or any SUG Commonly Controlled
Entity, which liability has not been satisfied (other
than for PBGC premiums not yet due), (iii) no accumulated
funding deficiency, whether or not waived, within the
meaning of Section 302 of ERISA or Section 412 of the IRC
has been incurred for which any liability is outstanding,
(iv) there has been no failure to make any contribution
(including installments) to such plan required by Section
302 of ERISA and Section 412 of the IRC which has re-
sulted in a lien under Section 302 of ERISA or Section
412 of the IRC and for which any liability is currently
outstanding, (v) to the Knowledge of SUG, no action,
omission or transaction has occurred with respect to any
such plan or any other SUG Benefit Plan which could sub-
ject SUG or the plan or trust forming a part thereof to a
material civil liability or penalty under ERISA or other
applicable laws, or a material Tax under the IRC, (vi)
any such plan which is a Group Health Plan has complied
in all material respects with the provisions of Sections
601-608 of ERISA and Section 4980B of the IRC, (vii)
there are no pending or, to the Knowledge of SUG,
Threatened claims by or on behalf of any such plan or any
other SUG Benefit Plan, by any employees, former
employees or plan beneficiaries covered by such plan or
otherwise by or on behalf of any person involving any
such plan (other than routine non-contested claims for
benefits) which could result in a material liability to
SUG and its Subsidiaries, taken as a whole, and (viii)
neither SUG nor any SUG Commonly Controlled Entity has
engaged in, or is a successor or parent corporation to
any entity or person that has engaged in, a transaction
described in Section 4069 of ERISA.
(e) The execution and delivery of this Agreement and the con-
summation of the transactions contemplated hereby will
not (i) increase the amount of benefits otherwise payable
under any SUG Benefit Plan, (ii) result in the accelera-
tion of the time of eligibility to participate in any SUG
Benefit Plan, or of any payment, exercisability, funding
or vesting of any benefit under any SUG Benefit Plan,
(iii) result in payment becoming due or with respect to
any current or former employee, director or consultant,
or (iv) result in any payment becoming due in the event
of a termination of employment or service of any
employee, director or consultant.
(f) SUG is not a party to any Contract nor has it established
any policy or practice, which would require SUG to make a
payment or provide any other form of compensation or
benefit to any Person performing (or who within the past
twelve months performed) services for SUG during or upon
termination of such services which would not be payable
or provided in the absence of the consummation of the
transactions contemplated by this Agreement.
(g) Except as would affect unionized employees and/or
retirees who are covered by bargaining agreements, if
any, and as otherwise set forth in Section 4.14 of the
SUG Disclosure Schedule, each SUG Benefit Plan which is
an "employee welfare benefit plan," as such term is
defined in Section 3(1) of ERISA, may be unilaterally
amended or terminated in its entirety without any
liability being incurred by SUG or any Affiliate of SUG,
except as to benefits accrued thereunder prior to such
amendment or termination.
(h) As of the date of this Agreement, SUG has not contributed
nor been obligated to contribute to any "multi-employer
plan" within the meaning of Section 3(37) of ERISA within
the last six years and has no outstanding liability with
respect to any such plan.
Section 4.15 Environmental Matters. Except as set forth in
- -----------------------------------
Section 4.15 of the SUG Disclosure Schedule or as specifically
described in the SUG SEC Documents delivered to FAL prior to the
date of this Agreement, and with such other exceptions as are
not, individually or in the aggregate, reasonably likely to have
a SUG Material Adverse Effect:
(a) To the Knowledge of SUG, SUG and any Person for whose
conduct SUG is reasonably likely to be held responsible,
is currently and at all times has been, in material
compliance with any Environmental Law. SUG has not
received any Order, notice, or other communication from
(i) any Governmental Body or private citizen acting in
the public interest, or (ii) the current or prior owner
or operator of any Facilities, of any violation or
failure to comply with any Environmental Law, or of any
obligation to undertake or bear the cost of any environ-
mental cleanup, or with respect to any property or
Facility at which Hazardous Materials generated by SUG or
any other Person for whose conduct SUG may be held
responsible were transported for disposal; and
(b) There are no pending or, to the Knowledge of SUG,
Threatened claims or Encumbrances arising under or
pursuant to any Environmental Law with respect to or
affecting any of the Facilities or any other properties
and assets (whether real, personal, or mixed) in which
SUG has or had a direct or indirect interest (including
by ownership or use).
Section 4.16 No Material Adverse Change. Except as described in
- ----------------------------------------
the SUG SEC Documents that have been provided to FAL prior to the
date of this Agreement, since the date of the SUG Balance Sheet,
there has not been any SUG Material Adverse Effect, and no events
have occurred or circumstances exist that are, individually or in
the aggregate, reasonably likely to have a SUG Material Adverse
Effect, except that any SUG Material Adverse Effect that results
from or relates to (a) general business or economic conditions,
(b) conditions generally affecting the industries in which SUG
competes or (c) the announcement of the transactions contemplated
by this Agreement shall be disregarded.
Section 4.17 Brokers. SUG is not a party to, or in any way
- ---------------------
obligated under any Contract, and there are no outstanding claims
against SUG, for the payment of any broker's or finder's fees in
connection with the origin, negotiation, execution or performance
of this Agreement.
Section 4.18 Proxy Statement; Registration Statement. None of
- -----------------------------------------------------
the information supplied or to be supplied to FAL by or on behalf
of SUG for inclusion in the proxy statement, in definitive form,
relating to the FAL Meeting to be held in connection with the
Merger (the "FAL Proxy Statement"), or supplied by or on behalf
of SUG in the Registration Statement on Form S-4 (and any
amendments thereto) to be filed by SUG with the SEC pursuant to
the Securities Act to register the shares of SUG Common Stock
constituting the Stock Consideration (the "Registration State-
ment") will, in the case of the Registration Statement, at the
effective time of the Registration Statement, at any time the
Registration Statement is amended or supplemented, at the date
the FAL Proxy Statement is first mailed to FAL's stockholders, at
any time the FAL Proxy Statement is amended or supplemented, at
the time of the FAL Meeting and at the Effective Time, and in the
case of the FAL Proxy Statement, at the date the FAL Proxy State-
ment is first mailed to FAL's stockholders, at any time the FAL
Proxy Statement is amended or supplemented and at the time of the
FAL Meeting (giving effect to any documents incorporated by
reference therein), contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not
misleading. The Registration Statement will comply as to form
and in substance in all material respects with the applicable
provisions of the Securities Act and the rules and regulations
thereunder.
Section 4.19 No Vote Required. No vote of the holders of any
- ------------------------------
class or series of the capital stock of SUG is required to
approve this Agreement and the Merger.
Section 4.20 Disclaimer of Representations and Warranties.
- ----------------------------------------------------------
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS
ARTICLE IV, SUG MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EX-
PRESS OR IMPLIED, AND SUG HEREBY DISCLAIMS ANY SUCH OTHER REPRE-
SENTATIONS OR WARRANTIES, WHETHER BY SUG, ANY SUBSIDIARY OF SUG,
OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS
OR REPRESENTATIVES, OR ANY OTHER PERSON, WITH RESPECT TO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITH-
STANDING THE DELIVERY OR DISCLOSURE TO FAL OR ANY OF ITS DIREC-
TORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY
OTHER PERSON, OF ANY DOCUMENTATION OR OTHER INFORMATION BY SUG,
ANY SUBSIDIARY OF SUG, OR ANY OF THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY OTHER
PERSON, WITH RESPECT TO ANY OF THE FOREGOING.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FAL
FAL, as to the Acquired Companies, represents and warrants to SUG
as follows:
Section 5.1 Organization, Existence and Qualification.
- ------------------------------------------------------
(a) Each Acquired Company is a corporation duly incorporated,
validly existing, and in good standing under the laws of
its state of incorporation or organization, with full
corporate power and authority to conduct its business as
it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform
all its obligations under all Applicable Contracts. Sec-
tion 5.1(a) of the FAL Disclosure Schedule sets forth the
name of each Acquired Company, the state or jurisdiction
of its incorporation or organization, and each state or
jurisdiction where such Acquired Company is duly quali-
fied as a foreign corporation. Each Acquired Company is
duly qualified to do business as a foreign corporation
and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use
of the properties owned or used by it, or the nature of
the business conducted by it, requires such qualification
as a foreign corporation except for such failures to be
so qualified or in good standing as are not, individually
or in the aggregate, reasonably likely to have a FAL
Material Adverse Effect.
(b) FAL has delivered to SUG copies of the Organizational
Documents, as currently in effect, of each Acquired
Company.
Section 5.2 Capitalization. The capital stock of FAL consists
- ---------------------------
of 2,951,334 shares of FAL Common Stock, of which 2,220,086
shares are issued and outstanding. The issued and outstanding
shares of FAL Common Stock have been validly issued and are fully
paid and nonassessable. Except as specifically described in the
FAL SEC Documents delivered to SUG prior to the date of this
Agreement, no shares of FAL Common Stock are held, in treasury or
otherwise, by FAL or any of its Subsidiaries and there are no
outstanding (i) securities convertible into FAL Common Stock or
other capital stock of FAL or any of its Subsidiaries, (ii) war-
rants or options to purchase FAL Common Stock or other securities
of FAL or any of its Subsidiaries or (iii) other commitments to
issue shares of FAL Common Stock or other securities of FAL or
any of its Subsidiaries.
Section 5.3 Subsidiaries; Investments. Except as set forth in
- --------------------------------------
Section 5.3 of the FAL Disclosure Schedule, FAL has no Subsidi-
aries or investments in any Person (except for marketable
securities disclosed to SUG prior to the date of this Agreement)
and FAL is the registered owner and holder of all of the issued
and outstanding shares of capital stock of its Subsidiaries and
has good title to such shares. The outstanding capital stock of
each Subsidiary has been validly issued and is fully paid and
nonassessable. All such capital stock owned by any Acquired
Company is free and clear of any Encumbrance (except for any
Encumbrance disclosed in the FAL SEC Documents delivered to SUG
prior to the date of this Agreement, or created or incurred by
this Agreement in favor of SUG, or imposed by federal or state
securities laws).
Section 5.4 Authority Relative to this Agreement and Binding
- -------------------------------------------------------------
Effect. The execution, delivery and performance of this Agree-
- ------
ment and the Related Documents by FAL have been duly authorized
by all requisite corporate action, except, as of the date of this
Agreement, for the FAL Stockholders' Approval. Except as set
forth in Section 5.4 of the FAL Disclosure Schedule, the execu-
tion, delivery and performance of this Agreement and the Related
Documents by FAL will not result in a violation or breach of any
term or provision of, or constitute a default, require a consent,
approval or notification, or accelerate the performance required
under, the Organizational Documents of any of the Acquired Com-
panies, any indenture, mortgage, deed of trust, security agree-
ment, loan agreement, or other Applicable Contract to which any
of the Acquired Companies is a party or by which its assets are
bound, or violate any Order, with such exceptions as are not,
individually or in the aggregate, reasonably likely to have a FAL
Material Adverse Effect. This Agreement constitutes and the
Related Documents to be executed by any of the Acquired Companies
when executed and delivered will constitute valid and binding
obligations of such Acquired Company, enforceable against such
Acquired Company in accordance with their terms, except as
enforceability may be limited by (i) bankruptcy or similar laws
from time to time in effect affecting the enforcement of
creditors' rights generally or (ii) the availability of equitable
remedies generally.
Section 5.5 Governmental Approvals. Except as set forth in
- -----------------------------------
Section 5.5 of the FAL Disclosure Schedule and as required by the
HSR Act, no approval or authorization of any Governmental Body
with respect to performance under this Agreement or the Related
Documents by any Acquired Company is required to be obtained by
FAL in connection with the execution and delivery by FAL of this
Agreement or the Related Documents or the consummation by the
Acquired Companies of the transactions contemplated hereby or
thereby, the failure to obtain which are, individually or in the
aggregate, reasonably likely to have a FAL Material Adverse
Effect.
Section 5.6 Public Utility Holding Company Status; Regulation as
- -----------------------------------------------------------------
a Public Utility. None of the Acquired Companies is a "holding
- ----------------
company," a "subsidiary company," a "public utility company," or
an "affiliate" of a "public utility company" or a "holding
company" within the meaning of such terms in PUHCA.
Section 5.7 Compliance with Legal Requirements; Governmental
- -------------------------------------------------------------
Authorizations.
- --------------
(a) Except as set forth in Section 5.7(a) of the FAL Disclo-
sure Schedule or as specifically described in the FAL SEC
Documents delivered to SUG prior to the date of this
Agreement, and subject to Section 5.19 of this Agreement,
to the Knowledge of any Acquired Company, no Acquired
Company is in violation of any Legal Requirement that is
applicable to it, to the conduct or operation of its
business, or to the ownership or use of any of its
assets, other than such violations, if any, which are
not, individually or in the aggregate, reasonably likely
to have a FAL Material Adverse Effect.
(b) The FAL SEC Documents delivered to SUG prior to the date
of this Agreement accurately describe all material regu-
lation of each Acquired Company that relates to the
utility business of any Acquired Company. Except as set
forth on Section 5.7(a) of the FAL Disclosure Schedule,
each Acquired Company has, and is in material compliance
with, all material Governmental Authorizations necessary
to conduct its business and to own, operate and use all
of its assets as currently conducted.
Section 5.8 Legal Proceedings; Orders. Except as set forth in
- --------------------------------------
Section 5.8 of the FAL Disclosure Schedule or as specifically
described in the FAL SEC Documents delivered to SUG prior to the
date of this Agreement, there is no pending Proceeding:
(1) that has been commenced by or against, or that
otherwise relates to, any Acquired Company that is
reasonably likely to have a FAL Material Adverse
Effect; or
(2) as of the date of this Agreement, that challenges,
or that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, the
Merger or any of the transactions contemplated
hereby.
To the Knowledge of FAL, except as set forth in Section 5.8 of
the FAL Disclosure Schedule, as of the date of this Agreement, no
such Proceedings, audits or investigations have been Threatened
that are, individually or in the aggregate, reasonably likely to
have a FAL Material Adverse Effect. As of the date of this
Agreement, none of the Acquired Companies is subject to any
Orders that are, individually or in the aggregate, reasonably
likely to have a FAL Material Adverse Effect.
Section 5.9 SEC Documents. FAL has made (and, with respect to
- --------------------------
such documents filed after the date hereof through the Closing
Date, will make) available to SUG a true and complete copy of
each report, schedule, registration statement (other than on Form
S-8), and definitive proxy statement filed by FAL with the SEC
since September 30, 1998 through the Closing Date in substan-
tially the form filed with the SEC (the "FAL SEC Documents"). As
of their respective dates, the FAL SEC Documents, including
without limitation any financial statements or schedules included
therein, complied (or will comply), in all material respects with
the requirements of the Securities Act or the Exchange Act, as
the case may be, and the rules and regulations of the SEC there-
under applicable to such FAL SEC Documents, and did not (or will
not) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances
under which they were made, not misleading. The audited consoli-
dated financial statements and unaudited interim financial state-
ments of FAL included in the FAL SEC Documents (collectively, the
"FAL Financial Statements") were (or will be) prepared in
accordance with GAAP (except as may be indicated therein or in
the notes thereto and except with respect to unaudited statements
as permitted by Form 10-Q) and fairly present (or will fairly
present) in all material respects the financial position of FAL
and its Subsidiaries, as of the respective dates thereof or the
results of operations and cash flows for the respective periods
then ended, as the case may be, subject, in the case of unaudited
interim financial statements, to normal, recurring adjustments
which are not material in the aggregate.
Section 5.10 Taxes. Except as set forth in Section 5.10 of the
- -------------------
FAL Disclosure Schedule:
(a) The Acquired Companies have timely filed all United
States federal, state and local income Tax Returns re-
quired to be filed by or with respect to them or requests
for extensions to file such Tax Returns have been timely
filed, granted and have not expired, and the Acquired
Companies have timely paid and discharged all Taxes due
in connection with or with respect to the periods or
transactions covered by such Tax Returns and have paid
all other Taxes as are due or made adequate provision
therefor in accordance with GAAP except where failures to
so file, pay or discharge are not, individually or in the
aggregate, reasonably likely to have a FAL Material Ad-
verse Effect. There are no pending audits or other
examinations relating to any Tax matters. There are no
Tax liens on any assets of the Acquired Companies. As of
the date of this Agreement, none of the Acquired Com-
panies has granted any waiver of any statute of limita-
tions with respect to, or any extension of a period for
the assessment of, any Tax. The accruals and reserves
(including deferred taxes) reflected in the FAL Balance
Sheet are in all material respects adequate to cover all
material Taxes accruable through the date thereof
(including interest and penalties, if any, thereon and
Taxes being contested) in accordance with GAAP.
(b) None of the Acquired Companies is obligated under any
Applicable Contract with respect to industrial develop-
ment bonds or other obligations with respect to which the
excludability from gross income of the holder for federal
or state income tax purposes could be affected by the
Merger or any of the transactions contemplated by this
Agreement.
Section 5.11 Intellectual Property. No Acquired Company has any
- -----------------------------------
Knowledge of (i) any infringement or claimed infringement by any
Acquired Company of any patent rights or copyrights of others or
(ii) any infringement of the patent or patent license rights,
trademarks or copyrights owned by or under license to any
Acquired Company, except for any such infringements of the type
described in clause (i) or (ii) that are not, individually or in
the aggregate, reasonably likely to have a FAL Material Adverse
Effect.
Section 5.12 Title to Assets. Except (i) as set forth in
- -----------------------------
Section 5.12 of the FAL Disclosure Schedule, (ii) as specifically
described in the FAL SEC Documents delivered to SUG prior to the
date of this Agreement, (iii) as set forth in Section 5.19 of
this Agreement or (iv) as set forth in Section 5.19 of the FAL
Disclosure Schedule, none of the Acquired Companies' assets are
subject to any Encumbrance other than FAL Permitted Liens.
Section 5.13 Indebtedness. All outstanding principal amounts of
- --------------------------
indebtedness for borrowed money of the Acquired Companies as of
October 4, 1999 are set forth in Section 5.13 of the FAL Disclo-
sure Schedule.
Section 5.14 Machinery and Equipment. Except for normal wear
- -------------------------------------
and tear, and with such exceptions as are not, individually or in
the aggregate, reasonably likely to have a FAL Material Adverse
Effect, the machinery and equipment of the Acquired Companies
necessary for the conduct by the Acquired Companies of their
respective businesses as presently conducted are in good
operating condition and in a state of reasonable maintenance and
repair.
Section 5.15 Applicable Contracts. Set forth in Section 5.15(a)
- ----------------------------------
of the FAL Disclosure Schedule is a list as the date hereof of
all Applicable Contracts to which any Acquired Company is a party
involving a total commitment by or to any party thereto of more
than $65,000 on an annual basis or more than $250,000 on its
remaining term which cannot be terminated on no more than sixty
(60) days' notice without penalty or additional cost to the
Acquired Company as the terminating party. Except as
specifically described in the FAL SEC Documents delivered to SUG
prior to the date of this Agreement, and with such exceptions as
are not, individually or in the aggregate, reasonably likely to
have a FAL Material Adverse Effect, all Applicable Contracts of
the Acquired Companies are in full force and effect and no
Acquired Company nor, to the Knowledge of FAL, any other party
thereto is in default thereunder nor has any event occurred or is
any event occurring that with notice or the passage of time or
otherwise, is reasonably likely to give rise to an event of
default thereunder by any party thereto.
Section 5.16 Insurance. Section 5.16(a) of the FAL Disclosure
- -----------------------
Schedule sets forth a list of all policies of insurance held by
the Acquired Companies as of the date of this Agreement. Since
June 30, 1994, the assets and the business of the Acquired Com-
panies have been continuously insured with what FAL believes are
reputable insurers against all risks and in such amounts normally
insured against by companies of the same type and in the same
line of business as any of the Acquired Companies. As of the
date of this Agreement, no notice of cancellation, non-renewal or
material increase in premiums has been received by any of the
Acquired Companies with respect to such policies, and no Acquired
Company has Knowledge of any fact or circumstance that could rea-
sonably be expected to form the basis for any cancellation, non-
renewal or material increase in premiums, except for such
cancellations, non-renewals and increases which are not, indi-
vidually or in the aggregate, reasonably likely to have a FAL
Material Adverse Effect. None of the Acquired Companies is in
default with respect to any provision contained in any such
policy or binder nor has there been any failure to give notice or
to present any claim relating to the business or the assets of
the Acquired Companies under any such policy or binder in a
timely fashion or in the manner or detail required by the policy
or binder, except for such defaults or failures which are not,
individually or in the aggregate, reasonably likely to have a FAL
Material Adverse Effect. As of the date of this Agreement, there
are no outstanding unpaid premiums (except premiums not yet due
and payable), and no notice of cancellation or renewal with
respect to, or disallowance of any claim under, any such policy
or binder has been received by the Acquired Companies as of the
date hereof, except for such non-payments of premiums, cancella-
tions, renewals or disallowances which are not, individually or
in the aggregate, reasonably likely to have a FAL Material
Adverse Effect.
Section 5.17 Employees. Section 5.17(a) of the FAL Disclosure
- -----------------------
Schedule sets forth a list as of no more than thirty (30) days
prior to the date of this Agreement of all the present officers
and employees of the Acquired Companies, indicating each
employee's base salary or wage rate and identifying those who are
union employees and those who are part-time employees. Except as
set forth in Section 5.17(b) of the FAL Disclosure Schedule, as
of the date of this Agreement, no labor union or other collective
bargaining unit has been certified or recognized by any of the
Acquired Companies, and, to the Knowledge of the Acquired Com-
panies, as of the date of this Agreement, there are no elections,
organizing drives or material controversies pending or Threatened
between any of the Acquired Companies and any labor union or
other collective bargaining unit representing any of the Acquired
Companies' employees. There is no pending or, to the Knowledge
of FAL, Threatened labor practice complaint, arbitration, labor
strike or other material labor dispute (excluding grievances)
involving any of the Acquired Companies which are, individually
or in the aggregate, reasonably likely to have a FAL Material
Adverse Effect. Except for collective bargaining agreements or
as set forth in Section 5.17(c) of the FAL Disclosure Schedule,
none of the Acquired Companies is a party to any employment
agreement with any employee pertaining to any of the Acquired
Companies.
Section 5.18 Employee Benefit Plans.
- ------------------------------------
(a) Each of the FAL Benefit Plans has been operated and
administered in all material respects in accordance with
its governing documents and applicable federal and state
laws (including, but not limited to, ERISA and the IRC).
For purposes of this Agreement, "FAL Benefit Plans" shall
mean all employee retirement, welfare, stock option,
stock ownership, deferred compensation, bonus or other
benefit plans, agreements, practices, policies, programs,
or arrangements, that are applicable to any employee,
director or consultant of the Acquired Companies or main-
tained by or contributed to by any of the Acquired
Companies.
(b) As to any FAL Benefit Plan subject to Title IV of ERISA,
there is no event or condition which presents the
material risk of plan termination, no accumulated funding
deficiency, whether or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the IRC has been
incurred for which any liability is outstanding, no
reportable event within the meaning of Section 4043 of
ERISA (for which the notice requirements of Regulation
Section 4043 promulgated by the PBGC have not been
waived) has occurred within the last six years, no notice
of intent to terminate the FAL Benefit Plan has been
given under Section 4041 of ERISA, no proceeding has been
instituted under Section 4042 of ERISA to terminate the
FAL Benefit Plan, there has been no termination or
partial termination of the FAL Benefit Plan within the
meaning of Section 411(d)(3) of the IRC within the last
six years, no event described in Sections 4062 or 4063 of
ERISA has occurred, all PBGC premiums have been timely
paid and no liability to the PBGC has been incurred,
except for PBGC premiums not yet due.
(c) There is no matter pending (other than qualification
determination applications and filings and other required
periodic filings) with respect to any of the FAL Benefit
Plans before the IRS, the Department of Labor, the PBGC
or in or before any other governmental authority.
(d) Each trust funding a FAL Benefit Plan, which trust is
intended to be exempt from federal income taxation pursu-
ant to Section 501(c)(9) of the IRC, satisfies the
requirements of such section and has received a favorable
determination letter from the IRS regarding such exempt
status and to the Knowledge of any Acquired Company has
not, since receipt of the most recent favorable determi-
nation letter, been amended or operated in any way which
would adversely affect such exempt status.
(e) With respect to any FAL Benefit Plan or any other
"employee benefit plan" as defined in Section 3(3) of
ERISA which is established, sponsored, maintained or con-
tributed to, or to the Knowledge of the Acquired Com-
panies, with respect to any such plan which has been
established, sponsored, maintained or contributed to
within six years prior to the Closing Date, by the
Acquired Companies or any corporation, trade, business or
entity under common control or being a part of an affili-
ated service group with any of the Acquired Companies,
within the meaning of Section 414(b), (c) or (m) of the
IRC or Section 4001 of ERISA ("FAL Commonly Controlled
Entity"), (i) no withdrawal liability, within the meaning
of Section 4201 of ERISA, has been incurred, which with-
drawal liability has not been satisfied and no such with-
drawal liability is reasonably expected to be incurred,
(ii) no liability under Title IV of ERISA (including, but
not limited to, liability to the PBGC) has been incurred
by the Acquired Companies or any FAL Commonly Controlled
Entity, which liability has not been satisfied (other
than for PBGC premiums not yet due), (iii) no accumulated
funding deficiency, whether or not waived, within the
meaning of Section 302 of ERISA or Section 412 of the IRC
has been incurred for which any liability is outstanding,
(iv) there has been no failure to make any contribution
(including installments) to such plan required by Section
302 of ERISA and Section 412 of the IRC which has
resulted in a lien under Section 302 of ERISA or Section
412 of the IRC and for which any liability is currently
outstanding, (v) to the Knowledge of any Acquired Com-
pany, no action, omission or transaction has occurred
with respect to any such plan or any other FAL Benefit
Plan which could subject any of the Acquired Companies,
the plan or trust forming a part thereof, or SUG to a
material civil liability or penalty under ERISA or other
applicable laws, or a material Tax under the IRC, (vi)
any such plan which is a Group Health Plan has complied
in all material respects with the provisions of Sections
601-608 of ERISA and Section 4980B of the IRC, (vii)
there are no pending or, to the Knowledge of any Acquired
Company, Threatened claims by or on behalf of any such
plan or any other FAL Benefit Plan, by any employees,
former employees or plan beneficiaries covered by such
plan or otherwise by or on behalf of any person involving
any such plan (other than routine non-contested claims
for benefits) which could result in a material liability
to the Acquired Companies taken as a whole, and (viii)
neither the Acquired Companies nor any FAL Commonly Con-
trolled Entity has engaged in, or is a successor or
parent corporation to any entity or person that has
engaged in, a transaction described in Section 4069 of
ERISA.
(f) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will
not (i) increase the amount of benefits otherwise payable
under any FAL Benefit Plan, (ii) result in the accelera-
tion of the time of eligibility to participate in any FAL
Benefit Plan, or any payment, exercisability, funding or
vesting of any benefit under any FAL Benefit Plan, (iii)
result in any payment becoming due to or with respect to
any current or former employee, director or consultant,
or (iv) result in any payment becoming due in the event
of a termination of employment or service of any
employee, director or consultant.
(g) None of the Acquired Companies is a party to any Applica-
ble Contract nor has it established any policy or prac-
tice, which would require it or SUG to make a payment or
provide any other form of compensation or benefit to any
Person performing (or who within the past twelve months
performed) services for any of the Acquired Companies
during or upon termination of such services which would
not be payable or provided in the absence of the consum-
mation of the transactions contemplated by this Agree-
ment.
(h) Except as would affect unionized employees and/or
retirees who had been unionized employees, each FAL Bene-
fit Plan which is an "employee welfare benefit plan," as
such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety with-
out any liability being incurred by any of the Acquired
Companies, SUG or any Affiliate of SUG, except as to
benefits accrued thereunder prior to such amendment or
termination.
(i) None of the Acquired Companies has contributed nor been
obligated to contribute to any "multi-employer plan"
within the meaning of Section 3(37) of ERISA within the
last six years, and none of the Acquired Companies has
any outstanding liability with respect to any such plan.
(j) Section 5.18(j) of the FAL Disclosure Schedule contains a
true and complete list of each FAL Benefit Plan, and any
management, employment, deferred compensation, severance
(including any payment, right or benefit resulting from a
change in control), bonus, or other contract for personal
services with any current or former officer, director or
employee, any consulting contract with any person who
prior to entering this such contract was a director or
officer or owner of 5% or more of the stock of any
Acquired Company or family member of any such director,
officer or stockholder, or any plan, agreement, arrange-
ment or understanding similar to any of the foregoing.
There are no outstanding options to purchase FAL capital
stock or other securities. FAL has provided to SUG a
complete and correct copy of each FAL Benefit Plan (or
written summary of any unwritten FAL Benefit Plan), and
with respect to each FAL Benefit Plan, the current sum-
mary plan description, related trust agreements, related
insurance contracts, the latest IRS determination letter,
the last three annual reports on Form 5500 series
(including all required schedules), and the most recent
actuarial report and annual financial statements.
Section 5.19 Environmental Matters. Except as set forth in
- -----------------------------------
Section 5.19 of the FAL Disclosure Schedule or as specifically
described in the FAL SEC Documents delivered to SUG prior to the
date of this Agreement, and with such other exceptions as are
not, individually or in the aggregate, reasonably likely to have
a FAL Material Adverse Effect:
(a) To the Knowledge of any Acquired Company, no Facility
owned or operated by any Acquired Company is currently,
or was at any time, listed on the National Priorities
List promulgated under CERCLA, or on any comparable state
list, and no Acquired Company has received any written
notification of potential or actual liability or a
written request for information from any Person under or
relating to CERCLA or any comparable Legal Requirement
with respect to any Acquired Company or the Facilities;
(b) To the Knowledge of any Acquired Company, each Acquired
Company and any Person for whose conduct any Acquired
Company is reasonably likely to be held responsible, is
currently and at all times has been, in material compli-
ance with any Environmental Law. No Acquired Company has
received any Order, notice, or other communication from
(i) any Governmental Body or private citizen acting in
the public interest, or (ii) the current or prior owner
or operator of any Facilities, of any violation or
failure to comply with any Environmental Law, or of any
obligation to undertake or bear the cost of any environ-
mental cleanup, or with respect to any property or
Facility at which Hazardous Materials generated by any
Acquired Company were transported for disposal;
(c) There are no pending or, to the Knowledge of any Acquired
Company, Threatened claims arising under or pursuant to
any Environmental Law with respect to or affecting any of
the Facilities or any other properties and assets
(whether real, personal, or mixed) in which any Acquired
Company has or had a direct or indirect interest
(including by ownership or use); and
(d) FAL has delivered or made available to SUG true and com-
plete copies and results of any environmental site
assessments, studies, analyses, tests or monitoring
possessed by any Acquired Company of which any Acquired
Company has Knowledge pertaining to Hazardous Materials
or Hazardous Activities in, on or under the Facilities,
or concerning compliance by any Acquired Company or any
other Person for whose conduct any Acquired Company is
reasonably likely to be held responsible, with Environ-
mental Laws.
Section 5.20 No Material Adverse Change. Since the date of the
- ----------------------------------------
FAL Balance Sheet, except as specifically described in the FAL
SEC Documents delivered to SUG prior to the date of this Agree-
ment, there has not been any FAL Material Adverse Effect, and no
events have occurred or circumstances exist that are, indi-
vidually or in the aggregate, reasonably likely to have a FAL
Material Adverse Effect, except that any FAL Material Adverse
Effect that results from or relates to (a) general business or
economic conditions, (b) conditions generally affecting the
industries in which the Acquired Companies compete or (c) the
announcement of the transactions contemplated by this Agreement
shall be disregarded.
Section 5.21 Brokers. No Acquired Company is a party to, or in
- ---------------------
any way obligated under any Applicable Contract, and there are no
outstanding claims against any Acquired Company, for the payment
of any broker's or finder's fees in connection with the origin,
negotiation, execution or performance of this Agreement.
Section 5.22 Regulatory Proceedings. Except as set forth in
- ------------------------------------
Section 5.22 of the FAL Disclosure Schedule, other than purchase
gas adjustment provisions, none of FAL or its Subsidiaries all or
part of whose rates or services are regulated by a Governmental
Body (a) has rates that have been or are being collected subject
to refund, pending final resolution of any rate proceeding
pending before a Governmental Body or on appeal to the courts, or
(b) is a party to any rate proceeding before a Governmental Body
that are, individually or in the aggregate, reasonably likely to
result in any Orders having a FAL Material Adverse Effect.
Section 5.23 Proxy Statement; Registration Statement. None of
- -----------------------------------------------------
the information supplied or to be supplied by or on behalf of the
Acquired Companies in either the FAL Proxy Statement or supplied
or to be supplied by the Acquired Companies to SUG for inclusion
in the Registration Statement, will, in the case of the Registra-
tion Statement, at the effective time of the Registration State-
ment, at any time the Registration Statement is amended or
supplemented, at the date the FAL Proxy Statement is first mailed
to FAL's stockholders, at any time the FAL Proxy Statement is
amended or supplemented, at the time of the FAL Meeting and at
the Effective Time, and in the case of the FAL Proxy Statement,
at the date the FAL Proxy Statement is first mailed to FAL's
stockholders, at any time the FAL Proxy Statement is amended or
supplemented and at the time of the FAL Meeting (giving effect to
any documents incorporated by reference therein), contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which
they are made, not misleading. The FAL Proxy Statement will
comply as to form and in substance in all material respects with
the applicable provisions of the Exchange Act and the rules and
regulations thereunder.
Section 5.24 Vote Required. Other than the approval of the
- ---------------------------
Merger by the holders of two thirds of the outstanding shares of
FAL Common Stock entitled to vote on the question (the "FAL
Stockholders' Approval"), no vote of the holders of any class or
series of the capital stock of any Acquired Company is required
to approve this Agreement and the Merger.
Section 5.25 Opinion of Financial Advisor. FAL has provided SUG
- ------------------------------------------
a copy of the opinion of Legg Mason Wood Walker, Incorporated,
dated as of the date hereof, with respect to the Merger Con-
sideration to be received by the holders of FAL Common Stock
pursuant to the transactions contemplated by this Agreement.
Section 5.26 Disclaimer of Representations and Warranties.
- ----------------------------------------------------------
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS
ARTICLE V, FAL MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EX-
PRESS OR IMPLIED, AND FAL HEREBY DISCLAIMS ANY SUCH OTHER REPRE-
SENTATIONS OR WARRANTIES, WHETHER BY FAL, ANY SUBSIDIARY OF FAL,
OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS
OR REPRESENTATIVES, OR ANY OTHER PERSON, WITH RESPECT TO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITH-
STANDING THE DELIVERY OR DISCLOSURE TO SUG OR ANY OF ITS DIREC-
TORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY
OTHER PERSON, OF ANY DOCUMENTATION OR OTHER INFORMATION BY FAL,
ANY SUBSIDIARY OF FAL, OR ANY OF THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY OTHER
PERSON, WITH RESPECT TO ANY OF THE FOREGOING.
ARTICLE VI
COVENANTS
Section 6.1 Covenants of FAL. FAL agrees to observe and perform
- -----------------------------
the following covenants and agreements:
(a) Conduct of the Business Prior to the Closing Date. With
-------------------------------------------------
respect to the Acquired Companies, except (i) as contem-
plated in this Agreement, (ii) as required by law or
regulation, or (iii) as otherwise expressly consented to
in writing by SUG which consent shall not be unreasonably
withheld or delayed, prior to the Closing, FAL will cause
each Acquired Company to:
(1) Not make or permit any material change in the
general nature of its business;
(2) Maintain its Ordinary Course of Business in
accordance with prudent business judgment and con-
sistent with past practice and policy, and maintain
Its assets in good operating repair, order and con-
dition, reasonable wear and tear excepted, subject
to retirements in the Ordinary Course of Business;
(3) Preserve the Acquired Company as an ongoing business
and use reasonable efforts to maintain the goodwill
associated with the Acquired Company;
(4) Preserve all of the Acquired Companies' franchises,
tariffs, certificates of public convenience and
necessity, licenses, authorizations and other
governmental rights and permits;
(5) Not enter into any material transaction or Material
Contract;
(6) Not purchase, sell, lease, dispose of or otherwise
transfer or make any contract for the purchase,
sale, lease, disposition or transfer of, or subject
to lien, any of the assets of the Acquired Company
other than in the Ordinary Course of Business;
(7) Not hire any new employee unless such employee is a
bona fide replacement for a presently-filled posi-
tion with the Acquired Company as of the date
hereof;
(8) Not file any material applications, petitions,
motions, orders, briefs, settlement or agreements in
any material Proceeding before any Governmental Body
which involves any Acquired Company, and appeals
related thereto;
(9) Not engage in or modify, except in the Ordinary
Course of Business, any material intercompany
transactions involving any other Acquired Company;
(10) Not voluntarily change in any material respect or
terminate any insurance policies disclosed on
Section 5.16(a) of the FAL Disclosure Schedule that
presently are in effect unless equivalent coverage
is obtained;
(11) Except as disclosed or specifically contemplated in
this Agreement or in Section 6.1(a)(11) of the FAL
Disclosure Schedule, and with respect to budgeted
expenditures known and specifically disclosed in
writing to SUG, subject to adjustments in the Ordi-
nary Course of Business and other deviations (which
in the aggregate shall not exceed 5% on an
annualized basis during the period from the date of
this Agreement until the Closing Date), not make any
capital expenditure or capital expenditure commit-
ment;
(12) Not make any changes in financial policies or prac-
tices, or strategic or operating policies or prac-
tices, in each case which involve any Acquired
Company;
(13) Comply in all material respects with all applicable
material Legal Requirements and permits, including
without limitation those relating to the filing of
reports and the payment of Taxes due to be paid
prior to the Closing, other than those contested in
good faith;
(14) Not adopt, amend (other than amendments that reduce
the amounts payable by SUG or any of its Subsidi-
aries or amendments required by law) or assume an
obligation to contribute to any FAL Benefit Plan or
collective bargaining agreement or enter into any
employment, consulting, severance or similar Con-
tract with any Person (including without limitation,
contracts with management of any Acquired Company or
any of its Affiliates that might require payments be
made upon consummation of the transactions contem-
plated hereby) or amend any such existing contracts;
(15) Except in the Ordinary Course of Business or as
required by the terms of any existing Contract, FAL
Benefit Plan or collective bargaining agreement, not
grant any increase or change in total compensation,
benefits or pay any bonus to any employee, director
or consultant;
(16) Not grant or enter into or extend the term of any
Contract with respect to continued employment or
service for any employee, officer, director or
consultant;
(17) Not make any loan or advance to any Person other
than to any officer, director, stockholder or
employee in the Ordinary Course of Business;
(18) Not terminate any existing gas purchase, exchange or
transportation contract necessary to supply firm gas
at all city gate delivery points or enter into any
new contract for the supply, transportation, storage
or exchange of gas with respect to the Acquired
Companies' regulated gas distribution operations or
renew or extend or negotiate any existing contract
providing for the same where such contract is not
terminable within sixty (60) days without penalty;
(19) Not amend any of its Organizational Documents; and
(20) Subject to Section 6.1(l), not issue or assume any
note, debenture or other evidence of indebtedness
which by its terms does not mature within one year
from the date of execution or issuance thereof,
unless otherwise redeemable or subject to prepayment
at any time at the option of the Acquired Company on
not more than thirty (30) days notice without
penalty for such redemption or prepayment.
(b) Customer Notifications. At any time and from time to
----------------------
time reasonably requested by SUG prior to the Closing
Date, each Acquired Company will permit SUG at FAL's
expense to insert preprinted single-page customer
education materials into billing documentation to be
delivered to customers affected by this Agreement;
provided, however, that FAL has reviewed in advance and
-------- -------
consented to the content of such materials, which consent
shall not be unreasonably withheld or delayed. Other
means of notifying customers may be employed by either
party, at the expense of the initiating party, but in no
event shall any notification be initiated without the
prior consent of the other party (which consent shall not
be unreasonably withheld or delayed).
(c) Access to the Acquired Companies' Offices, Properties and
---------------------------------------------------------
Records; Updating Information.
-----------------------------
(1) From and after the date hereof and until the Closing
Date, the Acquired Companies shall permit SUG and
its Representatives to have, on reasonable notice
and at reasonable times, reasonable access to such
of the offices, properties and employees of the
Acquired Companies, and shall disclose, and make
available to SUG and its Representatives all books,
papers and records to the extent that they relate to
the ownership, operation, obligations and liabili-
ties of or pertaining to the Acquired Companies,
their businesses, assets and liabilities. Without
limiting the application of the Confidentiality
Agreement dated October 4, 1999 between FAL and SUG
(the "Confidentiality Agreement"), all documents or
information furnished by the Acquired Companies
hereunder shall be subject to the Confidentiality
Agreement.
(2) FAL will notify SUG as promptly as practicable of
any significant change in the Ordinary Course of
Business or operation of any of the Acquired Com-
panies and of any material complaints, investiga-
tions or hearings (or communications indicating that
the same may be contemplated) by any Governmental
Body, or the institution or overt threat or settle-
ment of any material Proceeding involving or
affecting any of the Acquired Companies or the
transactions contemplated by this Agreement, and
shall use reasonable efforts to keep SUG fully in-
formed of such events and permit SUG's Representa-
tives access to all materials prepared in connection
therewith, consistent with any applicable Legal
Requirement or Contract.
(3) As promptly as practicable after SUG's request, FAL
will furnish such financial and operating data and
other information pertaining to the Acquired Com-
panies and their businesses and assets as SUG may
reasonably request; provided, however, that nothing
-------- -------
herein will obligate any of the Acquired Companies
to take actions that would unreasonably disrupt its
Ordinary Course of Business or violate the terms of
any Legal Requirement or Contract to which the
Acquired Company is a party or to which any of its
assets is subject in providing such information, or
to incur any costs with respect to SUG's external
auditors (or the Acquired Companies' external
auditors in the event a report by such auditors is
requested by SUG) providing accounting services with
respect to issuing an auditor's report required by
or for SUG.
(d) Governmental Approvals; Third Party Consents. FAL will
--------------------------------------------
use its reasonable best efforts to obtain all necessary
consents, approvals and waivers from any Person required
in connection with the transactions contemplated hereby
under any license, lease, permit or Contract applicable
to the Acquired Companies, including, without limitation,
the approvals of those Governmental Bodies and the con-
sents of those third parties listed in Section 5.4 and
Section 5.5 of the FAL Disclosure Schedule and as
required by the HSR Act.
(e) Dividends. FAL shall not, nor shall it permit any of its
---------
Subsidiaries to: (i) declare or pay any dividends on or
make other distributions in respect of any of its or
their capital stock other than (A) dividends by a wholly-
owned Subsidiary to FAL or another wholly-owned Sub-
sidiary, or (B) regular quarterly dividends on FAL Common
Stock with usual record and payment dates that do not
exceed the current rate of $0.96 per fiscal year; (ii)
split, combine or reclassify any of its capital stock or
the capital stock of any Subsidiary or issue or authorize
or propose the issuance of any other securities in
respect of, or in substitution for, shares of its capital
stock or the capital stock of any Subsidiary; or (iii)
redeem, repurchase or otherwise acquire any shares of its
capital stock or the capital stock of any Subsidiary
other than redemptions, repurchases and other acquisi-
tions of shares of capital stock in connection with the
administration of employee benefit and dividend reinvest-
ment and customer stock purchase plans as in effect on
the date hereof in the ordinary course of the operation
of such plans consistent with past practice.
(f) Issuance of Securities. FAL shall not, nor shall it
----------------------
permit any of its Subsidiaries to, issue, agree to issue,
deliver, sell, award, pledge, dispose of or otherwise
encumber or authorize or propose the issuance, delivery,
sale, award, pledge, disposal or other encumbrance of,
any shares of its or their capital stock of any class or
any securities convertible into or exchangeable for, or
any rights, warrants or options to acquire, any such
shares or convertible or exchangeable securities, other
than as provided for in the FAL Benefit Plans, and its
dividend reinvestment plan in effect as of the date
hereof.
(g) Accounting. FAL shall not, nor shall it permit any of
----------
its Subsidiaries to, make any changes in their accounting
methods, principles or practices except as required by
law, rule, regulation or GAAP.
(h) No Shopping.
-----------
(1) FAL shall not, and shall not authorize or permit any
of its (or any of its Subsidiaries') officers,
directors, agents, financial advisors, attorneys,
accountants or other Representatives to, directly or
indirectly, solicit, initiate or encourage submis-
sion of proposals or offers from any Person relating
to, or that could reasonably be expected to lead to,
a Business Combination or participate in any nego-
tiations or discussions regarding, or furnish to any
other Person any information with respect to, or
otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort
or attempt by any other Person to do or seek a Busi-
ness Combination; provided, however, that, prior to
-------- -------
the FAL Stockholders' Approval, FAL may, in response
to an unsolicited written proposal from a third
party with respect to a Business Combination that
FAL's Board of Directors determines, in its good
faith judgment, after consultation with and the
receipt of the advice of its financial advisor and
outside counsel with customary qualifications, is a
Superior Proposal, (i) furnish information to, and
negotiate, explore or otherwise engage in substan-
tive discussions with such third party, only if
FAL's Board of Directors determines, in its good
faith judgment after consultation with its financial
advisors and outside legal counsel, that it is rea-
sonably necessary in order to comply with its
fiduciary duties under applicable law and (ii) take
and disclose to FAL's stockholders a position with
respect to another Business Combination proposal, or
amend or withdraw such position, pursuant to Rule
14d-9 and 14e-2 under the Exchange Act, or make such
disclosure to FAL's stockholders which in the good
faith judgment of FAL's Board of Directors is
required by applicable law, based on the advice of
its outside counsel. Prior to furnishing any non-
public information to, entering into negotiations
with or accepting a Superior Proposal from such
third party, FAL will (i) provide written notice to
SUG to the effect that it is furnishing information
to or entering into discussions or negotiations with
such third party and (ii) receive from such third
party an executed confidentiality agreement con-
taining substantially the same terms and conditions
as the Confidentiality Agreement. FAL will immedi-
ately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity,
discussion or negotiations with any parties con-
ducted heretofore by FAL or any of its representa-
tives with respect to any Business Combination.
(2) Except as expressly permitted by this Section
6.1(h), neither the FAL Board of Directors nor any
committee thereof may, (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner
adverse to SUG, the approval or recommendation by
such Board of Directors or such committee of the
Merger or this Agreement, (ii) approve or recommend,
or propose publicly to approve or recommend, a Busi-
ness Combination or (iii) cause FAL to enter into
any letter of intent, agreement in principle, acqui-
sition agreement or other similar agreement related
to any Business Combination. Notwithstanding the
foregoing, prior to the time at which the FAL Stock-
holders' Approval has been obtained, in response to
an unsolicited Business Combination proposal from a
third party, if FAL's Board of Directors determines,
in its good faith judgment, after consultation with
and the receipt of the advice of its financial ad-
visor and outside counsel with customary qualifica-
tions, that such proposal is a Superior Proposal and
that failure to do any of the actions set forth in
clauses (i), (ii) or (iii) above would create a
reasonable possibility of a breach of the fiduciary
duties of FAL's Board of Directors under applicable
law, FAL's Board of Directors may (i) withdraw or
modify its approval or recommendation of the Merger
or this Agreement, approve or recommend a Business
Combination or cause FAL to enter into a Business
Combination and (ii) negotiate with a third party
with respect to such Business Combination proposal
and, subject to FAL having paid to SUG the fees
described in Section 8.3(a) hereof and having
entered into a definitive agreement with respect to
such Business Combination proposal, terminate this
Agreement; provided, however, that prior to entering
-------- -------
into a definitive agreement with respect to a Busi-
ness Combination proposal, FAL shall give SUG at
least five (5) day's notice thereof, and shall cause
its Representatives to, negotiate with SUG to make
such adjustments in the terms and conditions of this
Agreement as would enable FAL to proceed with the
transactions contemplated herein on such adjusted
terms; provided, further, that if FAL and SUG are
-------- -------
unable to reach an agreement on such adjustments
within five (5) days after such notice from FAL, FAL
may enter into such definitive agreement, subject to
the provisions of Article VIII.
(3) FAL shall notify SUG orally and in writing of any
such inquiries, offers or proposals (including,
without limitation, the material terms and condi-
tions of any such offer or proposal and the identity
of the Person making it), within one business day of
the receipt thereof, shall use all reasonable
efforts to keep SUG informed of the status and
details of any such inquiry, offer or proposal and
shall give SUG two (2) days advance notice of the
first delivery of non-public information to such
Person. If any such inquiry, offer or proposal is
in writing, FAL shall promptly deliver to SUG a copy
of such inquiry, offer or proposal.
(4) For purposes of this Agreement, (i) "Business Combi-
nation" means (other than the transactions contem-
plated or permitted by this Agreement) (A) a merger,
consolidation or other business combination, share
exchange, sale of shares of capital stock, tender
offer or exchange offer or similar transaction
involving FAL or any of its Subsidiaries, (B) acqui-
Sition in any manner, directly or indirectly, of a
material interest in any capital stock of, or a
material equity interest in a substantial portion of
the assets of, FAL or any of its Subsidiaries,
including any single or multi-step transaction or
series of related transactions that is structured to
permit a third party to acquire beneficial ownership
of a majority or greater equity interest in FAL or
any of its Subsidiaries, or (C) the acquisition in
any manner, directly or indirectly, of any material
portion of the business or assets (other than
immaterial or insubstantial assets or inventory in
the Ordinary Course of Business) of FAL or any of
its Subsidiaries and (ii) "Superior Proposal" means
a proposed Business Combination involving at least
50% of the shares of capital stock or a material
portion of the assets of FAL that FAL's Board of
Directors determines, after consulting with FAL's
financial advisors and outside counsel, is finan-
cially superior to the transactions contemplated
hereby and it appears that the party making the
proposal is reasonably likely to have the funds
necessary to consummate the Business Combination.
(i) Solicitation of Proxies; FAL Proxy Statement. Subject to
--------------------------------------------
Section 6.1(h), FAL shall use its reasonable best efforts
to solicit from its stockholders proxies in favor of the
Merger and shall take all other action necessary or, in
the reasonable opinion of SUG, advisable to secure the
FAL Stockholders' Approval.
(j) FAL Stockholders' Approval.
--------------------------
(1) Subject to the provisions of Section 6.1(h) and
Section 6.1(j)(2), FAL shall, as soon as reasonably
practicable after the date hereof (i) take all steps
necessary to duly call, give notice of, convene and
hold a meeting of its stockholders (including all
adjournments thereof, the "FAL Meeting") for the
purpose of securing the FAL Stockholders' Approval,
(ii) distribute to its stockholders the FAL Proxy
Statement in accordance with applicable federal and
state law and with its Organizational Documents,
(iii) subject to the fiduciary duties of its Board
of Directors, recommend to its stockholders the
approval and adoption of this Agreement and the
transactions contemplated hereby and (iv) cooperate
and consult with SUG with respect to each of the
foregoing matters.
(2) The FAL Meeting for the purpose of securing the FAL
Stockholders' Approval, including any adjournments
thereof, will be held on such date or dates as FAL
and SUG mutually determine.
(k) Rule 145 Letters. FAL shall promptly identify to SUG all
----------------
officers and directors of any Acquired Company and any
other persons who are "affiliates" within the meaning of
such term as used in Rule 145 under the Securities Act
("Rule 145 Affiliates"), and FAL shall use its reasonable
efforts to provide to SUG undertakings from such persons
("Rule 145 Letters") to the effect that no disposition of
shares of SUG Common Stock received in the Merger will be
made by such persons except within the limits and in
accordance with the applicable provisions of said Rule
145, as amended from time to time, or except in a trans-
action which, in the opinion of legal counsel satisfac-
tory to SUG, is exempt from registration under the
Securities Act.
(l) Financing Activities. FAL shall, and shall cause its
--------------------
Subsidiaries to, cooperate, to the fullest extent commer-
cially reasonable and practicable, with SUG's requests
with respect to refinancing by the Acquired Companies of
the current maturities of any of their indebtedness, and
any repurchase, redemption or prepayment by any of the
Acquired Companies of any of its indebtedness that may be
required prior to or because of the Merger or that SUG
may request that the Acquired Companies effect prior to
the Merger, so as to permit SUG to have the maximum op-
portunity to refinance, on or promptly after the Closing
Date without any penalty except as may be due pursuant to
the terms of the Acquired Companies' indebtedness as in
effect on the date of this Agreement, any of the Acquired
Companies' indebtedness outstanding on the Closing Date;
provided, however, that no Acquired Company shall be
-------- -------
required to consummate prior to the Effective Time any
such refinancing, repurchase, redemption or repayment
requested by SUG.
(m) FAL Disclosure Schedule. On the date hereof, FAL has
-----------------------
delivered to SUG the FAL Disclosure Schedule, accompanied
by a certificate signed by an executive officer of FAL
stating the FAL Disclosure Schedule is being delivered
pursuant to this Section 6.1(m). The FAL Disclosure
Schedule constitutes an integral part of this Agreement
and modifies the representations, warranties, covenants
or agreements of FAL contained herein to the extent that
such representations, warranties, covenants or agreements
expressly refer to the FAL Disclosure Schedule.
(n) FAL Bondholders' Consent. FAL shall use its reasonable
------------------------
best efforts to obtain consents from all holders of each
series of First Mortgage Bonds issued and outstanding
under the Indenture of First Mortgage, dated as of
December 1, 1952, between FAL and State Street Bank and
Trust Company, successor in interest to the First
National Bank of Boston, successor by merger to Old
Colony Trust Company, as Trustee, as amended or supple-
mented from time to time, to such amendments to such
Indenture as requested by SUG.
Section 6.2 Covenants of SUG. SUG agrees to observe and perform
- -----------------------------
the following covenants and agreements:
(a) Governmental Approvals; Third Party Consents. SUG will
--------------------------------------------
use its reasonable best efforts at SUG's sole expense to
obtain all necessary consents, approvals and waivers from
any Person required in connection with the transactions
contemplated hereby under any license, lease, permit,
Contract or agreement applicable to SUG, including, with-
out limitation, the approvals of those Governmental
Bodies and the consents of those third parties listed in
Section 4.5 of the SUG Disclosure Schedule and as
required by the HSR Act.
(b) Employees; Benefits. With respect to the employees
-------------------
(excluding unionized employees) listed in Section 5.17(a)
of the FAL Disclosure Schedule (or their successors
employed pursuant to Section 6.1(a)(7) above) (the
"Employees"), except as otherwise specified herein, SUG
agrees as follows:
(1) During the 12 months immediately following the
Closing Date, to make available to the Employees who
continue their service with the Surviving Corpora-
tion or any Subsidiary of the Surviving Corporation
employee benefit plans or arrangements that are no
less favorable, in the aggregate, than the FAL Bene-
fit Plans listed in Section 5.18(j) of the FAL Dis-
closure Schedule offered to the Employees
immediately prior to the date of this Agreement.
(2) For purposes of eligibility, vesting and benefit
accrual under all benefit plans provided to the
Employees after the Closing Date, SUG will recognize
the tenure of employment, as recognized by the
Acquired Companies as of the Closing Date.
(3) All vacation time earned by the Employees prior to
the Closing Date must be taken by the end of the
calendar year in which the Closing Date occurs,
except where the Employee is requested by FAL or SUG
to forego their vacation for business-related rea-
sons. For purposes of awarding vacation time at the
beginning of each calendar year following the
Closing Date, SUG will recognize the tenure of
employment, as recognized by the Acquired Company as
of the Closing Date.
(c) Blue Sky Permits. SUG shall use its reasonable best
----------------
efforts to obtain, prior to the effective date of the
Registration Statement, all necessary state securities
laws or "blue sky" permits and approvals required to
carry out the transactions contemplated by the Agreement,
and will pay all expenses incident thereto.
(d) Listing Application. Prior to the Closing, SUG shall
-------------------
cause the shares of SUG Common Stock constituting the
Stock Consideration to be listed on the NYSE, subject to
official notice of issuance thereof.
(e) Collective Bargaining Agreements. At the Effective Time,
--------------------------------
SUG agrees to assume all collective bargaining agreements
covering employees of any Acquired Company, and shall
discharge when due any and all liabilities of any
Acquired Company under such collective bargaining agree-
ments relating to periods after the Effective Time.
(f) SUG Disclosure Schedule. On the date hereof, SUG has
-----------------------
delivered to FAL the SUG Disclosure Schedule, accompanied
by a certificate signed by an executive officer of SUG
stating that the SUG Disclosure Schedule is being de-
livered pursuant to this Section 6.2(f). The SUG Disclo-
sure Schedule constitutes an integral part of this
Agreement and modifies the representations, warranties,
covenants or agreements of SUG contained herein to the
extent that such representations, warranties, covenants
or agreements expressly refer to the SUG Disclosure
Schedule.
(g) Conduct of the Business Prior to the Closing Date.
-------------------------------------------------
Except (i) as contemplated in this Agreement, (ii) in
connection with the transactions contemplated by the PEI
Merger Agreement, (iii) as required by law or regulation
or (iv) as otherwise expressly consented to in writing by
FAL which consent will not be unreasonably withheld or
delayed, prior to the Closing, SUG will:
(1) Not make or permit any material change in the
general nature of its business;
(2) Maintain its present operations in the Ordinary
Course of Business in accordance with prudent
business judgment and consistent with past practice
and policy, and maintain its assets in good repair,
order and condition, reasonable wear and tear
excepted, subject to retirements in the Ordinary
Course of Business;
(3) Preserve SUG as an ongoing business and use reason-
able efforts to maintain the goodwill associated
with SUG; and
(4) Preserve all of SUG's franchises, tariffs, certifi-
cates of public convenience and necessity, licenses,
authorizations and other governmental rights and
permits.
(h) Access to SUG's Offices, Properties and Records; Updating
---------------------------------------------------------
Information.
-----------
(1) From and after the date hereof and until the Closing
Date, SUG and its Subsidiaries shall permit FAL and
its Representatives to have, on reasonable notice
and at reasonable times, reasonable access to such
of the offices, properties and employees of SUG and
its Subsidiaries, and shall disclose, and make
available to FAL and its Representatives all books,
papers and records to the extent that they relate to
the ownership, operation, obligations and liabili-
ties of or pertaining to SUG, its Subsidiaries and
their respective businesses and assets. Without
limiting the application of the Confidentiality
Agreement, all documents or information furnished by
SUG and its Subsidiaries hereunder shall be subject
to the Confidentiality Agreement.
(2) SUG will notify FAL as promptly as practicable of
any significant change in the Ordinary Course of
Business or operation of SUG or any of its Subsidi-
aries and of any material complaints, investigations
or hearings (or communications indicating that the
same may be contemplated) by any Governmental Body,
or the institution or overt threat or settlement of
any material Proceeding involving or affecting SUG
or any of its Subsidiaries or the transactions con-
templated by this Agreement, and shall use reason-
able efforts to keep FAL fully informed of such
events and permit FAL's Representatives access to
all materials prepared in connection therewith
consistent with any applicable Legal Requirement or
Contract.
Section 6.3 Additional Agreements.
- ----------------------------------
(a) The Registration Statement and the FAL Proxy Statement.
------------------------------------------------------
As soon as practicable after the date hereof, FAL and SUG
shall take such reasonable steps as are necessary for the
prompt preparation and filing with the SEC of (i) the FAL
Proxy Statement by FAL and (ii) the Registration State-
ment, which will include certain information contained in
the FAL Proxy Statement, by SUG. The foregoing shall
include without limitation: (i) obtaining and furnishing
the information required to be included therein, (ii)
after consultation between FAL and SUG, responding
promptly to any comments made by the SEC with respect to
the FAL Proxy Statement and the Registration Statement
and any amendments and preliminary version thereof and
(iii) causing the Registration Statement to become effec-
tive, and the FAL Proxy Statement to be mailed to FAL's
stockholders at the earliest practicable date. FAL
agrees, as to information with respect to FAL, its offi-
cers, directors, stockholders and Subsidiaries contained
in the Registration Statement and the FAL Proxy State-
ment, and SUG agrees, as to information with respect to
SUG, its officers, directors, stockholders and Subsidi-
aries contained in the Registration Statement and the FAL
Proxy Statement, that such information, in the case of
the FAL Proxy Statement at the time of the mailing of the
FAL Proxy Statement and (as then amended or supplemented)
at the time of the FAL Meeting, or in the case of the
Registration Statement at the time of the mailing of the
FAL Proxy Statement (as then amended or supplemented), at
the time of the FAL Meeting and at the effective time of
the Registration Statement, will not contain any untrue
statement of 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. No representation, warranty, covenant or
agreement is made by or on behalf of FAL with respect to
information supplied by any other Person for inclusion in
the FAL Proxy Statement or the Registration Statement.
No representation, warranty, covenant or agreement is
made by or on behalf of SUG with respect to information
supplied by any other Person for inclusion in the FAL
Proxy Statement or the Registration Statement. No filing
of, or amendment or supplement to, the FAL Proxy State-
ment or the Registration Statement shall be made by any
party hereto without providing the other party with the
opportunity to review and comment thereon (except for any
ongoing SEC reporting required of SUG or FAL that will be
incorporated by reference). If at any time prior to the
Effective Time any information relating to any party
hereto or any of their respective officers, directors,
stockholders or Subsidiaries, should be discovered by any
party hereto which should be set forth in an amendment or
supplement to the FAL Proxy Statement or the Registration
Statement so that the FAL Proxy Statement or the Regis-
tration Statement would not include any untrue statement
of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading,
the party which discovers such information shall promptly
notify the other party hereto and an appropriate amend-
ment or supplement describing such information shall be
promptly prepared, filed with the SEC and, to the extent
required by law, disseminated to the stockholders of FAL,
as may be necessary.
(b) Further Assurances. Each of SUG and FAL agrees, and FAL
------------------
agrees to cause its Subsidiaries, to take all such rea-
sonable and lawful action as may be necessary or appro-
priate in order to effectuate the Merger in accordance
with this Agreement as promptly as possible. If, at any
time after the Effective Time, any such further action is
necessary or desirable to carry out the purpose of this
Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Acquired
Companies, the officers and directors of the Surviving
Corporation will be fully authorized to take, and will
take, all such lawful and necessary action.
(c) Financial Statements to be Provided. Upon SUG's request,
-----------------------------------
FAL shall (i) provide to SUG audited and unaudited finan-
cial statements required to be included in the proxy
statements and the registration statement contemplated by
the PEI Merger Agreement and (ii) cause its independent
accountants to deliver to SUG and PEI the required con-
sents in connection therewith.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to SUG's Obligation to Effect the Merger.
- ----------------------------------------------------------------
The obligation of SUG to effect the transactions contemplated by
this Agreement shall be subject to fulfillment at or prior to the
Closing of the following conditions:
(a) Representations and Warranties True as of the Closing
-----------------------------------------------------
Date. FAL's representations and warranties in this
----
Agreement shall have been accurate in all material
respects as of the date of this Agreement and shall be
accurate in all material respects as of the Closing Date
as if made on the Closing Date; provided, however, that
-------- -------
any such representation or warranty that is qualified by
any standard of materiality (including, but not limited
to, FAL Material Adverse Effect) shall have then been,
and shall then be, accurate in all respects.
(b) Compliance with Agreements. The covenants, agreements
--------------------------
and conditions required by this Agreement to be performed
and complied with by any of the Acquired Companies shall
have been performed and complied with in all material
respects prior to or at the Closing Date.
(c) Certificate. FAL shall execute and deliver to SUG a
-----------
certificate of an authorized officer of FAL, dated the
Closing Date, stating that the conditions specified in
Sections 7.1(a) and 7.1(b) of this Agreement applicable
to the Acquired Companies have been satisfied.
(d) Governmental Approvals. All approvals, consents,
----------------------
opinions or rulings of all Governmental Bodies required
in order to consummate the transactions contemplated
hereby shall have been obtained by Final Order in such
form as is, and with no conditions that are, individually
or in the aggregate, reasonably likely to have a FAL
Material Adverse Effect or a material adverse effect on
the business, operations, properties, financial condition
or results of operations of the Surviving Corporation, or
which would otherwise, in the reasonable determination of
SUG, be unduly burdensome to the Surviving Corporation or
any of its Affiliates. In addition, and without limita-
tion of the condition set forth in the immediately
preceding sentence, the Massachusetts Department of
Telecommunications and Energy shall have resolved, by
means of a Final Order, the manner in which the Surviving
Corporation as a whole and its operating division in
Massachusetts will be regulated under Chapter 164 of the
Massachusetts General Laws, and such resolution shall be
acceptable to SUG in its sole discretion. The applicable
waiting period under the HSR Act with respect to the
transactions contemplated hereby shall have expired or
have been terminated.
(e) Third Party Consents. Each of the consents required
--------------------
under Section 5.4 of this Agreement shall have been ob-
tained to the reasonable satisfaction of SUG, other than
any such consents which, if not obtained, are not, indi-
vidually or in the aggregate, reasonably likely to result
in a FAL Material Adverse Effect after the Closing. In
addition, all consents and approvals required, under the
terms of any note, bond or indenture listed in Section
5.4 of the FAL Disclosure Schedule to which any of the
Acquired Companies is a party, shall have been obtained.
(f) Injunctions. On the Closing Date, there shall be no
-----------
Orders which operate to restrain, enjoin or otherwise
prevent the consummation of this Agreement or the Merger.
(g) Resignations. Each director of each Acquired Company
------------
shall resign any position as a director of an Acquired
Company effective as of the Closing Date in accordance
with such Acquired Company's Organizational Documents and
applicable provisions of the MBCL; provided, however,
-------- -------
that such resignations shall not cause the termination of
any such Person's employment as an employee of an
Acquired Company or reduce any such employee's then cur-
rent level of compensation.
(h) Opinion of Tax Counsel. On the Closing Date, SUG shall
----------------------
have received from Hughes Hubbard & Reed LLP, counsel to
SUG, an opinion to the effect that the Merger will con-
stitute a "reorganization" within the meaning of IRC
Section 368(a)(1)(A), and that no gain or loss will be
recognized by SUG or FAL with respect to the Merger.
(i) FAL Stockholders' Approval. The FAL Stockholders'
--------------------------
Approval shall have been obtained.
(j) Appraisal Rights. Demand for payment for shares and
----------------
appraisal thereof by stockholders of FAL in accordance
with the MBCL with respect to the Merger shall not equal
or exceed 5 percent of the shares of FAL Common Stock
entitled to vote on the Merger.
(k) Rule 145 Letters. Each Rule 145 Affiliate shall have
----------------
executed and delivered to SUG a Rule 145 Letter, in form
and substance reasonably satisfactory to SUG and its
counsel.
(l) Registration Statement. The Registration Statement shall
----------------------
have become effective, no stop order suspending the
effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
(m) Listing of SUG Common Stock. The shares of SUG Common
---------------------------
Stock constituting the Stock Consideration shall have
been authorized for listing, upon official notice of
issuance, on the NYSE.
(n) FAL Bondholders' Consent. All holders of each series of
------------------------
First Mortgage Bonds issued and outstanding under the
Indenture of First Mortgage, dated as of December 1,
1952, between FAL and State Street Bank and Trust Com-
pany, successor in interest to the First National Bank of
Boston, successor by merger to Old Colony Trust Company,
as Trustee, as amended or supplemented from time to time,
shall have consented to such amendments to such Indenture
as requested by SUG.
Section 7.2 Conditions to FAL's Obligations to Effect the
- ----------------------------------------------------------
Merger. The obligation of FAL to effect the transactions contem-
- ------
plated by this Agreement shall be subject to fulfillment at or
prior to the Closing of the following conditions:
(a) Representations and Warranties True as of the Closing
-----------------------------------------------------
Date. SUG's representations and warranties in this
----
Agreement shall have been accurate in all material
respects as of the date of this Agreement and shall be
accurate in all material respects as of the Closing Date
as if made on the Closing Date; provided, however, that
-------- -------
any such representation or warranty that is qualified by
any standard of materiality (including, but not limited
to, SUG Material Adverse Effect) shall have then been,
and shall then be, accurate in all respects.
(b) Compliance with Agreements. The covenants, agreements
--------------------------
and conditions required by this Agreement to be performed
and complied with by SUG shall have been performed and
complied with in all material respects prior to or at the
Closing Date.
(c) Certificate. SUG shall execute and deliver to FAL a
-----------
certificate of an authorized officer of SUG, dated the
Closing Date, stating that the conditions specified in
Sections 7.2(a) and 7.2(b) of this Agreement applicable
to SUG have been satisfied.
(d) Governmental Approvals. All approvals, consents,
----------------------
opinions or rulings of all Governmental Bodies required
in order to consummate the transactions contemplated
hereby shall have been obtained by Final Order in such
form as is, and with no conditions that are, individually
or in the aggregate, reasonably likely to have a material
adverse effect on the business, operations, properties,
financial condition or results of operations of the Sur-
viving Corporation. The applicable waiting period under
the HSR Act with respect to the transactions contemplated
hereby shall have expired or have been terminated.
(e) Injunctions. On the Closing Date, there shall be no
-----------
Orders which operate to restrain, enjoin or otherwise
prevent the consummation of this Agreement or the Merger.
(f) Opinion of Counsel. On the Closing Date, FAL shall have
------------------
received from Rich, May, Bilodeau & Flaherty, P.C.,
counsel to FAL, an opinion to the effect that the Merger
will be treated for federal income tax purposes as a
"reorganization" within the meaning of IRC Section
368(a), and that no gain or loss will be recognized for
federal income tax purposes by the stockholders of FAL
who receive SUG Common Stock in the Merger upon their
receipt of the Merger Consideration, except that any
realized gain will be recognized to the extent of the
amount of cash received (including cash in lieu of the
fractional shares).
(g) FAL Stockholders' Approval. The FAL Stockholders'
--------------------------
Approval shall have been obtained.
(h) Registration Statement. The Registration Statement shall
----------------------
have become effective, no stop order suspending the
effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
(i) Listing of SUG Common Stock. The shares of SUG Common
---------------------------
Stock constituting the Stock Consideration shall have
been authorized for listing, upon official notice of
issuance, on the NYSE.
ARTICLE VIII
TERMINATION
Section 8.1 Termination Rights. This Agreement may be termi-
- -------------------------------
nated in its entirety at any time prior to the Closing:
(a) By the mutual written consent of SUG and FAL;
(b) By FAL, on the one hand, or SUG, on the other hand, in
writing if there shall be in effect a non-appealable
order of a court of competent jurisdiction prohibiting
the consummation of the Merger in accordance with this
Agreement;
(c) By FAL, by written notice to SUG, if there is a breach of
any representation, warranty, covenant or agreement of
SUG, which breach cannot be cured and would cause the
conditions set forth in Section 7.2(a) or (b) to be
incapable of being satisfied;
(d) By SUG, by written notice to FAL, if there is a breach of
any representation, warranty, covenant or agreement of
FAL, which breach cannot be cured and would cause the
conditions set forth in Section 7.1(a) or (b) to be
incapable of being satisfied;
(e) By FAL, by written notice to SUG in accordance with
Section 6.1(h)(2); provided, however, that the termina-
-------- -------
tion described in this clause (e) shall not be effective
unless and until FAL shall have paid SUG the fee
described in Section 8.3(a) and FAL has substantially
contemporaneously entered into a definitive agreement
with respect to the proposed Business Combination;
(f) By FAL, by written notice to SUG, if the FAL Stock-
holders' Approval is not obtained at the FAL Meeting or
by SUG, by written notice to FAL, if the FAL Stock-
holders' Approval is not obtained at the FAL Meeting;
provided, however, that there has not been a material
-------- -------
misrepresentation or a material breach of covenant,
warranty or agreement contained herein on the part of the
party asserting its right to terminate pursuant to this
Section 8.1(f);
(g) By SUG, by written notice to FAL, if the Board of Direc-
tors of FAL or any committee thereof (i) withdraws or
modifies, or proposes publicly to withdraw or modify, in
a manner adverse to SUG, the approval or recommendation
by the Board of Directors or such committee of the Merger
or this Agreement, (ii) approves or recommends, or
proposes publicly to approve or recommend, a Business
Combination, (iii) causes FAL to enter into a definitive
agreement related to any Business Combination or (iv)
resolves to take any of the actions specified in clause
(i), (ii) and (iii) above;
(h) By SUG, by written notice to FAL, if a third party,
including a group (as defined under the Exchange Act)
acquires securities representing greater than 50% of the
voting power of the outstanding voting securities of FAL;
or
(i) By FAL, by written notice to SUG, if the Average Trading
Price of the SUG Common Stock as of the Closing is lower
than $15.00.
(j) By either party in writing at any time after 5:00 p.m.,
Eastern Time, on October 15, 2000 (the "Initial Termina-
tion Date"), if the Closing has not occurred prior there-
to; provided, however, that the right to terminate this
-------- -------
Agreement under this Section 8.1(j) will not be available
to any party that is in material breach of its represen-
tations, warranties, covenants or agreements contained
herein; and provided, further, that if on the Initial
-------- -------
Termination Date (i) the conditions to closing set forth
in Sections 7.1(d) and 7.2(d) shall not have been ful-
filled or (ii) any approval or authorization of any
Governmental Body required in connection with the consum-
mation of the Merger shall have not been obtained and
such approval or authorizations shall not have become a
Final Order, but all other conditions to Closing shall be
fulfilled or shall be capable of being fulfilled, then
the Initial Termination Date will be extended to
February 28, 2001.
Section 8.2 Effect of Termination. If this Agreement is termi-
- ----------------------------------
nated pursuant to Section 8.1, this Agreement shall be of no
further force and effect and there shall be no further liability
hereunder on the part of any party or its Affiliates, directors,
officers, stockholders, agents or other Representatives;
provided, however, that (i) any fee payable under Section 8.3(a)
- -------- -------
is paid to SUG and (ii) no such termination shall relieve any
party of liability for any claims, damages or losses suffered by
the other party as a result of the negligent or willful failure
of a party to perform any obligations required to be performed by
it hereunder on or prior to the date of termination.
Notwithstanding anything to the contrary contained herein, the
provisions of Section 8.2, Sections 10.1 through 10.6 and
Sections 10.8 through 10.11 of this Agreement shall survive any
termination of this Agreement.
Section 8.3 Termination Fee; Expenses.
- --------------------------------------
(a) Termination Fee. If this Agreement is terminated pursu-
---------------
ant to Section 8.1(e), 8.1(g) or 8.1(h), then FAL shall
pay to SUG promptly (but not later than five business
days after notice is received from FAL) an amount equal
to $1.5 million in cash.
(b) Expenses. The parties agree that the agreements con-
--------
tained in this Section 8.3 are an integral part of the
transactions contemplated by this Agreement and consti-
tute liquidated damages and not a penalty. Notwith-
standing anything to the contrary contained in this
Section 8.3, if FAL fails to pay promptly to SUG the fee
due under Section 8.3(a), in addition to any amounts paid
or payable pursuant to Section 8.3(a), FAL shall pay the
costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any
lawsuit or other legal action, taken to collect payment,
together with interest on the amount of any unpaid fee
calculated using an annual percentage rate of interest
equal to the prime rate published in the Wall Street
Journal on the date (or preceding business day if such
date is not a business day) such fee was required to be
paid, compounded on a daily basis using a 360-day year.
ARTICLE IX
INDEMNIFICATION; REMEDIES
Section 9.1 Directors' and Officers' Indemnification.
- -----------------------------------------------------
(a) Indemnification and Insurance. For a period of six years
-----------------------------
after the Effective Time, the Surviving Corporation will
indemnify and hold harmless the present and former
officers and directors of FAL and its Subsidiaries (the
"Indemnified Parties") in respect of acts or omissions
occurring prior to the Effective Time to the extent
provided under FAL's articles of organization and bylaws
in effect on the date hereof; provided, however, that if
-------- -------
any claim or claims are asserted or made within such six-
year period, all rights to indemnification in respect of
such claims shall continue until the final disposition of
any and all such claims. For six years after the Effec-
tive Time, the Surviving Corporation will use its reason-
able best efforts to provide officers' and directors'
liability insurance in respect of acts or omissions
occurring prior to the Effective Time covering each such
person currently covered by FAL's officers' and direc-
tors' liability insurance policy on terms with respect to
coverage and amount no less favorable than those of such
policy in effect on the date hereof; provided, however,
-------- -------
that in satisfying its obligation under this Section, if
the annual premiums of such insurance coverage exceed
200% of the previous year's premiums, the Surviving
Corporation will be obligated to obtain a policy with the
best coverage available, in the reasonable judgment of
the Board of Directors of the Surviving Corporation for a
cost not exceeding such amount.
(b) Successors. In the event the Surviving Corporation or
----------
any of its successors or assigns (i) consolidates with or
merges into any other Person and is not 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 provisions must be made so that the
successors and assigns of the Surviving Corporation will
assume the obligations set forth in this Section 9.1.
(c) Survival of Indemnification. To the fullest extent per-
---------------------------
mitted by law, from and after the Effective Time, all
rights to indemnification as of the date hereof in favor
of the employees, agents, directors and officers of any
Acquired Company with respect to their activities as such
prior to the Effective Time, as provided in their respec-
tive Organizational Documents in effect on the date here-
of, or otherwise in effect on the date hereof, will
survive the Merger and will continue in full force and
effect except for amendments to make changes permitted by
law that would enhance the rights of past or present
officers and directors to indemnification or advancement
of expenses in respect of acts or omissions occurring
prior to the Effective Time for a period of not less than
six years from the Effective Time (or, in the case of
matters occurring prior to the Effective Time which have
not been resolved prior to the sixth anniversary of the
Effective Time, until such matters are finally resolved).
Section 9.2 Representations and Warranties. Each and every
- -------------------------------------------
representation and warranty of either party shall expire at, and
be terminated and extinguished with, the Effective Time.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Expenses. Each of the parties will pay all costs
- ----------------------
and expenses of its performance of and compliance with this
Agreement, except (i) as provided in Section 8.3 and as expressly
provided otherwise herein, (ii) FAL shall pay all fees and
expenses of counsel for FAL, (iii) SUG will pay all real estate
transfer taxes and real estate recording fees, if any, including
expenses of counsel associated with real estate title, transfer
and recording issues in connection with the Merger, and all
filing and application fees paid to Governmental Bodies in con-
nection with the Merger and (iv) SUG and FAL will each pay half
of the combined costs of printing and mailing to the FAL stock-
holders the prospectus that is a part of the Registration State-
ment and the FAL Proxy Statement.
Section 10.2 Notices. All notices, requests and other communi-
- ---------------------
cations hereunder shall be in writing and shall be deemed to have
been given upon receipt if either (a) personally delivered, (b)
sent by prepaid first class mail, and registered or certified and
a return receipt requested or (c) by facsimile telecopier with
completed transmission acknowledged:
if to SUG, to:
Southern Union Company
504 Lavaca Street, Suite 800
Austin, Texas 78701
Attention: Peter H. Kelley
President and Chief Operating Officer
Telecopier: (512) 477-3879
with a copy to:
Pennsylvania Enterprises, Inc.
One PEI Center
Wilkes-Barre, Pennsylvania 18711-0601
Attention: Thomas F. Karam
President and Chief Executive Officer
Telecopier: (570) 829-8900
and
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
Attention: Garett J. Albert
Telecopier: (212) 422-4726
if to FAL, to:
Fall River Gas Company
155 North Main Street
Fall River, Massachusetts 02722
Attention: Bradford J. Faxon
President and Chief Executive Officer
Telecopier: (508) 675-7811
with a copy to:
Rich, May, Bilodeau & Flaherty, P.C.
176 Federal Street
Boston, Massachusetts 02110
Attention: Eric J. Krathwohl
Telecopier: (617) 556-3889
or at such other address or number as shall be given in writing
by a party to the other parties.
Section 10.3 Assignment. This Agreement may not be assigned by
- ------------------------
any party hereto without the prior written consent of the other
parties hereto. Any assignment in violation of the terms of this
Agreement shall be null and void ab initio.
Section 10.4 Successor Bound. Subject to the provisions of
- -----------------------------
Section 10.3, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and permitted assigns.
Section 10.5 Governing Law; Forum; Consent to Jurisdiction.
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This Agreement shall be construed in accordance with and governed
by the laws of the State of New York except to the extent that
the terms and consummation of the Merger are subject to the DGCL
or the MBCL in which case such laws shall govern. Each party to
this Agreement hereby irrevocably and unconditionally (i) con-
sents to submit to the exclusive jurisdiction of the federal
courts of the Southern District of New York in the county of New
York and the borough of Manhattan and the jurisdiction of the
federal courts of the District of Massachusetts in the county of
Suffolk and the city of Boston for any proceeding arising in
connection with this Agreement (and each such party agrees not to
commence any such proceeding, except in such courts), (ii) to the
extent such party is not a resident of the State of New York or
the Commonwealth of Massachusetts, agrees to appoint agents in
the State of New York and the Commonwealth of Massachusetts as
such party's agents for acceptance of legal process in any such
proceeding against such party with the same legal force and
validity as if served upon such party personally within the State
of New York or the Commonwealth of Massachusetts, respectively,
and to notify promptly each other party hereto of the name and
address of each such agent, (iii) waives any objection to the
laying of venue of any such proceeding in the federal courts of
the Southern District of New York in the county of New York and
the borough of Manhattan or the federal courts of the District of
Massachusetts in the county of Suffolk and the city of Boston,
and (iv) waives, and agrees not to plead or to make, any claim
that any such proceeding brought in any federal court of the
Southern District of New York or the District of Massachusetts
has been brought in an improper or otherwise inconvenient forum.
Section 10.6 Waiver of Trial By Jury. EACH PARTY TO THIS AGREE-
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MENT HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH ANY SUCH PARTY MAY BE A PARTY ARISING OUT OF OR IN ANY WAY
PERTAINING TO (i) THIS AGREEMENT, (ii) THE MERGER, (iii) THE CON-
FIDENTIALITY AGREEMENT OR (iv) ANY RELATED DOCUMENTS. IT IS
AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF
TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES WHO ARE PARTIES
TO THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY EACH PARTY HERETO, AND EACH SUCH PARTY HEREBY
REPRESENTS AND WARRANTS THAT NO REPRESENTATIONS OF FACT OR
OPINION HAVE BEEN MADE BY ANY PERSON TO INDUCE THIS WAIVER OR
TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.
EACH PARTY TO THIS AGREEMENT FURTHER REPRESENTS AND WARRANTS THAT
EACH SUCH PARTY HAS BEEN REPRESENTED IN THE SIGNING OF THIS
AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, SELECTED OF EACH SUCH PARTY'S OWN FREE WILL, AND THAT
EACH SUCH PARTY HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER
WITH COUNSEL.
Section 10.7 Cooperation; Further Documents.
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(a) Each of the parties hereto agrees to use its reasonable
best efforts to take or cause to be taken all action, and
to do or cause to be done all things necessary, proper or
advisable under applicable laws, regulations or other-
wise, to consummate and to make effective the transac-
tions contemplated by this Agreement, including, without
limitation, the timely performance of all actions and
things contemplated by this Agreement to be taken or done
by each of the parties hereto.
(b) Each party shall cooperate with the other party in such
other party's discharge of the obligations hereunder,
which shall include making reasonably available to the
other party such of its personnel as have relevant infor-
mation, with respect thereto.
Section 10.8 Construction of Agreement. The terms and provi-
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sions of this Agreement represent the results of negotiations
between the parties hereto and their Representatives, each of
which has been represented by counsel of its own choosing, and
neither of which has acted under duress or compulsion, whether
legal, economic or otherwise. Accordingly, the terms and provi-
sions of this Agreement shall be interpreted and construed in
accordance with their usual and customary meanings, and FAL and
SUG hereby waive the application in connection with the interpre-
tation and construction of this Agreement of any rule of law to
the effect that ambiguous or conflicting terms or provisions con-
tained in this Agreement shall be interpreted or construed
against the party whose attorney prepared the executed draft or
any earlier draft of this Agreement.
Section 10.9 Publicity; Organizational and Operational
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Announcements. No party hereto shall issue, make or cause the
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publication of any press release or other announcement with
respect to this Agreement or the transactions contemplated here-
by, or otherwise make any disclosures relating thereto, without
the consent of the other party, such consent not to be unreason-
ably withheld or delayed; provided, however, that such consent
-------- -------
shall not be required where such release or announcement is
required by applicable law or the rules or regulations of a
securities exchange, in which event the party so required to
issue such release or announcement shall endeavor, wherever
possible, to furnish an advance copy of the proposed release to
the other party.
Section 10.10 Waiver. Except as otherwise expressly provided in
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this Agreement, neither the failure nor any delay on the part of
any party to exercise any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or
partial exercise or waiver of any such right, power or privilege
preclude any other or further exercise thereof, or the exercise
of any other right, power or privilege available to each party at
law or in equity.
Section 10.11 Parties in Interest. This Agreement (including
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the documents and instruments referred to herein) is not intended
to confer upon any Person, other than the parties hereto and
their successors and permitted assigns, any rights or remedies
hereunder, except that the parties hereto agree and acknowledge
that the agreements and covenants contained in Section 9.1 are
intended for the direct and irrevocable benefit of the Indemni-
fied Parties described therein and their respective heirs or
legal representatives (each such director or Indemnified Party, a
"Third Party Beneficiary"), and that each such Third Party Bene-
ficiary, although not a party to this Agreement, shall be and is
a direct and irrevocable third party beneficiary of such agree-
ments and covenants and shall have the right to enforce such
agreements and covenants against the Surviving Corporation in all
respects fully and to the same extent as if such Third Party
Beneficiary were a party hereto.
Section 10.12 Specific Performance. The parties hereto agree
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that irreparable damage would occur to a party 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 any party shall be entitled to an
injunction or injunctions to prevent breaches of this agreement
by any other party and to enforce specifically, to the fullest
extent available, the terms and provisions hereof, including each
party's obligation to close, in any court of the United States or
any state having jurisdiction, this being in addition to any
other right or remedy to which any party is entitled at law or in
equity.
Section 10.13 Section and Paragraph Headings. The section and
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paragraph headings in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpreta-
tion of this Agreement.
Section 10.14 Amendment. This Agreement may be amended only by
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an instrument in writing executed by the parties hereto.
Section 10.15 Entire Agreement. This Agreement, the exhibits,
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annexes and schedules hereto and the documents specifically
referred to herein and the Confidentiality Agreement constitute
the entire agreement, understanding, representations and war-
ranties of the parties hereto with respect to the subject matter
hereof.
Section 10.16 Counterparts. This Agreement may be executed in
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one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
SOUTHERN UNION COMPANY
By: RONALD J. ENDRES
------------------
Name: Ronald J. Endres
Title: Executive Vice President
FALL RIVER GAS COMPANY
By: BRADFORD J. FAXON
-------------------
Name: Bradford J. Faxon
Title: President and Chief Executive
Officer
By: PETER H. THANAS
-----------------
Name: Peter H. Thanas
Title: Senior Vice President and
Treasurer
[SEAL]