Filed pursuant to Rule 424(b)(5)
Registration No. 333-69702
[LOUIS DREYFUS LOGO]
Dear Shareholders:
On September 9, 2001, Dominion Resources, Inc. agreed to acquire Louis
Dreyfus Natural Gas Corp. by merging Louis Dreyfus into a wholly owned
subsidiary of Dominion. In the merger, each Louis Dreyfus shareholder, other
than those exercising dissenter's rights, will receive $20.00 in cash and
0.3226 shares of Dominion common stock for each share of Louis Dreyfus common
stock that the shareholder owns. The merger agreement requires the approval of
Louis Dreyfus shareholders. We have scheduled a special meeting of our
shareholders on October 30, 2001, to vote on the merger. Regardless of the
number of shares that you own or whether you plan to attend the meeting, it is
important that your shares be represented and voted. Voting instructions are
inside.
THE LOUIS DREYFUS BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER ARE
ADVISABLE AND IN THE BEST INTEREST OF LOUIS DREYFUS AND ITS SHAREHOLDERS.
ACCORDINGLY, THE LOUIS DREYFUS BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO
APPROVE THE MERGER AGREEMENT.
This document provides you with detailed information about the proposed
merger. We encourage you to read the entire document carefully. Louis Dreyfus
common stock is traded on the New York Stock Exchange under the symbol "LD."
Dominion common stock is traded on the New York Stock Exchange under the symbol
"D."
Sincerely,
/s/ Mark E. Monroe
Mark E. Monroe,
President and Chief Executive
Officer
For a discussion of certain risk factors that you should consider in evaluating
the merger, see "Risk Factors" beginning on page 10.
Neither the Securities and Exchange Commission nor any state
securities commission has approved the Dominion common stock to be
issued under this document or determined if this document is accurate
or adequate. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated September 27, 2001, and is
first being mailed to shareholders on or about October 1, 2001.
This document is the proxy statement of Louis Dreyfus Natural Gas Corp. for
its special shareholders' meeting and the prospectus of Dominion Resources,
Inc. for the common stock to be issued in connection with the merger of Louis
Dreyfus with a subsidiary of Dominion. This document gives you detailed
information about the merger. This proxy statement/prospectus incorporates by
reference other documents containing important business and financial
information about Louis Dreyfus and Dominion that are not included in this
proxy statement/prospectus. You may obtain this information without charge from
Dominion or Louis Dreyfus upon written or oral request as described under
"Where You Can Find More Information" on page 91. To obtain timely delivery of
this information, please make your request by October 23, 2001.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 30, 2001
TO THE SHAREHOLDERS OF LOUIS DREYFUS NATURAL GAS CORP.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Louis
Dreyfus Natural Gas Corp., an Oklahoma corporation, will be held on October 30,
2001 at 10:00 a.m., central time, at the Louis Dreyfus principal corporate
office, 14000 Quail Springs Parkway, Suite 600, Oklahoma City, Oklahoma, for
the following purpose:
To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of September 9, 2001
among Dominion Resources, Inc., Consolidated Natural Gas Company
and Louis Dreyfus Natural Gas Corp., as amended by Amendment No.
1 dated as of September 17, 2001, providing for the merger of
Louis Dreyfus Natural Gas Corp. with and into a wholly owned
subsidiary of Dominion Resources, Inc.
The Agreement and Plan of Merger, as amended, is more fully described in the
Proxy Statement/ Prospectus accompanying this Notice. The meeting may be
adjourned from time to time and, at any reconvened meeting, action with respect
to the matter specified in this Notice may be taken without further notice to
the shareholders, unless required by applicable law or the bylaws of Louis
Dreyfus.
Appraisal rights are available to Louis Dreyfus shareholders in connection
with the merger. A copy of the Oklahoma appraisal rights statute is contained
in Annex D to the Proxy Statement/Prospectus accompanying this Notice.
Only shareholders of record at the close of business on September 24, 2001
are entitled to notice of, and to vote at the meeting. A list of the
shareholders entitled to vote will be available at the meeting and at the Louis
Dreyfus principal corporate office, 14000 Quail Springs Parkway, Suite 600,
Oklahoma City, Oklahoma for the ten days before the meeting. All shareholders
are cordially invited to attend the meeting in person. Whether or not you
expect to attend the meeting, please complete, date, sign and return the
enclosed proxy as promptly as possible in order to ensure your representation
at the meeting. A return envelope (which is postage prepaid if mailed in the
United States) is enclosed for that purpose. Even if you have given your proxy,
you may still vote in person if you attend the meeting. Please note, however,
that if your shares are held of record by a broker, bank or other nominee and
you wish to vote at the meeting, you must bring to the meeting a proxy issued
in your name by the record holder.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Kevin R. White
Kevin R. White, Corporate Secretary
Oklahoma City, Oklahoma
September 27, 2001
Please mark, sign, date and return your proxy promptly, whether or
not you plan to attend the special meeting.
The Louis Dreyfus board of directors unanimously recommends that shareholders
vote FOR
the proposal to approve and adopt the merger agreement at the special meeting.
TABLE OF CONTENTS
QUESTIONS AND ANSWERS...................................................... 1
PROXY STATEMENT/PROSPECTUS SUMMARY......................................... 3
RISK FACTORS............................................................... 10
COMPARATIVE MARKET PRICE INFORMATION....................................... 11
Dominion................................................................. 11
Louis Dreyfus ........................................................... 11
Comparative Per Share Market Price Data.................................. 12
Comparative Unaudited Per Common Share Data.............................. 13
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............................ 14
Dominion................................................................. 14
Louis Dreyfus............................................................ 15
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA................... 16
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL DATA............................................................ 18
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION................ 19
THE SPECIAL MEETING OF LOUIS DREYFUS SHAREHOLDERS.......................... 21
Purpose, Time and Place.................................................. 21
Record Date, Quorum, Vote Required ...................................... 21
Proxies.................................................................. 22
THE MERGER................................................................. 23
Description of the Merger................................................ 23
The Effective Time of the Merger......................................... 23
Background to the Merger................................................. 23
Recommendation of the Louis Dreyfus Board of Directors and Reasons for
the Merger.............................................................. 28
Dominion's Reasons for the Merger........................................ 30
What Louis Dreyfus Shareholders Will Receive in the Merger............... 30
Principal Shareholders Agreement......................................... 31
Gas Sale Agreement between Dominion and Louis Dreyfus.................... 32
Source of Funds.......................................................... 32
Opinion of Financial Advisor............................................. 33
Appraisal Rights of Shareholders......................................... 45
Material U.S. Federal Income Tax Consequences of the Merger.............. 46
Interests of Certain Persons in the Merger............................... 51
Accounting Treatment..................................................... 53
Louis Dreyfus Shareholder Lawsuit Regarding the Merger................... 53
Resales of Dominion Common Stock......................................... 53
Stock Exchange Listing................................................... 54
THE MERGER AGREEMENT....................................................... 55
Overview................................................................. 55
Effective Time........................................................... 55
Effects of the Merger.................................................... 55
Exchange of Stock Certificates........................................... 56
Representations and Warranties........................................... 58
Covenants Under the Merger Agreement..................................... 59
No Solicitation of Competing Transactions................................ 62
Conditions of the Merger................................................. 63
Treatment of Louis Dreyfus Stock Options................................. 65
Termination.............................................................. 66
Termination Fee.......................................................... 67
Expenses................................................................. 67
Amendment and Waiver..................................................... 67
REGULATORY MATTERS......................................................... 68
Antitrust Considerations................................................. 68
THE COMPANIES.............................................................. 69
Dominion................................................................. 69
Louis Dreyfus............................................................ 72
DESCRIPTION OF DOMINION CAPITAL STOCK...................................... 73
General.................................................................. 73
Common Stock............................................................. 73
Preferred Stock.......................................................... 74
COMPARATIVE RIGHTS OF SHAREHOLDERS......................................... 75
LEGAL MATTERS.............................................................. 83
EXPERTS.................................................................... 83
Dominion................................................................. 83
Louis Dreyfus............................................................ 83
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL DATA......... 84
The Transaction.......................................................... 84
Accounting Treatment..................................................... 84
Dominion Resources and Subsidiary Companies Unaudited Pro Forma Combined
Condensed Consolidated Statement of Income from Continuing Operations
for the Year Ended December 31, 2000 and Six Months Ended June 30,
2001.................................................................... 85
Dominion Resources and Subsidiary Companies Unaudited Pro Forma Combined
Condensed Consolidated Balance Sheet at June 30, 2001................... 87
Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Data.................................................................... 88
SUBMISSION OF SHAREHOLDER PROPOSALS........................................ 90
OTHER MATTERS.............................................................. 90
WHERE YOU CAN FIND MORE INFORMATION........................................ 91
ANNEXES.................................................................... 93
A. Agreement and Plan of Merger (as amended and restated).............. A-1
B. Principal Shareholders Agreement.................................... B-1
C. Fairness Opinion of Lehman Brothers Inc............................. C-1
D. Section 1091 of the Oklahoma General Corporation Act................ D-1
QUESTIONS AND ANSWERS
Q: What am I being asked to vote on?
A: You are being asked to approve and adopt the merger agreement that provides
for the merger of Louis Dreyfus with and into a wholly owned subsidiary of
Dominion.
Q: Why should Louis Dreyfus shareholders approve the merger with Dominion?
A: The Louis Dreyfus board of directors believes the merger is in the best
interests of Louis Dreyfus shareholders, primarily as a result of the value
of the cash and common stock consideration to be received by Louis Dreyfus
shareholders.
You should review the reasons for the merger in greater detail under the
sub-heading "The Merger--Recommendation of the Louis Dreyfus Board of
Directors and Reasons for the Merger" on page 28.
See also "The Merger--Dominion's Reasons for the Merger" on page 30.
Q: What will I receive when the merger occurs?
A: In exchange for each of your shares of Louis Dreyfus common stock you will
receive $20.00 in cash and 0.3226 shares of Dominion common stock. In
addition, if the merger closes on or after the record date for Dominion's
regular quarterly dividend payable in December 2001 and/or March 2002 you
will also receive cash equal to the dividend that would have been paid to
you if you had been a Dominion shareholder on the record date. You will not
receive these amounts, however, if breaches by Louis Dreyfus of some of its
obligations under the merger agreement cause the merger to occur after the
record date of these dividends.
Q: How do I vote my shares?
A: After carefully reading and considering the information contained in this
document, you should fill out and sign your proxy card. Mail your
completed, signed proxy card in the enclosed return envelope as soon as
possible so that your shares can be voted at the special meeting of Louis
Dreyfus shareholders.
You should return your proxy card whether or not you plan to attend the
special meeting.
Q: Can I change my vote after I have mailed my signed proxy?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this either by (1) submitting to the corporate
secretary of Louis Dreyfus a written notice of revocation or a signed,
later-dated proxy card or (2) attending the special meeting and voting in
person.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will not be able to vote your shares without instructions from
you. You should follow the directions provided by your broker to vote your
shares.
1
Q: When will the merger be completed?
A: We are working to complete the merger as quickly as possible after the
special meeting of Louis Dreyfus shareholders and after all required
regulatory approvals are obtained. We expect to complete the merger by
December 1, 2001.
Q: When and where is the special meeting of shareholders?
A: The special meeting will take place at the principal corporate office of
Louis Dreyfus, 14000 Quail Springs Parkway, Suite 600, Oklahoma City,
Oklahoma, on October 30, 2001, beginning at 10:00 a.m., central time.
Q: Does the merger require the approval of Dominion shareholders?
A: No.
Q: Where do shares of Dominion common stock trade?
A: Dominion common stock is listed and traded on the New York Stock Exchange
under the symbol "D."
Q: Should Louis Dreyfus shareholders send in their stock certificates now?
A: No. After the merger is completed Louis Dreyfus shareholders will receive
written instructions for exchanging their stock certificates.
Q: What do I need to do now?
A: You should carefully read this document. Then, if you choose to execute
your proxy, you should do so as soon as possible by completing, signing and
mailing your proxy card.
Q: Who can help answer my questions?
A: If you have more questions about the merger after reading this proxy
statement/prospectus, you should contact:
Louis Dreyfus Natural Gas Corp.
Corporate Secretary
14000 Quail Springs Parkway, Suite 600
Oklahoma City, OK 73134
(405) 749-1300
Dominion Resources, Inc.
Corporate Secretary
120 Tredegar Street
Richmond, VA 23219
(804) 819-2000
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PROXY STATEMENT/PROSPECTUS SUMMARY
This summary highlights selected information from this proxy
statement/prospectus. It may not contain all of the information that is
important to you. To better understand the merger we urge you to read this
entire document carefully, including the annexes and the documents to which we
refer you. Each item in this summary includes a page reference directing you to
a more complete description of the item.
In this proxy statement/prospectus, unless the context otherwise requires,
"Dominion," refers to Dominion Resources, Inc., a Virginia corporation, and its
subsidiaries and predecessors, "Louis Dreyfus" refers to Louis Dreyfus Natural
Gas Corp., an Oklahoma corporation, and its subsidiaries, and the "merger
agreement" refers to the Agreement and Plan of Merger dated as of September 9,
2001, as amended as of September 17, 2001.
The Merger (page 23)
The merger agreement provides that Louis Dreyfus will merge into a newly-
formed, direct, wholly owned subsidiary of Dominion. Immediately after the
merger, Dominion will contribute this subsidiary to Consolidated Natural Gas
Company, a direct, wholly owned subsidiary of Dominion.
For each share of Louis Dreyfus common stock, you will receive $20.00 cash
and 0.3226 shares of Dominion common stock. No adjustment will be made to the
number of shares of Dominion common stock you will receive as a result of any
increase or decrease in the market price of Dominion common stock or Louis
Dreyfus common stock. If the merger occurs after the record date for Dominion's
December 2001 and/or March 2002 dividend, you will receive additional cash
consideration equal to the dividend that would have been paid to you if you had
been a Dominion shareholder on the relevant record date. You will not receive
these amounts, however, if Louis Dreyfus breaches certain of its obligations
under the merger agreement and these breaches cause the merger to occur after
the relevant record date for these dividends. If the merger occurs before the
relevant record date, you will receive the dividend only if you are a Dominion
shareholder on the relevant record date.
Dominion will not issue fractional shares in the merger. You will receive a
cash payment for the value of the remaining fraction of a share of Dominion
common stock to which you would otherwise be entitled.
The Companies (page 69)
Dominion (page 69)
Dominion is one of the nation's largest producers of energy. Dominion's
22,000-megawatt generation portfolio is expected to grow to more than 28,000
megawatts by 2005. In addition to its existing 2.8 trillion cubic feet
equivalent (Tcfe) of natural gas reserves and 315 billion cubic feet equivalent
(Bcfe) of annual production, Dominion also owns and operates 7,600 miles of
natural gas transmission pipeline with a delivery capability of 6.3 billion
cubic feet per day. The company also operates the nation's largest underground
3
natural gas storage system with more than 950 billion cubic feet of storage
capacity. Dominion also serves nearly four million retail natural gas and
electric customers in five states. Dominion is headquartered in Richmond,
Virginia and has about 16,000 employees. Its principal executive office is
located at 120 Tredegar Street, Richmond, Virginia 23219 and its phone number
is (804) 819-2000.
Louis Dreyfus (page 72)
Louis Dreyfus is one of the largest independent natural gas companies engaged
in the acquisition, development, exploration, production and marketing of
natural gas. Louis Dreyfus is headquartered in Oklahoma City, Oklahoma and has
about 400 employees. Its principal executive office is located at 14000 Quail
Springs Parkway, Suite 600, Oklahoma City, Oklahoma 73134 and its phone number
is (405) 749-1300.
The Special Meeting of Louis Dreyfus Shareholders (page 21)
Louis Dreyfus will hold a special meeting of shareholders at 10:00 a.m., on
October 30, 2001 at its principal corporate office, 14000 Quail Springs
Parkway, Suite 600, Oklahoma City, Oklahoma. The record date for the meeting is
September 24, 2001.
At the meeting, you will be asked to approve and adopt the merger agreement.
Approval and adoption of the merger agreement will require the affirmative
vote of a majority of the outstanding shares of Louis Dreyfus common stock.
Proxies that are marked "abstain" on the proposal to approve the merger
agreement will be counted for the purpose of determining the number of shares
represented by proxy at the meeting, but will have the same effect as if the
shares they represent were voted against the merger.
If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee will not be permitted to vote your shares on the merger
proposal without specific instructions from you.
You may revoke or change your vote at any time before the proxy is voted at
the special meeting. You can do this either by:
. submitting to the corporate secretary a written notice of revocation or
a signed, later-dated proxy card; or
. attending the special meeting and voting in person.
You will have one vote for each share of Louis Dreyfus common stock held on
September 24, 2001.
The percentage of outstanding shares entitled to vote held by Louis Dreyfus
directors, executive officers and their affiliates is approximately 45%
compared to the majority (50%) vote required to approve and adopt the merger
agreement. Dominion and some shareholders of Louis Dreyfus have entered into an
agreement about voting on the merger. See "The Merger--Principal Shareholders
Agreement."
4
Principal Shareholders Agreement (page 31)
Louis Dreyfus Commercial Activities, Inc. ("LDCA"), a wholly owned indirect
subsidiary of S.A. Louis Dreyfus et Cie, Louis Dreyfus Natural Gas Holdings
Corp., a direct, wholly owned subsidiary of LDCA, and L.D. Fashions Holdings
Corp., also a direct, wholly owned subsidiary of LDCA, all of which are
referred to collectively as the Principal Shareholders, own approximately 44%
of the outstanding stock of Louis Dreyfus and have agreed with Dominion to vote
in favor of the merger and against any action that would be reasonably expected
to delay or postpone the merger. However, if the Louis Dreyfus board of
directors decides that it has a fiduciary duty not to recommend to Louis
Dreyfus shareholders that they approve the merger, the Principal Shareholders
are only required to vote approximately two-thirds of the shares owned by them
(29% of the outstanding stock of Louis Dreyfus) in favor of the merger. The
voting agreement terminates if the merger agreement terminates for any reason
including if Louis Dreyfus terminates the merger agreement to accept a superior
proposal. In addition, the agreement restricts for a period of time the ability
of the Principal Shareholders to sell or otherwise dispose of their Louis
Dreyfus shares and the shares of Dominion common stock they will receive in the
merger. The principal shareholders agreement is attached as Annex B to this
proxy statement/prospectus.
Recommendation of the Louis Dreyfus Board of Directors and Reasons for the
Merger (page 28)
The Louis Dreyfus board of directors, by unanimous vote, has approved the
merger agreement, believes the merger is fair to and in the best interests of
Louis Dreyfus and Louis Dreyfus shareholders and is advisable, and recommends
that you vote FOR and approve the merger agreement.
The Louis Dreyfus board of directors considered various factors in approving
the merger agreement including:
. the merger consideration;
. the opinion of Louis Dreyfus' financial advisor;
. general conditions in the industry, strategies, options available to
Louis Dreyfus and the risks and challenges associated with continued
pursuit of Louis Dreyfus' strategic plan as an independent company;
. the business of Dominion and the characteristics of its common stock;
. the tax consequences of the merger; and
. the other matters referred to under "The Merger--Recommendation of the
Board of Directors and Reasons for the Merger."
Dominion's Reasons for the Merger (page 30)
The Dominion board of directors considered various factors in approving the
merger agreement including:
5
. expected per share pro forma earnings accretion for 2002 and beyond;
. the addition of significant natural gas reserves in an environment of
expected long term growth in natural gas demand;
. opportunities for increased growth in Dominion's gas trading operations;
. the addition of new areas of natural gas operations; and
. an increase in Dominion's pro forma average reserve life.
Material U.S. Federal Income Tax Consequences of the Merger (page 46)
It is anticipated that Louis Dreyfus shareholders will recognize taxable gain
(but not loss), equal to the lesser of the amount of cash received or the
amount of gain realized, if any. The amount of gain realized will be equal to
the amount by which the cash received plus the fair market value (determined at
the effective time of the merger) of the Dominion common stock received exceeds
the shareholder's basis in the Louis Dreyfus common stock surrendered. See
"Risk Factors" for additional information concerning risks associated with the
anticipated tax consequences of the merger. In addition, neither Louis Dreyfus
nor Dominion is expected to recognize gain or loss as a result of the merger.
Interests of Certain Persons in the Merger (page 51)
Some directors and officers of Louis Dreyfus have interests in the merger
that are different from, or in addition to, the interests of other Louis
Dreyfus shareholders. These interests include change of control payments, the
acceleration of vesting of stock options and restricted stock, the acceleration
and payment of bonuses, and the right to continued indemnification and
insurance coverage by Dominion for six years after the merger.
The Merger Agreement (page 55)
The merger agreement is attached as Annex A to this proxy
statement/prospectus. Dominion and Louis Dreyfus encourage you to read the
merger agreement in its entirety.
Conditions of the Merger (page 63)
Completion of the merger is subject to a number of conditions that must be
completed on or before the closing, including:
. approval by Louis Dreyfus shareholders;
. clearance under federal antitrust laws;
. approval for listing on the New York Stock Exchange of the shares of
Dominion common stock to be issued in the merger;
. receipt by Dominion and Louis Dreyfus of an opinion from their
respective counsel that the merger will be treated as a reorganization
under the Internal Revenue Code;
. each company's representations and warranties contained in the merger
agreement being, and continuing to be, true and correct in all material
respects;
. each company's performance of its obligations under the merger
agreement; and
. absence of injunctions or restraining orders prohibiting the merger.
6
No Solicitation of Competing Transactions (page 62)
Unless required by fiduciary obligations under applicable law, Louis Dreyfus
has agreed that it will not directly or indirectly through its representatives:
. solicit, initiate or encourage another acquisition proposal;
. participate in discussions, furnish information or take other actions
that might lead to another acquisition proposal; or
. approve another acquisition proposal or enter into any letter of intent
or other agreement with respect to another acquisition proposal.
For this purpose, an acquisition proposal is any third party tender offer,
merger, consolidation, business combination or similar transaction involving
all or more than 10% of Louis Dreyfus assets, 10% or more of Louis Dreyfus
capital stock, or any acquisition of 10% or more of Louis Dreyfus capital stock
or assets in a single transaction or a series of related transactions.
Louis Dreyfus must notify Dominion of another acquisition proposal within 24
hours of receiving the proposal and must keep Dominion informed of the status
of the proposal.
Termination (page 66)
The merger agreement allows for termination of the agreement:
. by mutual consent;
. by either company if the merger does not occur by March 31, 2002;
. by either company if Louis Dreyfus shareholders do not approve the
merger;
. by either company if a federal or state court or government agency
prohibits the merger;
. by Louis Dreyfus prior to the shareholders' meeting, if its board of
directors determines in good faith that its fiduciary duties require
acceptance of a superior acquisition proposal;
. by either company based on an uncured material breach by the other
party;
. by Dominion if the Louis Dreyfus board of directors withdraws, modifies
or changes, in a manner adverse to Dominion, its recommendation of the
merger; or
. by Dominion if Louis Dreyfus breaches its no solicitation obligation in
a material respect and Dominion is adversely affected.
Termination Fee (page 67)
Louis Dreyfus will pay Dominion a fee of $70 million if:
. the merger agreement is terminated by Louis Dreyfus in order to accept a
superior proposal;
7
. the merger agreement is terminated by Dominion because:
. the Louis Dreyfus board of directors withdraws, modifies or changes,
in a manner adverse to Dominion, its recommendation of the merger;
. Louis Dreyfus breaches its no solicitation obligation in a material
respect and Dominion is adversely affected; or
. the merger agreement is terminated:
. by Dominion because Louis Dreyfus breached in a material respect any
of its material agreements or covenants in the merger agreement;
. by Louis Dreyfus or Dominion because the merger did not occur by
March 31, 2002 and Louis Dreyfus breached in a material respect any
of its material agreements or covenants in the merger agreement; or
. by Louis Dreyfus or Dominion because Louis Dreyfus shareholders did
not approve the merger;
. and, in each case:
-- there was outstanding another publicly announced acquisition
proposal;
-- Dominion was not in material breach of the merger agreement;
-- the Louis Dreyfus shareholders did not approve the merger;
-- the Louis Dreyfus board of directors did not withdraw, modify or
change its recommendation of the merger; and
-- within 12 months after termination, Louis Dreyfus enters into an
agreement (which is ultimately consummated) or consummates a
transaction with the proponent of the acquisition proposal or
another party pursuant to a superior acquisition proposal.
Regulatory Matters (page 68)
Under the Hart-Scott-Rodino Act, Dominion and Louis Dreyfus cannot consummate
the merger until each has submitted information to the Antitrust Division of
the Department of Justice and the Federal Trade Commission. Then, each company
must satisfy waiting period requirements. Dominion and Louis Dreyfus made the
required filings on September 18, 2001. As with any merger, the Department of
Justice or Federal Trade Commission has the authority to challenge the merger
on antitrust grounds before or after the merger is completed. However, neither
Dominion nor Louis Dreyfus believes the merger will violate federal antitrust
laws.
While Dominion and Louis Dreyfus are not aware of any other material
governmental approvals or actions required to complete the merger, should any
approval or action be required, Dominion and Louis Dreyfus anticipate seeking
the required approval or action. Dominion and Louis Dreyfus cannot provide any
assurance, however, that the approval or action, if needed, could be obtained
within the time frame contemplated by, or on terms consistent with, the merger
agreement.
8
Accounting Treatment (page 53)
Dominion will account for the merger under the purchase method of accounting.
Purchase accounting requires that the purchase price and costs of the
acquisition be allocated to all of the assets acquired and liabilities assumed,
based upon relative fair values.
Stock Exchange Listing (page 54)
Dominion common stock trades on the New York Stock Exchange under the symbol
"D." Dominion will obtain approval from the New York Stock Exchange for listing
of the additional shares of Dominion common stock to be issued in the merger.
If the merger is completed, Louis Dreyfus common stock will be delisted from
the New York Stock Exchange.
Comparative Rights of Shareholders (page 75)
The rights of Louis Dreyfus shareholders are governed by the laws of the
State of Oklahoma while the rights of Dominion shareholders are governed by the
laws of the Commonwealth of Virginia. There are differences in the rights of
shareholders under these laws. Additionally, there are differences in the
rights of Louis Dreyfus shareholders and the rights of Dominion shareholders as
a result of the provisions of the articles of incorporation and bylaws of the
two companies.
Resales of Dominion Common Stock (page 53)
Generally, shares of Dominion common stock received in the merger will be
freely transferable. However, resales of shares of Dominion common stock
received by Louis Dreyfus "affiliates" under applicable federal securities laws
(generally directors, certain executive officers and shareholders owning ten
percent or more) will be restricted for a period of time.
In addition, the Principal Shareholders entered into an agreement with
Dominion concerning the voting of their shares that also restricts for a period
of time their ability to sell or otherwise dispose of the Louis Dreyfus common
stock they hold and the Dominion common stock they will receive in the merger.
Opinion of Financial Advisor (page 33)
Louis Dreyfus' financial advisor, Lehman Brothers Inc., gave an opinion to
the Louis Dreyfus board of directors that, as of September 9, 2001, subject to
the limitations and assumptions described in the opinion, the merger
consideration to be received by Louis Dreyfus shareholders in the merger was
fair from a financial point of view to those shareholders. The opinion is
attached as Annex C to this proxy statement/prospectus.
Appraisal Rights of Shareholders (page 45)
Louis Dreyfus shareholders are entitled to exercise dissenter's rights of
appraisal in connection with the merger in accordance with Oklahoma law. See
"The Merger--Appraisal Rights of Shareholders" for more information and Annex D
for a copy of the Oklahoma appraisal rights statute.
9
RISK FACTORS
Shareholders of Louis Dreyfus should consider carefully all the information
contained in this proxy statement/prospectus, including the following matters:
Fluctuations in the trading price of Dominion common stock will affect the
value of the consideration you will receive.
The market value of the shares of Dominion common stock that you will receive
in the merger will vary.
The exchange ratio of 0.3226 shares of Dominion common stock per share of
Louis Dreyfus common stock (in addition to the cash consideration) you will
receive in the merger is a fixed ratio that will not be adjusted as a result of
any increase or decrease in the market price of Dominion or Louis Dreyfus
common stock. As a result, the market value of the shares of Dominion common
stock you will receive per Louis Dreyfus share will vary as the market price of
Dominion common stock fluctuates. The market price of the shares of Dominion
common stock at the time you receive them following the merger may be higher or
lower than the price of these shares on the date of the merger agreement, this
document, the special meeting or the completion of the merger.
Dominion may not be able to successfully integrate Louis Dreyfus' operations
into its own and may not realize expected benefits of the merger.
Although Dominion is significantly larger than Louis Dreyfus, the merger will
still present challenges to Dominion's management. These challenges include the
integration of systems, operations and personnel as well as special risks,
including possible unanticipated liabilities, operational interruptions and the
loss of key employees. As a result, Dominion may not realize all of the
expected benefits of the merger.
Failure to complete the merger could negatively affect Louis Dreyfus.
If the merger is not completed for any reason, Louis Dreyfus may be subject
to a number of material risks. These risks include a decline in the market
price of shares of Louis Dreyfus common stock to the extent that the current
market price of the shares reflects an assumption that the merger will be
completed. Also, Louis Dreyfus will bear its costs related to the merger, such
as financial advisory, accounting and legal fees even if the merger is not
completed.
A significant decline in the market price of Dominion common stock could keep
the merger from qualifying for its anticipated tax treatment. This would allow
either Dominion or Louis Dreyfus to terminate the merger agreement.
The merger is conditioned on the receipt of legal opinions that the merger
will qualify as a reorganization for U.S. federal income tax purposes. For
reasons further discussed under "The Merger--Material U.S. Federal Income Tax
Consequences of the Merger," relating to the portion of the total merger
consideration that must be in the form of Dominion common stock, a significant
decline in the market price of Dominion common stock could prevent the issuance
of these legal opinions and thereby prevent the merger.
10
COMPARATIVE MARKET PRICE INFORMATION
Dominion
Dominion common stock is listed for trading on the New York Stock Exchange
under the symbol "D." The following table sets forth, for the fiscal quarters
indicated, the dividends paid and the high and low sales prices of Dominion
common stock as reported on the New York Stock Exchange.
High Low Dividends
------ ------ ---------
1998
First Quarter......................................... $42.94 $39.38 $.645
Second Quarter........................................ 42.06 37.81 .645
Third Quarter......................................... 44.94 39.31 .645
Fourth Quarter........................................ 48.94 44.38 .645
1999
First Quarter......................................... 47.06 36.88 .645
Second Quarter........................................ 44.81 36.56 .645
Third Quarter......................................... 47.19 43.00 .645
Fourth Quarter........................................ 49.38 39.25 .645
2000
First Quarter......................................... 43.13 34.81 .645
Second Quarter........................................ 47.50 38.06 .645
Third Quarter......................................... 59.81 42.81 .645
Fourth Quarter........................................ 67.94 50.75 .645
2001
First Quarter......................................... 68.00 55.31 .645
Second Quarter........................................ 69.99 59.47 .645
Third Quarter (through September 25, 2001)............ 64.15 56.26 .645
Louis Dreyfus
Louis Dreyfus common stock is listed for trading on the New York Stock
Exchange under the symbol "LD." The following table sets forth, for the fiscal
quarters indicated, the high and low sales prices of Louis Dreyfus common stock
as reported on the New York Stock Exchange. Louis Dreyfus does not pay
dividends.
High Low
------ ------
1998
First Quarter................................................... $20.13 $16.50
Second Quarter.................................................. 20.63 15.50
Third Quarter................................................... 19.00 10.50
Fourth Quarter.................................................. 16.44 12.00
11
High Low
------ ------
1999
First Quarter................................................... $15.75 $11.06
Second Quarter.................................................. 22.00 14.25
Third Quarter................................................... 23.31 18.88
Fourth Quarter.................................................. 21.50 16.00
2000
First Quarter................................................... 34.00 15.75
Second Quarter.................................................. 35.00 24.00
Third Quarter................................................... 40.13 25.19
Fourth Quarter.................................................. 48.19 29.94
2001
First Quarter................................................... 45.56 31.75
Second Quarter.................................................. 44.20 32.00
Third Quarter (through September 25, 2001)...................... 39.34 29.01
Comparative Per Share Market Price Data
The following table sets forth the average of the high and low sales prices
per share of Dominion common stock and of Louis Dreyfus common stock, as
reported on the New York Stock Exchange on:
. September 7, 2001, the business day preceding the public announcement that
Dominion and Louis Dreyfus had entered into the merger agreement; and
. September 25, 2001, the last full trading day for which sales prices were
available before the printing of this proxy statement/prospectus.
The table also includes the equivalent price per share of Louis Dreyfus
common stock on those dates. This equivalent per share price reflects the value
of the merger consideration that Louis Dreyfus' shareholders would receive for
each share of Louis Dreyfus common stock if the merger was completed on the
specified dates by multiplying the average sales price of Dominion common stock
on those dates by the exchange ratio of 0.3226 and adding $20.00.
Louis Dreyfus
Equivalent
Dominion Louis Dreyfus Price per Share
--------- ------------- ---------------
September 7, 2001....................... $62.75 $33.00 $40.24
September 25, 2001...................... 58.13 38.00 38.75
Because the market price of Dominion common stock may increase or decrease
before the completion of the merger, Louis Dreyfus shareholders are urged to
obtain current market quotations.
12
Comparative Unaudited Per Common Share Data
The following table presents selected comparative unaudited per share data
for Dominion on a historical and pro forma combined basis, and for Louis
Dreyfus on a historical and pro forma equivalent basis, using the purchase
method of accounting. The information presented below is derived from the
consolidated historical financial statements of Dominion and Louis Dreyfus,
including the related notes and incorporated by reference into this proxy
statement/prospectus. This information should be read in conjunction with such
historical financial statements and the related notes. See "Where You Can Find
More Information."
The per share data presented here is not necessarily indicative of the
results of future operations of the combined entity or the actual results that
would have been achieved had the merger been consummated prior to the periods
indicated.
The pro forma combined book value per share of Dominion common stock is based
upon the pro forma combined total common equity for Dominion, divided by the
total pro forma shares of Dominion common stock after the transaction based on
the exchange ratio of 0.3226. The pro forma equivalent book value per share of
Louis Dreyfus common stock represents the pro forma combined amount per share
multiplied by the exchange ratio. The cash portion of the merger consideration
is not reflected in the calculations. The pro forma combined dividends declared
assume no changes in the historical dividends declared per share of Dominion
common stock. The pro forma equivalent dividends per share of Louis Dreyfus
common stock represents the cash dividends declared on a share of Dominion
common stock multiplied by the exchange ratio. The pro forma combined income
from continuing operations per share has been computed based on the average
number of outstanding shares and common stock equivalent shares of Dominion,
and the average number of outstanding shares of Louis Dreyfus common stock
adjusted for the exchange ratio. The pro forma equivalent income from
continuing operations per share of Louis Dreyfus common stock represents the
pro forma combined income from continuing operations per share muliplied by the
exchange ratio.
Dominion Louis Dreyfus
-------------------- ---------------------
Pro Forma Pro Forma
Per Common Share Historical Combined Historical Equivalent
---------------- ---------- --------- ---------- ----------
Book Value:
As of June 30, 2001.............. $28.98 $30.92 $17.94 $9.97
As of December 31, 2000.......... 28.44 30.43 12.20 9.82
Dividends Declared:
Six months ended June 30, 2001... 1.29 1.29 -- 0.42
Year ended December 31, 2000..... 2.58 2.58 -- 0.83
Income from Continuing Operations--
Basic:
Six months ended June 30, 2001... 1.29 1.65 2.76 0.53
Year ended December 31, 2000..... 1.76 1.97 2.35 0.64
Income from Continuing Operations--
Diluted:
Six months ended June 30, 2001... 1.27 1.63 2.71 0.53
Year ended December 31, 2000..... 1.76 1.96 2.29 0.63
13
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Dominion and Louis Dreyfus are providing the following financial information
to aid you in your analysis of the financial aspects of the merger. This
information is only a summary and you should read it in conjunction with the
historical consolidated financial statements of Dominion and Louis Dreyfus and
the related notes contained in Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q that Dominion and Louis Dreyfus have previously filed with
the Securities and Exchange Commission. See "Where You Can Find More
Information."
Dominion
(in millions -- except per share amounts)
Six Months Ended
Year Ended December 31, June 30,
----------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
Income Statement Data ------ ------ ------ ------ ------ -------- --------
(Unaudited)
Operating revenue........ $4,815 $7,263 $6,081 $5,520 $9,260 $4,120 $5,507
Income from continuing
operations.............. 482 412 548 552 415 49 318
Extraordinary loss....... -- -- -- (255) -- -- --
Cumulative effect of a
change in accounting
principle............... -- -- -- -- 21 21 --
Net income............... 482 412 548 297 436 70 318
Earnings per share --
basic:
Income from continuing
operations............ 2.70 2.22 2.81 2.88 1.76 0.21 1.29
Extraordinary loss..... -- -- -- (1.33) -- -- --
Cumulative effect of a
change in accounting
principle............. -- -- -- -- 0.09 0.09 --
Net Income............. 2.70 2.22 2.81 1.55 1.85 0.30 1.29
Earnings per share --
diluted:
Income from continuing
operations............ 2.70 2.22 2.81 2.81 1.76 0.21 1.27
Extraordinary loss..... -- -- -- (1.33) -- -- --
Cumulative effect of a
change in accounting
principle............. -- -- -- -- 0.09 0.09 --
Net income............. 2.70 2.22 2.81 1.48 1.85 0.30 1.27
Dividends declared per
share................... 2.58 2.58 2.58 2.58 2.58 1.29 1.29
See Notes to Selected Historical Consolidated Financial Data.
14
Dominion
(in millions -- except per share amounts)
At December 31, At June 30,
--------------------------------------- ---------------
1996 1997 1998 1999 2000 2000 2001
Balance Sheet Data ------- ------- ------- ------- ------- ------- -------
(Unaudited)
Total assets............ $14,911 $20,184 $17,549 $17,782 $29,297 $29,098 $32,253
Capitalization:
Long-term debt.......... 5,047 7,196 6,252 6,936 10,101 9,258 12,130
Obligated mandatorily
redeemable preferred
securities of
subsidiary trusts...... 135 385 385 385 385 385 935
Preferred stocks of
subsidiary:
Subject to mandatory
redemption........... 180 180 180 -- -- -- --
Not subject to
mandatory
redemption........... 509 509 509 509 509 509 509
Common shareholders'
equity................. 4,911 5,050 5,337 4,774 6,992 6,487 7,190
Total capitalization.... 10,782 13,320 12,663 12,604 17,987 16,639 20,764
Obligations under
capital leases......... 1 8 15 26 26 22 24
Book value per share.... 27.10 26.89 27.45 25.62 28.44 27.28 28.98
Louis Dreyfus
(in millions -- except per share amounts)
Six Months Ended
Year Ended December 31, June 30,
---------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
Income Statement Data ---- ------ ------ ------ ------ -------- --------
(Unaudited)
Total revenue............ $190 $233 $293 $303 $477 $168 $369
Income (loss) from
continuing operations... 21 (16) (44) 21 98 18 121
Cumulative effect of a
change in accounting
principle............... -- -- 1 -- -- -- --
Net income (loss)........ 21 (16) (43) 21 98 18 121
Earnings (loss) per
share--basic:
Income (loss) from
continuing operations... 0.76 (0.53) (1.10) 0.53 2.35 0.44 2.76
Cumulative effect of a
change in accounting
principle............... -- -- 0.02 -- -- -- --
Net income (loss)........ 0.76 (0.53) (1.08) 0.53 2.35 0.44 2.76
Earnings (loss) per
share--diluted:
Income (loss) from
continuing operations... 0.76 (0.53) (1.10) 0.53 2.29 0.43 2.71
Cumulative effect of a
change in accounting
principle............... -- -- 0.02 -- -- -- --
Net income (loss)........ 0.76 (0.53) (1.08) 0.53 2.29 0.43 2.71
Dividends declared per
share................... -- -- -- -- -- -- --
At December 31, At June 30,
---------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
Balance Sheet Data ---- ------ ------ ------ ------ -------- --------
(Unaudited)
Total assets............. $734 $1,211 $1,284 $1,227 $1,502 $1,418 $1,696
Capitalization:
Long-term debt........... 344 563 597 555 607 682 523
Stockholders' equity..... 264 469 519 499 533 472 790
Total capitalization..... 608 1,032 1,116 1,054 1,140 1,154 1,313
Book value per share..... 9.49 11.70 12.95 12.41 12.20 11.58 17.94
See Notes to Selected Historical Consolidated Financial Data.
15
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
1. In 1997 Dominion, through an indirect subsidiary, purchased East Midlands
Electricity plc (East Midlands) for approximately $2.2 billion. East
Midlands is a regional electricity company based in the Nottingham area of
the United Kingdom (UK). The acquisition was accounted for as a purchase,
and East Midlands was included in Dominion's consolidated financial
information. In the third quarter of 1997, East Midlands recorded a
liability of approximately $157 million to reflect the one-time windfall
profits tax levied by the UK government. The tax was levied on regional
electric companies in the UK and was based on the privatized utilities'
excess profits. In July 1998, Dominion sold East Midlands in a transaction
valued at $3.2 billion. The sale resulted in a gain of $332.2 million or
$200.7 million, net of tax.
2. In August 1998, the Virginia State Corporation Commission approved a
settlement which resolved Dominion's electric utility subsidiary's
outstanding base rate proceedings. The settlement defined a new regulatory
framework for Virginia's transition to a competitive environment for sales
of electricity. The settlement included rate refunds and the write-off of
regulatory assets which reduced after-tax earnings by $201 million in 1998.
3. In March 1999, the Governor of Virginia signed into law legislation
establishing a detailed plan to restructure the electric utility industry in
Virginia. The provisions of the Virginia legislation provided an opportunity
to recover generation-related costs, including certain regulatory assets,
through capped rates prior to July 2007. Generation-related regulatory
assets will continue to be recognized until they are recovered through
capped rates. Generation-related assets and liabilities that will not be
recovered through the capped rates were written off in 1999, resulting in an
extraordinary item, reported as an after-tax charge to earnings of $254.8
million.
4. In January 2000, Dominion acquired the Consolidated Natural Gas Company
(CNG) for $6.4 billion. Dominion accounted for the acquisition using the
purchase method of accounting. For CNG's interstate pipeline and local gas
distribution businesses that are subject to cost-based rate regulation,
Dominion accounted for the acquisition in accordance with SFAS No. 71,
Accounting for the Effects of Certain Types of Regulation. The acquisition
resulted in the recognition of goodwill of $3.5 billion. The goodwill is
being amortized on a straight-line basis over a period approximating 40
years. Beginning January 28, 2000, Dominion's consolidated financial
statements included CNG.
5. As a result of the CNG acquisition and Dominion's desire to focus its
businesses in the region which begins at the Mid-America Interconnected
Network and extends northeastward through Maine, Dominion and its
subsidiaries implemented a plan to restructure the operations of the
combined companies during 2000. For the year ended
December 31, 2000, Dominion recognized $460 million of restructuring and
other acquisition-related costs. The restructuring charges included costs
for employee severance, early retirement programs, impairments of financial
services businesses and other costs. In addition, Dominion recognized $119
million of other impairment charges related to its financial services
businesses during 2000.
16
6. Dominion's consolidated financial statements for 2000 reflect a change in
the method of calculating the market related value of pension plan assets
used to determine the expected return on pension plan assets, a component of
net periodic pension cost. Under the new method, which was adopted in the
third quarter of 2000 and effective January 1, 2000, the market related
value of pension plan assets reflects the difference between actual
investment returns and expected investment returns evenly over a four-year
period. A cumulative effect of a change in accounting principle of $21
million (net of income taxes of $11 million) was included in 2000.
7. Dominion completed its purchase of Millstone Nuclear Power Station, located
in Waterford, Connecticut on March 31, 2001. The purchase price of $1.3
billion included $1.2 billion for plant assets and $105 million for nuclear
fuel. The acquisition includes a 100% ownership interest in Unit 1 and Unit
2 and a 93.47% ownership interest in Unit 3 for a total of 1,954 megawatts
of generating capacity. Unit 1 is being decommissioned and is no longer in
service. Dominion acquired the decommissioning trusts for the three units
that were fully funded to the regulatory minimum at closing.
8. In the first quarter of 2001, Dominion completed the purchase of three
generating facilities and terminated seven contracts that provided
electricity to Dominion under long-term purchase agreements with non-utility
generators. Dominion recorded a charge of $136 million after tax in
connection with the purchase and termination of the long-term power purchase
agreements. Cash payments related to the purchase of the three generating
facilities totaled $207 million. The allocation of the purchase price was
assigned to the assets and liabilities acquired based upon estimated fair
values and future cash flows as of the date of acquisition. Substantially
all of the value was attributed to the power purchase contracts that were
terminated and resulted in the charge to operation and maintenance expense.
9. In June 2000, Louis Dreyfus acquired substantially all of the oil and gas
properties of Costilla Energy, Inc. for approximately $122 million in cash.
The acquired properties comprise 135 Bcfe of net proved reserves. In October
1997, Louis Dreyfus acquired all of the outstanding common stock of American
Exploration Company for approximately 11.3 million shares of common stock
valued at $193 million and $47 million in cash. In addition, Louis Dreyfus
assumed $116 million of American Exploration long-term debt, $20 million
liquidation value of American Exploration preferred stock and warrants and
options valued at $10 million. The acquisition consisted of 217 Bcfe of
proved reserves, 1 million gross acres of developed leasehold, 2 million
gross acres of undeveloped leasehold and other assets and liabilities. Louis
Dreyfus used the purchase method of accounting for both of these
acquisitions.
17
SELECTED UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL DATA
The following selected unaudited pro forma combined condensed consolidated
financial data gives effect to the merger. The pro forma adjustments are based
upon available information and certain assumptions that Dominion's management
believes are reasonable. The selected unaudited pro forma combined condensed
consolidated financial data are presented for illustrative purposes only and
are not necessarily indicative of the operating results or financial condition
of the combined company that would have occurred had the merger occurred at the
beginning for the periods presented, nor are the selected unaudited pro forma
combined condensed consolidated financial data necessarily indicative of future
operating results or financial position of the combined company. The selected
unaudited pro forma combined condensed consolidated financial data (i) have
been derived from and should be read in conjunction with the unaudited pro
forma combined condensed consolidated financial data and the related notes
included elsewhere in this proxy statement/prospectus and (ii) should be read
in conjunction with the selected historical consolidated financial statements
of Dominion and Louis Dreyfus incorporated by reference in this proxy
statement/prospectus.
Year Six Months
Ended Ended
December 31, June 30,
2000 2001
------------ ----------
(in millions--except per share amounts)
Income Statement Data
Operating revenue...................................... $9,734 $ 5,875
====== =======
Income from continuing operations...................... $ 491 $ 430
====== =======
Earnings per share--basic
Income from continuing operations.................... $ 1.97 $ 1.65
====== =======
Earnings per share--diluted
Income from continuing operations.................... $ 1.96 $ 1.63
====== =======
At
June 30,
2001
----------
Balance Sheet Data
Total assets........................................... $35,418
=======
Capitalization:
Long-term debt....................................... $12,653
Obligated mandatorily redeemable preferred securities
of subsidiary trusts................................ 935
Preferred stocks of subsidiary not subject to
mandatory redemption................................ 509
Common shareholders' equity.......................... 8,106
-------
Total capitalization................................... $22,203
=======
Obligations under capital leases....................... $ 24
=======
Book value per share................................... $ 30.92
=======
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Data.
18
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
From time to time, Dominion and Louis Dreyfus make statements concerning
their expectations, plans, objectives, future financial performance and other
statements that are not historical facts. These statements are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. In some cases the reader can identify these forward-looking statements
by words such as "anticipate," "estimate," "expect," "believe," "could,"
"plan," "may" or other similar words.
Forward-looking statements are issued by Dominion and Louis Dreyfus with full
knowledge that risks and uncertainties exist that may cause actual results to
be materially different from the results predicted. Factors that could cause
actual results to differ are often presented with forward-looking statements.
In addition, other factors could cause actual results to differ materially from
those indicated in any forward-looking statement. These include:
. Factors affecting operations, such as:
. unusual weather conditions;
. catastrophic weather-related damage;
. unscheduled generation outages;
. unusual maintenance or repairs;
. unanticipated changes in fossil fuel costs, gas supply costs or
availability constraints;
. environmental incidents; and
. electric transmission or gas pipeline system costs or availability
constraints.
. State and federal legislative and regulatory developments, including
deregulation and restructuring of the natural gas and electric utility
industry and changes in environmental and other laws and regulations to
which Dominion and Louis Dreyfus are subject.
. The timing and implementation of Dominion's business separation plan
currently under consideration with the Virginia State Corporation
Commission.
. The effects of competition, including the extent and timing of the
entry of additional competitors in Dominion's electric or gas markets.
. Dominion's pursuit of potential business strategies, including
acquisitions or dispositions of assets or the development of additional
power generation facilities.
. Regulatory factors such as changes in the policies or procedures that
set rates, changes in Dominion's ability to recover investments made
under traditional regulation through rates, and changes to the
frequency and timing of rate increases.
. Financial or regulatory accounting principles or policies imposed by
governing bodies.
. Political and economic conditions and developments in the U.S. and
Canada, including inflation rates and monetary fluctuations.
19
. Changing market conditions and other factors related to physical and
financial energy trading activities, including price, basis, credit,
liquidity, volatility, capacity, transmission, currency exchange rates,
interest rates and warranty risks.
. Financial market conditions, including availability and costs of
capital, and the ability of Dominion and Louis Dreyfus to obtain
financing on favorable terms.
. The performance of Dominion's and Louis Dreyfus' projects and the
success of efforts to invest in and develop new opportunities.
. The ultimate success and financial viability of Dominion's
telecommunications business.
. Employee workforce factors, including collective bargaining agreements
with union employees.
. Risks associated with exploring for, developing and producing crude oil
and natural gas.
. Risks associated with large development projects.
. Maintenance and growth of production levels.
. Anticipated natural gas reserve levels.
Dominion and Louis Dreyfus have based their forward-looking statements on
their respective management's beliefs and assumptions using information
available at the time the statements were made. Dominion and Louis Dreyfus
caution the reader not to place undue reliance on their forward-looking
statements because the assumptions, beliefs, expectations and projections about
future events may and often do materially differ from actual results. Dominion
and Louis Dreyfus undertake no obligation to update any forward-looking
statements to reflect developments occurring after the statements are made.
20
THE SPECIAL MEETING OF LOUIS DREYFUS SHAREHOLDERS
Purpose, Time and Place
Louis Dreyfus is soliciting your proxy for use at the special shareholders'
meeting to be held on October 30, 2001 at 10:00 a.m. at the Louis Dreyfus
principal corporate office, 14000 Quail Springs Parkway, Suite 600, Oklahoma
City, Oklahoma. At the special shareholders' meeting, holders of Louis Dreyfus
common stock will be asked to consider and vote upon a proposal to approve and
adopt the merger agreement providing for the merger of Louis Dreyfus with and
into a wholly owned subsidiary of Dominion.
Record Date, Quorum, Vote Required
If you own Louis Dreyfus common stock at the close of business on September
24, 2001, the record date, you will receive notice of and will be entitled to
vote at the meeting. At the close of business on the record date, 43,796,745
shares of Louis Dreyfus common stock were outstanding and entitled to vote at
the special meeting, and were held by approximately 1,700 holders of record and
9,000 beneficial owners. Louis Dreyfus common stock constitutes the only
outstanding class of voting securities of Louis Dreyfus. Votes may be cast in
person or by proxy.
The presence of holders of a majority of all of the shares of Louis Dreyfus
common stock entitled to vote at the special meeting, either in person or by
proxy, is necessary to constitute a quorum. In the event that a quorum is not
present at the special meeting, it is expected that such meeting will be
adjourned or postponed in order to solicit additional proxies. Shares
represented by proxies marked "abstain" will be counted as shares present for
purposes of determining the presence or absence of a quorum at the special
meeting.
Approval of the merger proposal requires the affirmative vote by the holders
of a majority of the outstanding shares of Louis Dreyfus common stock as of the
record date. Abstentions and failures to vote, either in person or by proxy,
will have the effect of votes cast against the merger proposal.
As of the close of business on the record date and excluding shares
underlying stock options, the Louis Dreyfus board of directors and executive
officers and their affiliates (other than the Principal Shareholders) are
deemed to be the beneficial owners of, and have the power to vote, 352,445
shares of Louis Dreyfus common stock, representing approximately 0.8% of the
outstanding shares of Louis Dreyfus common stock. Louis Dreyfus believes that
each of its directors and executive officers intends to vote for approval of
the merger agreement.
The Principal Shareholders own 19,150,000 shares of Louis Dreyfus common
stock, representing approximately 44% of the outstanding shares of Louis
Dreyfus common stock. The Principal Shareholders have agreed with Dominion to
vote such shares in favor of the merger agreement. See "The Merger--Principal
Shareholders Agreement."
21
Proxies
Shares of Louis Dreyfus common stock represented by properly executed proxies
and received prior to the special meeting will be voted at the meeting in the
manner specified on such proxies. Physical proxies that are properly executed
but which do not contain voting instructions will be voted FOR the proposal.
Louis Dreyfus knows of no matter other than the merger proposal that will be
brought before the special meeting.
In the event that a quorum is not present at the special meeting, or if for
any other reason Louis Dreyfus believes that additional time should be allowed
for the solicitation of proxies, Louis Dreyfus may adjourn the special meeting
with or without a vote of the shareholders.
The grant of a proxy on the enclosed proxy card does not preclude a
shareholder from voting in person at the special meeting. A shareholder may
revoke a proxy at any time prior to its exercise by submitting to the corporate
secretary of Louis Dreyfus a written notice of revocation or a completed,
later-dated proxy card, or by attending the special meeting and voting in
person.
The enclosed proxy is being solicited by the Louis Dreyfus board of
directors. Louis Dreyfus and Dominion are each bearing their respective share
of the cost of such solicitation of proxies, including preparation, assembly,
printing and mailing of this proxy statement/prospectus, the proxy and any
additional information furnished to shareholders. Louis Dreyfus has retained
Mellon Investor Services LLC, a proxy solicitation firm, at a total estimated
cost of $2,500 plus reimbursement of expenses, to assist in the solicitation of
proxies. Copies of solicitation materials will be furnished to banks, brokerage
houses, fiduciaries and custodians holding in their names shares of common
stock beneficially owned by others to forward to such beneficial owners. Louis
Dreyfus may reimburse persons representing beneficial owners of common stock
for their costs of forwarding solicitation materials to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegram or personal solicitation by directors, officers or other regular
employees of Louis Dreyfus. No additional compensation will be paid to
directors, officers or other regular employees for such services.
22
THE MERGER
Description of the Merger
At the effective time of the merger, Louis Dreyfus will merge with and into a
direct wholly owned subsidiary of Dominion organized solely for purposes of the
merger. Immediately following the merger, Dominion will contribute all of the
outstanding capital stock of the corporation surviving the merger to CNG and
the corporation surviving the merger will become a wholly owned subsidiary of
CNG.
The certificate of incorporation and bylaws of the Dominion subsidiary
immediately before the effective time of the merger will be the certificate of
incorporation and bylaws of the surviving corporation until amended. The
directors and officers of the Dominion subsidiary at the effective time of the
merger will be the directors and officers of the surviving corporation.
The Effective Time of the Merger
Louis Dreyfus and the Dominion subsidiary will execute and file certificates
of merger with the Oklahoma Secretary of State and the Delaware Secretary of
State promptly after the day on which the last condition to completing the
merger is satisfied or waived or at such other time as Dominion and Louis
Dreyfus may agree. The merger will become effective at the time and on the date
on which those documents are filed or such other time and date on which the
parties agree and specify in those documents. That time is referred to as the
"effective time."
Background to the Merger
As have other publicly-traded independent oil and gas companies and their
affiliates, Louis Dreyfus and the Principal Shareholders received several
inquiries and indications of interest from third parties regarding possible
business combinations over the past year. Most of these inquiries were
unsolicited. However, Louis Dreyfus consistently indicated in the course of
these inquiries that while it was not actively seeking a business combination,
it would consider proposals that were sufficiently attractive. Louis Dreyfus'
position on this issue has been relatively well-known in the investment banking
community and, as a result, Louis Dreyfus has been viewed as a potential
acquisition candidate by numerous investment banks and companies active in the
energy merger and acquisition market. Beginning in the late fall of 2000
through September 9, 2001, the date of the merger agreement with Dominion,
management of Louis Dreyfus had preliminary contacts with numerous potential
interested parties. Beginning in the late fall of 2000 through the summer of
2001, Lehman Brothers had discussions with a number of parties that Lehman
Brothers believed might have a strategic interest in a business combination
with Louis Dreyfus. Some of these contacts expressed a possible interest and
Louis Dreyfus entered into confidentiality agreements with four potential
candidates and provided confidential information to these parties. However, no
meaningful proposals were made by any of these parties.
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On May 25, 2001, Lehman Brothers advised Louis Dreyfus that it had learned
that Dominion had engaged Merrill Lynch to advise it with respect to a possible
acquisition of Louis Dreyfus. On May 31, 2001, Duane C. Radtke, the President
and Chief Executive Officer of Dominion Exploration & Production, called Mark
E. Monroe, the President and Chief Executive Officer of Louis Dreyfus, to
request a meeting. On June 4, 2001, Messrs. Radtke and Monroe met, at which
time Mr. Radtke expressed interest in engaging in discussions about a possible
combination. They agreed to sign mutual confidentiality agreements.
Subsequently, on June 8, 2001, Mr. Radtke advised Mr. Monroe that he had
conferred with Thos. E. Capps, the Chairman, President and Chief Executive
Officer of Dominion, and expressed continued interest and requested a meeting
to review Louis Dreyfus' reserves.
On June 13, 2001, Mr. Monroe and Ronnie K. Irani, Louis Dreyfus' Executive
Vice President--Engineering and Exploration, met with Mr. Radtke and other
representatives of Dominion in Houston to provide information concerning Louis
Dreyfus' oil and gas properties and prospects. In July 2001, Mr. Radtke advised
Mr. Monroe that Dominion was analyzing the financial and accounting
consequences of a possible transaction and would call later to schedule further
discussions.
On August 14, 2001, Mr. Monroe and Simon Rich, the Chairman of Louis Dreyfus,
met in Houston with Mr. Radtke, Thomas N. Chewning, the Chief Financial Officer
of Dominion, and Godfrey E. Lake Jr., Senior Vice President of Dominion
Exploration & Production. At this meeting, Dominion proposed a merger for
consideration of $42.00 per Louis Dreyfus share consisting of 50% in cash and
50% in Dominion stock valued at the time of execution of the merger agreement.
Dominion also proposed an irrevocable proxy from the Principal Shareholders to
vote the shares held by them in favor of the transaction. The Louis Dreyfus
representatives expressed disappointment with this price. On August 16, 2001,
after phone calls between Messrs. Radtke and Monroe and after Louis Dreyfus
provided additional information to Dominion, Mr. Radtke advised that Dominion
would increase the combined cash and stock consideration to $44.00 per share.
On August 20, 2001, Louis Dreyfus convened a telephonic meeting to advise the
board of directors of Louis Dreyfus of the Dominion proposal. Representatives
of Lehman Brothers provided preliminary materials to the board of directors and
indicated that they believed the proposal was in line with recent comparable
exploration and production company acquisition transactions. Mr. Monroe and
Lehman Brothers representatives reviewed the contacts that had been made by Mr.
Monroe and Lehman Brothers on an informal basis over the last several months
with other parties that had expressed an interest and noted that none of these
contacts had made a meaningful proposal. A member of Crowe & Dunlevy, legal
counsel to Louis Dreyfus, reviewed the fiduciary duties of the board of
directors. The board of directors reviewed conditions in the natural gas
industry generally and specifically the commodity price outlook for the near
term. Mr. Monroe addressed concerns about Louis Dreyfus' ability to continue to
grow at historical rates given Louis Dreyfus' current size and the competition
for attractive acquisitions. After a general discussion about various aspects
of the transaction, the board of directors authorized management to continue
negotiations and authorized Louis Dreyfus to formally engage Lehman Brothers as
its financial advisor for purposes of advising Louis Dreyfus in connection with
the transaction.
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On August 21, 2001, representatives of Louis Dreyfus, Lehman Brothers and
Louis Dreyfus' legal counsel met with representatives of Dominion, Merrill
Lynch and Dominion's counsel to discuss the Dominion proposal. At this meeting,
principal terms were discussed including the method of establishing the
exchange ratio and the terms of the irrevocable proxy of the Principal
Shareholders. Also, at this meeting, Louis Dreyfus, its counsel, Crowe &
Dunlevy, and Simpson Thacher & Bartlett, counsel for two of the Principal
Shareholders, presented their respective positions that the proposed
irrevocable proxy would not be acceptable if it materially impaired the ability
of the Louis Dreyfus board of directors to accept superior proposals or change
its recommendation in favor of this transaction. At this meeting, Dominion also
indicated that it would require as a condition to entering into the merger
agreement the concurrent execution of a forward gas sale agreement in which
Louis Dreyfus would agree to sell 48 Bcf of its gas production in 2002 to
Dominion at prevailing 2002 future prices. The arrangement was considered by
Dominion to be an integral component of its overall natural gas price risk
management strategy. The parties also discussed a schedule for additional due
diligence to be performed by Dominion and outlined the terms of a possible
merger agreement.
On August 23, 2001, Dominion provided Louis Dreyfus with an initial draft of
a merger agreement.
On August 23, 2001 Louis Dreyfus convened a telephonic meeting of its board
of directors to report the status of negotiations. The board of directors
discussed the different methods of fixing the exchange ratio for the stock
portion of the consideration offered and the circumstances under which the
fixed exchange ratio might adversely affect Louis Dreyfus shareholders due to a
decline in the value of the Dominion stock price between the date of the merger
agreement and the closing. The board of directors discussed the proposed gas
sale agreement and the fact that Louis Dreyfus would be unlikely to consider
such a sale absent a transaction with Dominion. Mr. Monroe noted that the
volumes represented approximately 3% of Louis Dreyfus' reserves. Mr. Monroe
also reviewed the termination fee proposal of Dominion, the anticipated timing
of a transaction and a proposal for employee severance and change in control
provisions of existing Louis Dreyfus benefit plans. The board of directors
discussed with Lehman Brothers termination fees in recent comparable
transactions and the sensitivity of total consideration to changes in Dominion
stock price. At the meeting, representatives of Lehman Brothers indicated that
they believed that none of the parties with whom Lehman Brothers had previous
discussions regarding a potential strategic combination with Louis Dreyfus
would be interested in a transaction with Louis Dreyfus with financial terms
superior to those proposed by Dominion. The board of directors authorized
management to continue negotiations.
On Friday, August 24, 2001, Mr. Monroe, Mr. Irani and representatives of
Lehman Brothers met with representatives of Dominion and Merrill Lynch in
Houston, Texas. Mr. Irani provided a drilling update to representatives of
Dominion. Mr. Monroe engaged in discussions with representatives of Dominion
and Merrill Lynch with respect to a possible walk-away option in the event of a
decline in Dominion's stock price, the specifics of the proposed exchange ratio
for Dominion common stock, the amount of the termination fee and the ability of
Louis Dreyfus shareholders to receive Dominion's fourth quarter dividend in the
event the transaction was not closed before the record date. Dominion rejected
the walk-away right, agreed to a specified exchange ratio which would yield
total value to Louis
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Dreyfus shareholders of approximately $44 per share based on Dominion's then
current stock price, agreed to reduce the proposed termination fee from $75
million plus up to $10 million in expenses to $70 million without any
reimbursement of expenses and agreed that Louis Dreyfus shareholders would
receive the fourth quarter Dominion dividend if the shareholders of Louis
Dreyfus approved the merger on or before the dividend record date.
On the weekend of August 25 and 26, 2001, representatives of Louis Dreyfus,
Lehman Brothers, Crowe & Dunlevy and Simpson Thacher & Bartlett reviewed the
draft merger agreement and provided comments to Dominion and its counsel,
McGuireWoods LLP. Management of Louis Dreyfus also informally updated the board
of directors on the status of negotiations.
On August 27, 2001, Mr. Radtke advised Mr. Monroe that Louis Dreyfus'
comments on the merger agreement did not present major issues. Later in the
day, however, Mr. Radtke advised Mr. Monroe that Dominion was not prepared to
move forward as a result of an approximate 12% decline in 2002 natural gas
prices during the period from August 21 to August 27, 2001. During the
remainder of the week, various negotiations occurred between Messrs. Radtke and
Monroe concerning the proposed terms.
On August 31, 2001, Mr. Radtke advised Mr. Monroe that Dominion was prepared
to offer approximately $41.00 per share, based on Dominion's then stock price,
consisting of $20.50 in cash and 0.3226 shares of Dominion common stock for
each share of Louis Dreyfus common stock. Additionally, Mr. Radtke proposed
that Louis Dreyfus shareholders would receive the fourth quarter Dominion
dividend unless Louis Dreyfus caused the closing date to occur after the record
date of the dividend. Mr. Capps advised Mr. Rich that he would present this
proposal to the Dominion board of directors and Mr. Rich indicated that he
would present the proposal to the Louis Dreyfus board of directors.
Later that day, Dominion's counsel distributed to Louis Dreyfus' counsel
revised drafts of the proposed merger agreement, principal shareholders
agreement and gas sale agreement, and advised Louis Dreyfus' counsel that
Dominion would require that Louis Dreyfus unilaterally execute the merger
agreement and permit Dominion two days to align its gas sale price risk
management profile before Dominion would be required to execute the merger
agreement and before the fact of that execution would be publicly disclosed.
Representatives of Louis Dreyfus indicated that this proposal was unacceptable
since failure to disclose such an arrangement, which would effectively give
Dominion a unilateral option to acquire Louis Dreyfus, was not consistent with
the obligations of Louis Dreyfus under federal securities laws. Nevertheless,
in an effort to move negotiations forward, over Labor Day weekend, counsel for
Louis Dreyfus, Dominion and the Principal Shareholders negotiated the other
terms of the proposed merger agreement, principal shareholders agreement and
gas sale agreement.
On Tuesday, September 4, 2001, Louis Dreyfus provided its board of directors
with a summary of the current negotiations along with a preliminary summary of
the terms of the contractual documents. Also on September 4, 2001, Dominion's
counsel confirmed to Louis Dreyfus' counsel that Dominion believed that the two
days required to align its gas sale price risk management profile after the
unilateral execution of the merger agreement by
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Louis Dreyfus was a necessary part of Dominion's proposal. After further
consultation with its financial and legal advisors and board members, Louis
Dreyfus advised Dominion on Wednesday, September 5, that this requirement was
not acceptable.
On the evening of September 5, 2001, the Dominion board of directors met by
teleconference with management, its counsel, and its financial advisors.
Following a presentation from management and Merrill Lynch, the Dominion board
approved the merger and authorized Mr. Capps and other Dominion executives to
negotiate the proposed merger agreement within the parameters established by
the board.
In the evening of September 5, 2001, Mr. Capps contacted Mr. Rich and advised
that Dominion was prepared to withdraw its requirement that Louis Dreyfus
execute the merger agreement unilaterally, but only if Louis Dreyfus would
agree to a reduction in the cash component of the consideration by $0.50 per
share because of Dominion's expected increased gas sale price risk. Mr. Rich
advised Mr. Capps that he would ask the Louis Dreyfus board of directors to
consider this proposal.
On September 6 and 7, 2001, counsel for Dominion, Louis Dreyfus and the
Principal Shareholders finalized the terms of the merger agreement, principal
shareholders agreement and gas sale agreement. Copies of these documents and
Lehman Brothers' presentation to the board of directors setting forth their
analysis of the fairness of the consideration to be offered to the shareholders
of Louis Dreyfus from a financial point of view, together with a draft of
Lehman Brothers' fairness opinion, were provided to the Louis Dreyfus board of
directors on September 8, 2001, in advance of a meeting to be held on September
9, 2001.
During the afternoon of Sunday, September 9, 2001, the Louis Dreyfus board of
directors met at the offices of Lehman Brothers in Houston to discuss the
proposed transaction. After a management presentation describing the events
since the last board meeting, a member of Crowe & Dunlevy presented to the
Louis Dreyfus board of directors an overview of the terms and conditions of the
proposed merger agreement and gas sale agreement and advised the board of
directors as to its fiduciary duties. Simpson Thacher & Bartlett summarized for
the Louis Dreyfus board of directors the terms and conditions of the proposed
principal shareholders agreement among the Principal Shareholders and Dominion.
Representatives of Lehman Brothers then provided its financial analysis with
regard to the proposed merger agreement. Lehman Brothers then delivered its
opinion to the Louis Dreyfus board of directors to the effect that, as of the
date of its opinion and subject to the limitations and assumptions set forth in
the opinion, the consideration to be offered pursuant to the merger agreement
was fair from a financial point of view to the shareholders of Louis Dreyfus.
For a discussion of the opinion of Lehman Brothers, see "The Merger--Opinion of
Financial Advisor." After reviewing the information presented, the Louis
Dreyfus board of directors unanimously approved and adopted the merger
agreement which provided for the merger of Louis Dreyfus and Dominion's
subsidiary, Consolidated Natural Gas Company or another subsidiary designated
by Dominion and gas sale agreement and determined that the merger agreement and
gas sale agreement and the merger are advisable and in the best interests of
Louis Dreyfus and its shareholders. The Louis Dreyfus board of directors also
adopted a resolution recommending to Louis Dreyfus shareholders that they vote
FOR approval of the merger agreement.
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The merger agreement, the principal shareholders agreement and the gas sale
agreement were signed on September 9, 2001. Louis Dreyfus and Dominion issued a
joint press release announcing the merger on September 10, 2001 before the
stock markets opened.
Dominion, CNG and Louis Dreyfus executed an amendment to the merger agreement
dated as of September 17, 2001. The amendment provides for the formation by
Dominion of a new corporation under Delaware law and the merger of Louis
Dreyfus into that corporation, instead of CNG as originally provided. Promptly
following the merger, Dominion will contribute all of the outstanding capital
stock of the corporation surviving the merger to CNG and the corporation
surviving the merger will become a wholly owned subsidiary of CNG.
Recommendation of the Louis Dreyfus Board of Directors and Reasons for the
Merger
The Louis Dreyfus board of directors has unanimously approved and adopted the
merger agreement and the gas sale agreement and determined that the merger
agreement and the gas sale agreement and the merger are advisable and in the
best interests of Louis Dreyfus and its shareholders. Accordingly, the board
recommends that Louis Dreyfus shareholders vote to approve the merger
agreement.
The Louis Dreyfus board of directors has determined that the merger is in the
best interest of Louis Dreyfus and its shareholders because it believes that
the value of the cash and the stock consideration in the combined company is
more likely than not to be superior to the value of an investment in Louis
Dreyfus as a stand-alone company. The decision of the Louis Dreyfus board of
directors to approve the merger agreement and recommend its adoption by Louis
Dreyfus' shareholders was based upon various factors, including the following:
. the judgment, advice and analysis of senior management of Louis Dreyfus,
including senior management's analysis of conditions in the oil and gas
exploration and production industry generally, including the outlook for
natural gas prices, and strategic options available to Louis Dreyfus,
including the risks and challenges associated with Louis Dreyfus'
continued pursuit of its strategic plan as an independent company;
. the value of the cash and stock consideration offered in the merger in
relation to historical and current market trading prices for Louis
Dreyfus common stock and the underlying value of Louis Dreyfus' net
assets;
. a review of the discussions that Louis Dreyfus management and Lehman
Brothers have had over the last several months with various third
parties regarding their interest in a potential business combination
transaction and the negotiations with Dominion leading to the belief
that the values of the Dominion proposal represented the highest price
per share that could be negotiated for Louis Dreyfus common stock;
. the consideration by the Louis Dreyfus board of directors of the
business, operations, financial position, prospects and personnel of
Dominion and the fact that Louis Dreyfus shareholders would receive
shares of a more diversified energy company with less price volatility,
enhanced liquidity and with a dividend yield not available to Louis
Dreyfus shareholders;
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. the discussions with Louis Dreyfus' counsel and the Principal
Shareholders' counsel regarding the terms of the merger agreement and
the principal shareholders agreement and the ability of Louis Dreyfus
under certain conditions to consider unsolicited alternative proposals,
the circumstances under which the principal shareholders agreement could
be terminated, the ability to terminate the merger agreement in certain
situations and the termination fee payable in the event of the
occurrence of certain termination events (see "The Merger--Principal
Shareholders Agreement" and "The Merger Agreement" including "--
Conditions of the Merger," "--No Solicitation of Competing
Transactions," "--Termination," and "--Termination Fee"). The Louis
Dreyfus board of directors also considered the prohibition on soliciting
further acquisition proposals and requiring the payment of a termination
fee to Dominion in certain events could have the effect of deterring
alternative acquisition proposals. The board of directors concluded that
this effect was not so great as to preclude the emergence of a higher
offer for Louis Dreyfus and that the merger agreement contains
appropriate provisions allowing the board to terminate the merger
agreement in order to accept such an offer if one were made;
. the analysis of the terms of the gas sale agreement and the possible
effects of that agreement on deterring alternative acquisition
proposals;
. the opinion of Lehman Brothers described below that, as of the date of
such opinion and subject to the limitations and assumptions set forth in
the opinion, the consideration to be offered to Louis Dreyfus
shareholders in the merger was fair from a financial point of view to
Louis Dreyfus shareholders (see "The Merger--Opinion of Financial
Advisor");
. that the merger will be accomplished, for United States federal income
tax purposes, on a potentially tax-deferred basis, except to the extent
of the cash consideration (see "The Merger--Material United States
Federal Income Tax Consequences of the Merger"); and
. the circumstances under which Louis Dreyfus could refuse to consummate
the merger due to possible decline in the market value of Dominion
common stock or a material adverse change at Dominion between the date
of the merger agreement and the effective time.
The merger agreement was the end product of a process involving contacts with
a number of companies that included several interested parties who received an
initial presentation by the management of Louis Dreyfus or its investment
bankers. These companies represented various types of businesses that were
expected to have an interest in acquiring Louis Dreyfus. Four of these
companies devoted significant time and effort to studying non-public data
concerning Louis Dreyfus and a possible acquisition of Louis Dreyfus, but only
Dominion submitted a definitive proposal.
In reaching its decision to approve the merger agreement and the merger and
to recommend adoption of the merger agreement by Louis Dreyfus shareholders,
the Louis Dreyfus board of directors did not view any single factor as
determinative, and did not find it necessary or
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practicable to assign any relative or specific weights to the various factors
considered. Furthermore, individual directors may have given differing weights
to different factors.
The Louis Dreyfus board of directors believes that each of the factors listed
above supports the decision to adopt the merger agreement. The Louis Dreyfus
board of directors did not specifically adopt Lehman Brothers' opinion, but did
rely on it in reaching its conclusion that the merger is advisable and fair to
and in the best interests of Louis Dreyfus and its shareholders. The Louis
Dreyfus board of directors also considered it an important factor in
determining whether to approve the merger agreement. The Louis Dreyfus board of
directors was aware of the relationship between Lehman Brothers and Dominion as
described under "The Merger--Opinion of Financial Advisor" and concluded that
the ability of Lehman Brothers to act in the best interest of Louis Dreyfus had
not been compromised, and that Lehman Brothers had in fact so acted in carrying
out its assignment.
Dominion's Reasons for the Merger
The Dominion board of directors considered several financial and strategic
benefits in approving the acquisition of Louis Dreyfus. These include:
. Dominion expects the acquisition to be accretive to its current 2002
earnings per share expectations and to complement its continued
expected earnings growth of 10% or better over the next several years;
. The acquisition will increase Dominion's natural gas equivalent reserve
base by more than 60% to nearly 5 trillion cubic feet;
. Dominion believes the long term demand for natural gas will grow at a
faster pace than supply, driven in large part by expected growth in
natural gas-fired electric generation;
. The acquisition will give Dominion an expanded base for its gas trading
operations in support of Dominion's strategy of trading around physical
assets;
. The acquisition will expand Dominion's oil and gas exploration and
production operating basins from five to seven; and
. The acquisition builds on Dominion's portfolio of repeatable lower risk
development properties and increases Dominion's pro forma average
reserve life from 8.8 years to 10.2 years.
What Louis Dreyfus Shareholders Will Receive in the Merger
At the effective time of the merger, each share of Louis Dreyfus common stock
held by Louis Dreyfus shareholders other than Dominion or its subsidiaries and
Louis Dreyfus shareholders who validly exercise their appraisal rights under
Oklahoma law, shall automatically be converted into a right to receive:
. 0.3226 shares of Dominion common stock; and
. after giving effect to any required tax withholdings, a check in the
aggregate amount of:
. $20.00;
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. the amount of cash being paid in lieu of fractional shares of
Dominion common stock; and
. if the merger closes on or after the record date for Dominion's
regular quarterly dividend payable in December 2001 and/or March
2002 cash equal to the dividend that would have been paid if the
holder had been a Dominion shareholder on the relevant record date.
Holders will not receive these amounts, however, if breaches by
Louis Dreyfus of its obligations under the merger agreement cause
the merger to occur after the relevant record date of these
dividends.
For a description of Dominion common stock and a description of the
comparative rights of holders of Louis Dreyfus common stock and Dominion common
stock, see "Description of Dominion Capital Stock" and "Comparative Rights of
Shareholders."
Principal Shareholders Agreement
The following is a summary of the material terms of an agreement that
Dominion entered into with the Principal Shareholders which own approximately
44% of the outstanding common stock of Louis Dreyfus. This summary is qualified
in its entirety by reference to that agreement, a copy of which is attached to
this proxy statement/prospectus as Annex B. Louis Dreyfus and Dominion urge you
to read the principal shareholders agreement carefully and in its entirety.
The Principal Shareholders have agreed to vote:
. in favor of the approval of the terms of the merger;
. against any action, proposal, transaction or agreement that would
constitute a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of
Louis Dreyfus under the merger agreement or any of the Principal
Shareholders under the principal shareholders agreement;
. except as otherwise agreed to in writing in advance by Dominion,
against the following actions or proposals:
. any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving Louis Dreyfus;
. a sale, lease or transfer of a significant part of the assets of
Louis Dreyfus or any of its subsidiaries, or a reorganization,
recapitalization, dissolution or liquidation of Louis Dreyfus or any
of its subsidiaries;
. any change in the persons who constitute the board of directors that
is not approved in advance by at least a majority of those who were
directors of Louis Dreyfus at the time of the signing of the merger
agreement;
. any change in the capitalization of Louis Dreyfus or any amendment
of the articles of incorporation or bylaws of Louis Dreyfus;
. any other material change in the corporate structure or business of
Louis Dreyfus; or
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. any other action or proposal involving Louis Dreyfus that is
intended or would reasonably be expected, to prevent, impede, or
materially interfere with, delay or postpone the merger.
The Principal Shareholders also appointed Dominion, or its designee, as proxy
to vote their shares at any meeting of the Louis Dreyfus shareholders called
with respect to the matters described above.
If the Louis Dreyfus board of directors decides that it has a fiduciary
obligation to not recommend to Louis Dreyfus shareholders that they approve the
merger, the Principal Shareholders are only required to vote approximately two-
thirds of the shares owned by them (approximately 29% of the outstanding Louis
Dreyfus common stock) in favor of the merger.
The voting agreement terminates if the merger agreement terminates for any
reason, including if Louis Dreyfus terminates the merger agreement to accept a
superior proposal.
The agreement also restricts the ability of the Principal Shareholders to
sell the shares they receive in the merger. The Principal Shareholders may not
sell the shares of Dominion common stock they receive in the merger for 90 days
after the merger is complete. For the 12 months following the expiration of
that 90 day period, the Principal Shareholders have agreed not to sell more
than ten percent (10%) of the shares they receive in the merger in any calendar
month, unless Dominion agrees to allow them to sell more.
Gas Sale Agreement between Dominion and Louis Dreyfus
In connection with the execution of the merger agreement, Louis Dreyfus
entered into a gas sale agreement with Dominion Exploration & Production, a
wholly owned subsidiary of Dominion. The agreement calls for Louis Dreyfus to
deliver approximately 48 Bcf of natural gas at the rate of approximately 4 Bcf
per month for twelve months beginning in January 2002 to Dominion Exploration &
Production at a weighted average price of approximately $3.03 per Mcf. The
purpose of this transaction was to allow Dominion to align Louis Dreyfus'
estimated production for 2002 with Dominion's overall risk management strategy.
The gas sale agreement will survive any termination of the merger agreement.
The 48 Bcf of gas subject to this gas sale agreement represents approximately
3% of Louis Dreyfus' estimated proved reserves as of June 30, 2001. The gas
sale agreement may be detrimental or beneficial to Louis Dreyfus if the merger
is not consummated depending on whether market prices for natural gas in 2002
are above or below the contract price.
Source of Funds
Dominion expects initially to finance the cash component of the merger with a
bridge loan or short term commercial paper. After the merger, Dominion plans to
replace the short term financing with a combination of trust preferred
securities and long term debt issued by either Dominion or CNG.
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Opinion of Financial Advisor
Lehman Brothers has acted as financial advisor to Louis Dreyfus in connection
with the proposed transaction. On September 9, 2001, Lehman Brothers rendered
its opinion to the board that as of such date, and based upon and subject to
certain matters stated in the opinion letter from a financial point of view,
the consideration to be offered to the Louis Dreyfus shareholders in the merger
was fair to such shareholders.
THE FULL TEXT OF LEHMAN BROTHERS' OPINION DATED SEPTEMBER 9, 2001 IS INCLUDED
AS ANNEX C TO THIS DOCUMENT AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF
LOUIS DREYFUS COMMON STOCK MAY READ LEHMAN BROTHERS' OPINION FOR A DISCUSSION
OF THE PROCEDURES FOLLOWED, FACTORS CONSIDERED, ASSUMPTIONS MADE AND
QUALIFICATIONS AND LIMITATIONS OF THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN
CONNECTION WITH ITS OPINION.
LEHMAN BROTHERS' ADVISORY SERVICES AND OPINION WERE PROVIDED FOR THE
INFORMATION AND ASSISTANCE OF THE BOARD OF DIRECTORS IN CONNECTION WITH ITS
CONSIDERATION OF THE PROPOSED TRANSACTION. LEHMAN BROTHERS' OPINION IS NOT
INTENDED TO BE AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF
LOUIS DREYFUS AS TO WHETHER TO VOTE FOR OR AGAINST THE MERGER. LEHMAN BROTHERS
WAS NOT REQUESTED TO OPINE AS TO, AND ITS OPINION DOES NOT IN ANY MANNER
ADDRESS, LOUIS DREYFUS' UNDERLYING BUSINESS DECISION (i) TO PROCEED WITH OR
EFFECT THE PROPOSED TRANSACTION OR (ii) TO ENTER INTO THE GAS SALE AGREEMENT.
In arriving at its opinion, Lehman Brothers reviewed or considered, among
other things:
. the merger agreement, the principal shareholders agreement and the
specific terms of the proposed transaction;
. publicly available information concerning Louis Dreyfus and Dominion
that Lehman Brothers believed to be relevant to its analysis, including
Annual Reports on Form 10-K for the year ended December 31, 2000 and
Quarterly Reports on Form 10-Q for the periods ended March 31 and June
30, 2001;
. financial and operating information with respect to the business,
operations and prospects of Louis Dreyfus furnished to Lehman Brothers
by Louis Dreyfus;
. financial and operating information with respect to the business,
operations and prospects of Dominion furnished to Lehman Brothers by
Dominion;
. certain estimates prepared by Louis Dreyfus of Louis Dreyfus' proved
and non-proved reserves and future production, revenue, operating costs
and capital investment;
. certain estimates of Louis Dreyfus' proved reserves audited by Ryder
Scott Company L.P., Louis Dreyfus' third party reserve engineers;
33
. the trading history of the common stock of Louis Dreyfus and Dominion
from September 5, 2000 to September 7, 2001 and a comparison of those
trading histories with each other and with those of other companies
that Lehman Brothers deemed relevant;
. a comparison of the historical financial results and present financial
condition of Louis Dreyfus and Dominion with each other and with those
other companies that Lehman Brothers deemed relevant;
. a comparison of the financial terms of the proposed transaction with
the financial terms of certain other transactions that Lehman Brothers
deemed relevant;
. earnings estimates for Louis Dreyfus and Dominion published by research
analysts;
. the potential pro forma effects of the proposed transaction on the
future financial performance of Dominion, including the cost savings,
operating synergies and strategic benefits expected to result from a
combination of the businesses of Louis Dreyfus and Dominion; and
. discussions with third parties by Louis Dreyfus and Lehman Brothers
regarding such third parties' interest in a purchase of all or a part
of Louis Dreyfus.
In addition, Lehman Brothers had discussions with the management of Louis
Dreyfus and Dominion concerning their businesses, operations, assets, financial
condition, prospects, reserves, production profiles and exploration programs
and undertook such other studies, analyses and investigations as Lehman
Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by Lehman
Brothers without assuming any responsibility for independent verification of
such information and further relied upon the assurances of the managements of
Louis Dreyfus and Dominion that they were not aware of any facts or
circumstances that would make such information inaccurate or misleading. With
respect to the financial projections of Louis Dreyfus and the estimates of
proved and non-proved reserves and future production, revenue, operating costs
and capital investment of Louis Dreyfus, upon advice of Louis Dreyfus, Lehman
Brothers assumed that such projections and estimates have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of Louis Dreyfus' management as to the future performance of Louis
Dreyfus and that Louis Dreyfus will perform substantially in accordance with
such projections and estimates. With respect to the financial projections of
Dominion, upon advice of Dominion and Louis Dreyfus, Lehman Brothers assumed
that such projections had been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of Dominion's management as to
the future financial performance of Dominion and that Dominion would perform
substantially in accordance with such projections. In arriving at its opinion,
Lehman Brothers did not conduct a physical inspection of the properties and
facilities of Louis Dreyfus or Dominion and did not make or obtain any
evaluations or appraisals of the assets or liabilities of Louis Dreyfus or
Dominion, other than the estimates of Louis Dreyfus' proved reserves audited by
Ryder Scott Company L.P. Upon advice of Louis Dreyfus and its legal and
accounting advisors, Lehman
34
Brothers assumed the shareholders of Louis Dreyfus would recognize gain only to
the extent of the lesser of such gain or the cash received (but would not
recognize loss). Lehman Brothers' opinion necessarily was based upon market,
economic and other conditions as they existed on, and could be evaluated as of,
September 9, 2001.
In arriving at its opinion, Louis Dreyfus did not authorize Lehman Brothers
to formally solicit, and Lehman Brothers did not so solicit, any indications of
interest from any third party with respect to the purchase of all or a part of
Louis Dreyfus. In addition, Lehman Brothers was not requested to and did not
express any opinion as to the prices at which shares of Dominion's common stock
would trade following the announcement or consummation of the proposed
transaction.
In connection with rendering its opinion, Lehman Brothers performed certain
financial, comparative and other analyses as described below. In arriving at
its opinion, Lehman Brothers did not ascribe a specific range of value to Louis
Dreyfus, but rather made its determination as to the fairness, from a financial
point of view, of the consideration per share to be offered to Louis Dreyfus
shareholders in the proposed transaction on the basis of the analysis described
below. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial and comparative
analysis and the application of those methods to the particular circumstances,
and, therefore, such an opinion is not readily susceptible to summary
description. Furthermore, in arriving at its fairness opinion, Lehman Brothers
did not attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to the significance and relevance
of each analysis and factor. Accordingly, Lehman Brothers believes that its
analyses must be considered as a whole and that considering any portion of such
analyses and the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
the opinion. In its analyses, Lehman Brothers made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Louis Dreyfus and
Dominion. Any estimates contained in the analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than as set forth in the analyses.
In addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses could actually be sold.
Valuation Analysis: Louis Dreyfus
Lehman Brothers performed a valuation of Louis Dreyfus using the following
methodologies: net asset valuation analysis, comparable companies analysis and
comparable transactions analysis. Each of these methodologies was used to
generate a reference enterprise value range for Louis Dreyfus. The enterprise
value range was adjusted for appropriate on and off balance sheet assets and
liabilities to arrive at an equity value range (in aggregate dollars). The
equity value range was divided by fully diluted shares outstanding which is
comprised of primary shares and outstanding options. The per share equity value
ranges were then compared to the consideration to be offered to Louis Dreyfus
35
shareholders in the merger. The implied per share equity values derived using
the various valuation methodologies described above supported the conclusion
that, as of September 9, 2001, the consideration offered to Louis Dreyfus
shareholders in the proposed transaction was fair, from a financial point of
view, to the shareholders.
The various valuation methodologies noted above and the implied per share
equity values derived from these methodologies are included in the following
table. This table should be read together with the more detailed descriptions
set forth below. The table alone does not constitute a complete description of
the financial and comparative analyses performed by Lehman Brothers.
Considering the implied per share equity values without considering the
narrative description of the financial analyses, including the assumptions
underlying these analyses, could create a misleading or incomplete view of the
process underlying, and conclusions represented by, Lehman Brothers' opinion.
SUMMARY DESCRIPTION OF IMPLIED EQUITY
VALUATION METHODOLOGY VALUATION METHODOLOGY VALUE PER SHARE
--------------------- ---------------------- ---------------
Net asset valuation analysis Net present valuation of after-
tax cash flows generated by
proved reserves using selected
hydrocarbon pricing scenarios (as
described below) and discount
rates plus evaluation of non-
proved reserves and other assets
and liabilities
-- Case I Commodity Prices $27.73-$31.30
-- Case II Commodity Prices $33.21-$37.81
-- Case III Commodity Prices $39.75-$44.94
Comparable companies analysis Market valuation benchmark based
on the common stock trading
multiples of selected comparable
companies for selected financial
and asset-based measures
excluding incorporation of a
control premium $28.86-$33.24
Comparable companies valuation
analysis incorporating a
theoretical 20% control premium $34.64-$39.89
Comparable transactions Market valuation benchmark based
analysis on consideration paid in selected
comparable transactions $37.62-$48.57
Consideration offered to Louis
Dreyfus shareholders in the
merger calculated using closing
stock prices as of September 7,
2001 $40.20
Net Asset Valuation Analysis. Lehman Brothers estimated the present value of
the future after-tax cash flows expected to be generated from Louis Dreyfus'
proved reserves as of March 31, 2001, based on estimated reserves and
production cost estimates, as adjusted to take into account such reserve and
production costs estimates as of June 30, 2001, and a range of discount rates
as described below and assuming a tax rate of 38%, all as provided
36
by Louis Dreyfus' management and discussed with Louis Dreyfus' management.
Lehman Brothers added to such estimated values for proved reserves assessments
of the value of certain other assets and liabilities of Louis Dreyfus,
including probable and possible reserves, its exploration portfolio, Louis
Dreyfus' commodity hedging portfolio and Louis Dreyfus' net operating loss
carryforwards. The net asset valuation analysis was performed under three
natural gas price scenarios (Case I, Case II and Case III), which are described
below.
The natural gas and oil price forecasts employed by Lehman Brothers were
based on New York Mercantile Exchange ("NYMEX") price forecasts (assuming Henry
Hub, Louisiana delivery for natural gas and West Texas Intermediate, Cushing,
Oklahoma delivery for oil) from which adjustments were made to reflect location
and quality differentials. NYMEX gas price quotations are stated in heating
value equivalents per million British Thermal Units ("MMBtu"), which are
adjusted to reflect the value per thousand cubic feet ("MCF") of gas. NYMEX oil
price quotations are stated in dollars per barrel of crude oil. The table below
presents a summary of natural gas and oil price forecasts employed by Lehman
Brothers for each pricing case.
ESCALATION
HENRY HUB ($/MMBTU) 2001E 2002E 2003E 2004E 02005E THEREAFTER
------------------- ------ ------ ------ ------ ------ ----------
Case I........................... $3.00 $3.00 $3.00 $3.00 $3.00 0.0%
Case II.......................... $3.31 $3.13 $3.31 $3.33 $3.41 2.5%
Case III......................... $4.00 $4.00 $4.00 $4.00 $4.00 0.0%
ESCALATION
WEST TEXAS INTERMEDIATE ($/BBL) 2001E 2002E 2003E 2003E 2003E THEREAFTER
------------------------------- ------ ------ ------ ------ ------ ----------
Case I........................... $18.00 $18.00 $18.00 $18.00 $18.00 0.0%
Case II.......................... $27.37 $25.47 $23.22 $22.32 $21.56 2.5%
Case III......................... $25.00 $25.00 $25.00 $25.00 $25.00 0.0%
The following table summarizes the discount rate ranges Lehman Brothers
employed to estimate the present value of the future after-tax cash flows for
each of the different reserve categories.
Low High
Reserve Category Case Case
---------------- ---- ----
Proved Developed Producing............................................ 10% 8%
Proved Developed Non-producing........................................ 12% 10%
Proved Undeveloped.................................................... 15% 13%
To arrive at a range of values for Louis Dreyfus' non-proved reserves, 50%,
25% and 10% of the implied per unit value of proved reserves was applied to
estimated reserve quantities of Louis Dreyfus' probable reserves, possible
reserves and exploration portfolio, respectively.
The net asset valuation analysis resulted in implied per share equity values
of $27.73 to $31.30 for Case I; $33.21 to $37.81 for Case II; and $39.75 to
$44.94 for Case III. The consideration of $40.20 per share offered to Louis
Dreyfus shareholders in the merger exceeds the high end of the valuation ranges
for Case I and II and falls within the range for Case III.
37
Comparable Companies Analysis. Lehman Brothers reviewed the public stock
market trading multiples for the following exploration and production
companies:
. Burlington Resources Inc.
. Devon Energy Corporation
. EOG Resources, Inc.
. Noble Affiliates, Inc.
. XTO Energy Inc.
Using publicly available information including certain published equity
research estimates from Lehman Brothers, Lehman Brothers calculated and
analyzed equity and adjusted capitalization multiples of certain historical and
projected financial and operating criteria such as earnings before interest,
taxes, depreciation, depletion, amortization and exploration expenses
("EBITDE"), proved reserves and discretionary cash flow. The adjusted
capitalization of each company was obtained by adding its long-term debt to the
sum of the market value of the common equity, the value of its preferred stock
and the book value of any minority interest, and subtracting cash balances. The
projected 2001 and 2002 EBITDE multiple ranges were determined to be 3.5x to
4.0x and 5.0x to 5.5x, respectively. Proved reserve multiple ranges were
determined to be $0.95 to $1.15 per thousand cubic feet of gas equivalent
("Mcfe"); the multiples were applied to Louis Dreyfus' proved reserve
estimates, as of December 31, 2000. The appropriate projected 2001 and 2002
discretionary cash flow multiple ranges were determined to be 3.0x to 3.5x and
4.5x to 5.0x, respectively.
This methodology yielded valuations for Louis Dreyfus that implied a per
share equity value range of $28.86 to $33.24. Additionally, a theoretical
control premium was applied to reflect potential additional per share value of
owning a majority interest in the equity of Louis Dreyfus. This control premium
was estimated to be 20%. This methodology yielded valuations for Louis Dreyfus
that implied a per share equity value range of $34.64 to $39.89. The
consideration of $40.20 per share offered to Louis Dreyfus shareholders in the
merger exceeds the high end of this valuation range.
Because of the inherent differences between the corporate structure,
businesses, operations and prospects of Louis Dreyfus and the corporate
structure, businesses, operations and prospects of the companies included in
the comparable company group, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis and, accordingly, also made qualitative judgments
concerning differences between the financial and operating characteristics of
Louis Dreyfus and the companies in the comparable company group that would
affect the public trading values of Louis Dreyfus and such comparable
companies.
Comparable Transactions Analysis. Lehman Brothers reviewed certain publicly
available information on selected exploration and production corporate level
and asset level acquisition transactions which were announced or took place
from February 1997 to September 2001. Some of the more recent transactions
reviewed include the following:
38
. Devon Energy Corporation / Anderson Exploration Ltd.
. Devon Energy Corporation / Mitchell Energy & Development Corp.
. Hunt Oil Company / Chieftain International Inc.
. El Paso Corporation / Velvet Exploration Ltd.
. Westport Resources Corporation / Belco Oil & Gas Corp.
. Samson Canada Ltd. / Courage Energy Inc.
. Conoco Inc. / Gulf Canada Resources Ltd.
. Unocal Corporation / Tethys Energy Inc.
. Kerr-McGee Corp. / HS Resources, Inc.
. Williams Companies, Inc. / Barrett Resources Corporation
. Talisman Energy Inc. / Petromet Resources Ltd.
. Vintage Petroleum, Inc. / Genesis Exploration Ltd.
. Amerada Hess Corp / LLOG Exploration Co.
. PrimeWest Energy Trust / Cypress Energy Inc.
. Anadarko Petroleum / Berkley Petroleum
. Calpine Corporation / Encal Energy
. Newfield Exploration Co. / Lariat Petroleum, Inc.
. USX Marathon Group / Pennaco Energy, Inc.
. Stone Energy Corp. / Basin Exploration, Inc.
For each transaction, relevant transaction multiples were analyzed including:
total purchase price (equity purchase price plus assumed obligations) divided
by estimated EBITDE; total purchase price, adjusted by the value allocated to
non-proved reserves, divided by proved oil and natural gas reserves on an Mcfe
basis; and equity purchase price divided by estimated discretionary cash flow.
The appropriate EBITDE multiple range was determined to be 4.5x to 5.5x. The
appropriate proved reserve multiple range was determined to be $1.25 to $1.50
per Mcfe. The appropriate discretionary cash flow multiple range was determined
to be 4.0x to 5.0x.
This methodology yielded valuations for Louis Dreyfus that implied per share
equity values ranging from $37.62 to $48.57. The consideration of $40.20 per
share offered to Louis Dreyfus shareholders in the merger falls within this
range.
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of
Louis Dreyfus and the acquired businesses analyzed, Lehman Brothers believed
that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis and, accordingly, also made qualitative
judgments concerning differences between the characteristics of each of these
transactions and the proposed transaction.
39
Exploration and Production Transaction Premiums Analysis
Lehman Brothers reviewed certain publicly available information related to
selected exploration and production corporate transactions to calculate the
amount of the premiums paid by the acquirers to the acquired company's
shareholders. Lehman Brothers analyzed transactions that were announced or took
place from July 1997 to September 2001. Some of the more recent transactions
reviewed include the following:
. Devon Energy Corporation / Anderson Exploration Ltd.
. Devon Energy Corporation / Mitchell Energy & Development Corp.
. Hunt Oil Company / Chieftain International Inc.
. Westport Resources Corporation / Belco Oil & Gas Corp.
. Conoco Inc. / Gulf Canada Resources Ltd.
. Kerr-McGee Corp. / HS Resources, Inc.
. Williams Companies, Inc. / Barrett Resources Corporation
Lehman Brothers calculated the premiums paid by the acquirer by comparing the
per share purchase price in each transaction to the historical stock price of
the acquired company as of one day, one week and one month prior to the
announcement date. Lehman Brothers compared the premiums paid in the precedent
transactions to the premium levels implied by the $40.20 consideration offered
to Louis Dreyfus shareholders in the merger. The table below sets forth the
summary results of the analysis:
Percentage Premium to the
Price Prior to Transaction
Announcement
-----------------------------
Selected Transactions 1-DAY 1-WEEK 4-WEEKS
--------------------- ------- --------- -----------
Mean............................................ 18.1% 22.1% 23.6%
Median.......................................... 19.1% 23.8% 24.2%
Premium offered to Louis Dreyfus shareholders in
the merger..................................... 22.0% 20.9% 32.4%
Valuation Analysis: Dominion
Lehman Brothers performed a valuation of Dominion using the following
methodologies: discounted cash flow analysis, comparable companies analysis,
comparable transactions analysis, and segment comparable transactions analysis.
Each of these methodologies was used to generate a reference enterprise value
range for Dominion. The enterprise value range was adjusted for appropriate on
and off balance sheet assets and liabilities to arrive at an equity value range
(in aggregate dollars). The equity value range was divided by fully diluted
shares outstanding which is comprised of primary shares and outstanding
options. The per share equity value ranges were then compared to the value per
Dominion share on September 7, 2001. The implied per share equity values
derived using the various valuation methodologies described above supported the
conclusion that, as of September 9, 2001, the consideration offered to Louis
Dreyfus shareholders in the merger was fair, from a financial point of view, to
the shareholders.
40
The various valuation methodologies noted above and the implied per share
equity values derived from these methodologies are included in the following
table. This table should be read together with the more detailed descriptions
set forth below. The table alone does not constitute a complete description of
the financial and comparative analyses. Considering the implied per share
equity values without considering the narrative description of the financial
analyses, including the assumptions underlying these analyses, could create a
misleading or incomplete view of the process underlying, and conclusions
represented by, Lehman Brothers' opinion.
IMPLIED EQUITY
SUMMARY DESCRIPTION OF VALUE PER
VALUATION METHODOLOGY VALUATION METHODOLOGY SHARE
--------------------- ------------------------------------------------ --------------
Discounted cash flow Net present valuation of management projections
analysis of after-tax cash flows using selected discount
rates and terminal value multiples $58.54-$81.48
Comparable companies Market valuation benchmark based on the common
analysis stock trading multiples of selected comparable
companies for selected financial and asset-based
measures excluding incorporation of a control
premium $53.74-$65.74
Comparable transactions Market valuation benchmark based on
analysis consideration paid in selected comparable
transactions $57.74-$81.74
Segment comparable Market valuation benchmark based on
transactions analysis consideration paid in selected comparable
transactions in each of Dominion's primary
business segments, including Dominion's Energy
segment, Delivery segment and Exploration and
Production segment $51.74-$77.74
Value per Dominion share
based on September 7,
2001 closing price $62.63
Discounted Cash Flow Analysis. Lehman Brothers estimated the present value of
the future after-tax cash flows expected to be generated from Dominion's
operations based on information and projections provided by Dominion for the
years 2001 through 2005, multiples to estimate the terminal value, and discount
rates of 9.5% and 8.5% for the low and high ends of the discounted cash flow
analysis range, respectively, and assuming a tax rate of 38.0%. Unlike the net
asset valuation analysis performed on Louis Dreyfus, which was an analysis of
the value of the after-tax cash flows generated by Louis Dreyfus' depleting
asset base over a finite period of time, the discounted cash flow analysis
performed on Dominion assumes that Dominion's operations continue as a going
concern in perpetuity.
The aggregate discounted cash flow analysis resulted in implied per share
equity values of $58.54 to $81.48. The value per Dominion share of $62.63 on
September 7, 2001 falls within this valuation range.
Comparable Companies Analysis. Lehman Brothers reviewed the public stock
market trading multiples for the following integrated energy companies:
41
. Duke Energy Corp.
. Dynegy Inc.
. El Paso Corporation
. Enron Corp.
. Exelon Corp.
. NiSource Inc.
. The Williams Companies, Inc.
Using publicly available information including certain published equity
research estimates from Lehman Brothers and third party research analysts,
Lehman Brothers calculated and analyzed equity and adjusted capitalization
multiples of certain historical and projected financial and operating criteria
such as earnings before interest, taxes, depreciation, depletion, and
amortization expense ("EBITDA"), earnings before interest and taxes ("EBIT")
and net income. The adjusted capitalization of each company was obtained by
adding its long-term debt to the sum of the market value of the common equity,
the value of its preferred stock and the book value of any minority interest,
and subtracting cash balances. The projected 2001 and 2002 EBITDA multiple
ranges were determined to be 8.0x to 8.5x and 7.0x to 7.5x, respectively. The
projected 2001 and 2002 EBIT multiple ranges were determined to be 10.5x to
11.5x and 9.0x to 10.0x, respectively. The appropriate projected 2001 and 2002
net income multiple ranges were determined to be 14.0x to 15.0x and 12.0x to
13.0x, respectively.
This methodology yielded valuations for Dominion that implied a per share
equity value range of $53.74 to $65.74. The value per Dominion share of $62.63
on September 7, 2001 falls within this valuation range.
Because of the inherent differences between the corporate structure,
businesses, operations and prospects of Dominion and the corporate structure,
businesses, operations and prospects of the companies included in the
comparable company group, Lehman Brothers believed that it was inappropriate
to, and therefore did not, rely solely on the quantitative results of the
analysis and, accordingly, also made qualitative judgments concerning
differences between the financial and operating characteristics of Dominion and
the companies in the comparable company group that would affect the public
trading values of Dominion and such comparable companies.
Comparable Transactions Analysis. Lehman Brothers reviewed certain publicly
available information on selected transactions involving companies in the
natural gas and power transmission and distribution sectors which were
announced or took place from June 1996 to May 2001 including the following:
. FirstEnergy Corp. / GPU Inc.
. FPL Group, Inc. / Entergy Corp.
. El Paso Energy Corporation / The Coastal Corporation
42
. PowerGen plc / LG&E Energy Corp.
. Consolidated Edison / Northeast Utilities
. PECO Energy / Unicom Corp.
. Carolina Power & Light Co. / Florida Progress Corporation
. NiSource Inc. / Columbia Energy Group
. Dynegy Inc. / Illinova Corp.
. Dominion Resources, Inc. / Consolidated Natural Gas Company
. El Paso Energy Corporation / Sonat Inc.
. Scottish Power plc / PacifiCorp
. Duke Energy Field Services / Canadian Midstream Services Ltd.
. CalEnergy Co. / MidAmerican Energy Holdings
. American Electric Power Co. / Central & South West Corp.
. MidCon Gas Products / KN Energy
. LG&E Energy Corp. / KU Energy
. Duke Power Co. / PanEnergy Corp.
. Houston Industries / NorAm Energy Corp.
. El Paso Energy Corporation / Tenneco Energy
For each transaction, relevant transaction multiples were analyzed including:
total purchase price (equity purchase price plus assumed obligations) divided
by latest twelve month ("LTM") and one year forward estimated EBITDA and EBIT.
The appropriate LTM and one year forward estimated EBITDA multiple ranges were
determined to be 9.0x to 11.0x and 8.0x and 9.5x, respectively. The appropriate
LTM and one year forward estimated EBIT multiple ranges were determined to be
14.0x to 16.0x and 11.0x to 13.0x, respectively.
This methodology yielded valuations for Dominion that implied a per share
equity value range of $57.74 to $81.74. The value per Dominion share of $62.63
on September 7, 2001 falls within this valuation range.
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of
Dominion and the acquired businesses analyzed, Lehman Brothers believed that it
was inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis and, accordingly, also made qualitative judgments
concerning differences between the characteristics of each of these
transactions and the transactions contemplated by the merger agreement
involving Dominion.
43
Segment Comparable Transactions Analysis. Lehman Brothers also performed a
comparable transactions analysis for the business segments of Dominion
including Dominion's Energy segment, Delivery segment and Exploration and
Production segment, as referenced and described in certain of Dominion's
publicly available information. For each segment, a different group of
comparable transactions was examined. The segment enterprise value ranges
calculated were added together to calculate an enterprise value range for
Dominion.
This methodology yielded valuations for Dominion that implied a per share
equity range of $51.74 to $77.74. The value per Dominion share of $62.63 on
September 7, 2001 falls within this valuation range.
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of
Dominion and the acquired businesses analyzed, Lehman Brothers believed that it
was inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis and, accordingly, also made qualitative judgments
concerning differences between the characteristics of each of these
transactions and the transactions contemplated by the merger agreement
involving Dominion.
Pro Forma Merger Consequences Analysis
Lehman Brothers analyzed the pro forma impact of the merger on Dominion's
projected earnings per share and cash flow from operations per share. Projected
net income and cash flow from operations for fiscal years 2001 and 2002 was
based on the financial and operating projections provided by Louis Dreyfus and
Dominion. The pro forma results reflected the following adjustments: (a) the
inclusion of $10 million in pretax synergies; (b) the additional depreciation
and depletion expense associated with the purchase accounting write-up of Louis
Dreyfus' assets to the offer consideration; and (c) the additional interest
expense of Dominion associated with the financing of the cash portion of the
consideration to be offered to Louis Dreyfus. Based on the these assumptions,
Lehman Brothers' analysis indicated that the merger would be accretive to
Dominion's 2002 earnings per share by approximately 2.9%, and would be
accretive to Dominion's 2002 cash flow from operations per share by
approximately 8.5%.
About Lehman Brothers
Lehman Brothers is an internationally recognized investment banking firm
engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Louis Dreyfus selected Lehman Brothers because of its expertise, reputation and
familiarity with Louis Dreyfus and because its investment banking professionals
have substantial experience in transactions comparable to the merger.
44
Lehman Brothers has acted as financial advisor to Louis Dreyfus in connection
with the proposed transaction and Louis Dreyfus has paid Lehman Brothers an
advisory fee of $1 million which includes the fees for its fairness opinion. In
addition, Louis Dreyfus has agreed to pay Lehman Brothers a transaction fee of
$7 million upon the consummation of the proposed transaction. In addition,
Louis Dreyfus has agreed to indemnify Lehman Brothers for certain liabilities
that may arise out of the rendering of this opinion.
Lehman Brothers has also performed various investment banking services for
Louis Dreyfus in the past and has received customary fees for these services.
Lehman Brothers has also performed various investment banking services for
Dominion in the past and has received customary fees for these services. Lehman
Brothers may continue to provide such investment banking services to Dominion
in the future. In the ordinary course of business, Lehman Brothers actively
trades in the securities of Louis Dreyfus and Dominion for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
Appraisal Rights of Shareholders
Pursuant to Section 1091 of the Oklahoma General Corporation Act, a
shareholder of Louis Dreyfus who follows the procedure set forth in such
section may receive a cash payment equal to the "fair value" (exclusive of any
element of value arising from accomplishment or expectation of the merger) of
his or her shares of Louis Dreyfus common stock if the merger is completed.
This procedure must be followed precisely in order to perfect the rights of
dissenting shareholders.
To be entitled to a cash payment through this procedure, a shareholder of
Louis Dreyfus must deliver a written demand for appraisal of his or her shares
to Louis Dreyfus. The written demand must identify the shareholder and
reasonably inform Louis Dreyfus that he or she intends thereby to demand
appraisal of his or her shares and must be delivered to Louis Dreyfus before
the taking of the vote on the merger. A proxy or vote against the merger does
not constitute such a demand. Within 10 days after the effective time of the
merger, Louis Dreyfus will notify each dissenting shareholder who has complied
with the procedure of separate written demand and who has not voted in favor of
the merger, that the merger has become effective. Within 120 days after the
effective time of the merger, a dissenting shareholder may file a petition in
the District Court of Oklahoma County in the State of Oklahoma demanding a
determination of the value of the shares of all dissenting shareholders.
However, at any time within 60 days after the effective time of the merger, any
dissenting shareholder has the right to withdraw the demand for appraisal and
accept the terms offered in the merger. Within 120 days after the effective
time of the merger, any dissenting shareholder, upon written request, will be
entitled to receive from Dominion a statement setting forth the aggregate
number of shares not voted in favor of the merger and with respect to which
demands for appraisal have been received and the aggregate number of holders of
such shares. This written statement must be made available to the requesting
dissenting shareholder within 10 days after written request is received by
Dominion, or within 10 days after the date the vote on the merger is taken.
45
Upon determining the dissenting shareholders entitled to an appraisal, the
District Court shall appraise the shares, determine their fair value exclusive
of any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any. The Court will direct
the payment of the fair value of the shares, together with interest, if any, by
Dominion to the dissenting shareholders entitled thereto. The costs of the
proceeding may be determined by the District Court and taxed upon the parties
as the Court deems equitable under the circumstances. Upon application of a
dissenting shareholder, the Court may order all or portion of the expenses
incurred by any dissenting shareholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all
shares entitled to an appraisal. No cash payments will be made to a dissenting
shareholder until the fair value of his or her shares has been determined by
the District Court in accordance with the procedure summarized above.
The foregoing summary does not purport to be complete statement of Section
1091 of the Oklahoma General Corporation Act relating to the rights of
dissenting shareholders, a copy of which is included as Annex D.
Material U.S. Federal Income Tax Consequences of the Merger
Scope of Discussion
This discussion summarizes the material U.S. federal income tax consequences
of the merger that apply to certain holders of Louis Dreyfus common stock. It
is not a complete analysis of all potential U.S. federal income tax
consequences of the merger that may be relevant to you in light of your
particular circumstances. In addition, this discussion does not provide
information as to the tax consequences of the merger under state, local, or
foreign laws.
This discussion applies only to persons that hold shares of Louis Dreyfus
common stock as capital assets within the meaning of Section 1221 of the
Internal Revenue Code. It does not apply to particular categories of holders of
shares of Louis Dreyfus common stock, including holders of Louis Dreyfus common
stock:
. who received shares upon the exercise of an option, warrant or other
similar security or otherwise as compensation;
. who hold shares as part of a hedge, constructive sale, wash sale,
straddle, conversion transaction, synthetic security, or other
integrated investment; or
. who are subject to special treatment under U.S. federal income tax
laws, such as financial institutions, insurance companies, tax-exempt
organizations, dealers in securities, traders in securities who elect
to mark to market, investment companies, Non-U.S. Persons, as defined
in the discussion below, or persons whose functional currency is not
the U.S. dollar.
This discussion is based on and subject to the current provisions of the
Internal Revenue Code of 1986, as amended, Treasury regulations, administrative
rulings, and court
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decisions, all as of the date hereof. These provisions, regulations, rulings,
and decisions may change at any time, and the changes may apply retroactively.
Any such change could affect the continuing validity of this discussion.
This summary is of a general nature and is not intended to be, nor should it
be construed to be, legal or tax advice to any particular shareholder.
Accordingly, we urge you to consult your own tax advisors concerning the U.S.
federal, state and local, and foreign income and other tax consequences of the
merger to you. In addition, shareholders that are Non-U.S. Persons as defined
below are urged to consult their tax advisors regarding the possible
application of section 897 of the Internal Revenue Code, as Louis Dreyfus
believes it is a "United States real property holding corporation" within the
meaning of that section.
Tax Opinions
It is a condition of the merger that at, or prior to, closing:
. Dominion receive an opinion from its counsel, McGuireWoods LLP, that
the merger will qualify as a reorganization within the meaning of
section 368(a) of the Internal Revenue Code, and that no gain or loss
will be recognized by Dominion, Dominion's wholly owned acquisition
subsidiary, or Louis Dreyfus in connection with the merger; and
. Louis Dreyfus receive an opinion from its counsel, Crowe & Dunlevy,
that the merger will be treated as a reorganization within the meaning
of section 368(a) of the Internal Revenue Code, that no gain or loss
will be recognized by Louis Dreyfus in connection with the merger, and
that shareholders of Louis Dreyfus that are U.S. persons will recognize
taxable gain only to the extent of the lesser of gain realized, if any,
or cash received in the exchange.
The terms of the tax opinions to be received by Dominion and Louis Dreyfus
are set forth in Sections 7.2(b) and 7.3(b) of the merger agreement, a copy of
which is attached to this proxy statement/prospectus as Annex A. Counsel will
base their opinions on representations of fact contained in certificates of
officers and shareholders of Dominion, Louis Dreyfus and certain of their
affiliates and on conditions and assumptions set forth in the opinions. The
parties will provide this information before closing, and the information must
be correct as of the date it is provided and the time of closing.
Dominion and Louis Dreyfus expect, based on conditions as they exist as of
the date of this document, to receive the tax opinions described above.
However, there can be no assurance that they will be able to do so. Among the
requirements that must be satisfied in order for the merger to qualify as a
reorganization is the "continuity of interest" requirement. This requires that
the fair market value of the Dominion stock to be received by Louis Dreyfus
shareholders constitute a substantial portion of the aggregate merger
consideration (taking into account all cash payments, including those made to
dissenting shareholders). The Internal Revenue Service has taken the position
for advance ruling purposes that the continuity of interest requirement is
satisfied if the value (determined at the
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effective time) of the acquiring corporation's (e.g., Dominion's) stock
received by the acquired corporation's (e.g., Louis Dreyfus') shareholders in
the merger equals or exceeds 50% of the total merger consideration received by
such shareholders. The courts, however, have held the continuity of interest
requirement to be satisfied with somewhat lower percentages of acquiring
corporation stock. The amount of Dominion stock to be received by the Louis
Dreyfus shareholders is not subject to adjustment by reason of fluctuations in
the market value of Dominion's stock or otherwise. Accordingly, it is possible
that a significant decline in the market price of Dominion common stock prior
to the effective time, which would reduce the proportionate amount of the
merger consideration paid in Dominion common stock, could adversely affect the
ability of the merger to satisfy the continuity of interest requirement and
prevent the issuance of the required tax opinions.
We have not obtained and do not intend to obtain any rulings from the
Internal Revenue Service concerning the U.S. federal income tax consequences of
the merger. Opinions of counsel such as those to be provided to Dominion and
Louis Dreyfus merely reflect counsels' best judgment based on existing
authorities and the representations, conditions and assumptions noted above.
These opinions are not binding on the Internal Revenue Service or the courts.
The Internal Revenue Service may disagree with the opinions, and a court may
sustain the Internal Revenue Service's position.
Tax Consequences to U.S. Holders of Louis Dreyfus Common Stock
The following discussion applies only to a beneficial holder of Louis Dreyfus
common stock that participates in the merger and, for purposes of U.S. federal
income tax laws, is:
. a citizen or resident of the United States;
. a corporation or other entity taxable for U.S. federal income tax
purposes as a corporation, if such corporation or entity was created
under the laws of the United States or any of its political
subdivisions;
. a trust if a United States court is able to exercise primary
supervision over the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial
decisions of the trust; or
. an estate that is subject to U.S. federal income tax on its income
regardless of the source of such income.
We refer to individuals or entities that meet any of these descriptions as
"U.S. Holders" in the discussion below. Individuals and entities that do not
meet any of these descriptions are referred to as "Non-U.S. Persons."
Assuming that the merger qualifies as a reorganization within the meaning of
section 368 of the Internal Revenue Code, a Louis Dreyfus shareholder will not
recognize for U.S. federal income tax purposes any loss on the exchange. In
general, however, the shareholder will recognize for U.S. federal income tax
purposes gain equal to the lesser of the amount of cash received, excluding
cash paid for fractional shares, or the amount of gain realized, if any, in the
merger. The amount of gain realized by a Louis Dreyfus shareholder in the
merger will be the
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excess, if any, of (1) the sum of the cash, excluding fractional share
payments, and the fair market value (determined at the effective time of the
merger) of the Dominion common stock received by the shareholder in the
merger, over (2) the shareholder's adjusted tax basis in the Louis Dreyfus
common stock exchanged, excluding the adjusted tax basis allocated to
fractional shares.
Louis Dreyfus shareholders must calculate realized gain or loss separately
for each identifiable block of shares of Louis Dreyfus common stock exchanged,
and the loss realized on one block of stock may not be offset against gain
realized on another block of stock.
Under most circumstances, it is expected that the gain will be treated as
capital gain, eligible for a maximum U.S. federal income tax rate of 20
percent if the Louis Dreyfus shareholder is not a corporation and if the
shareholder's holding period for the Louis Dreyfus common stock exchanged in
the merger exceeds one year. However, in certain instances, such as where a
Louis Dreyfus shareholder actually or constructively owns shares of Dominion
common stock in addition to the Dominion common stock received in the merger,
the gain recognized could be treated as a dividend taxable as ordinary income.
If the gain is treated as a dividend taxable as ordinary income, and if the
Louis Dreyfus shareholder is a corporation, the shareholder may be eligible
for a dividends-received deduction (subject to applicable limitations) and
subject to the "extraordinary dividend" provisions of section 1059 of the
Internal Revenue Code.
For purposes of determining whether the gain recognized is treated as a
dividend taxable as ordinary income, a Louis Dreyfus shareholder is treated
for U.S. federal income tax purposes as if it first exchanged all of its
shares of Louis Dreyfus common stock solely in exchange for (i) the shares of
Dominion common stock actually received in the merger, and (ii) a number of
"deemed shares" of Dominion common stock such that the value of the deemed
shares is equal to the cash consideration. The shareholder is treated as if it
immediately thereafter tendered the deemed shares of Dominion common stock to
Dominion in redemption thereof for cash equal in amount to the cash actually
received by the shareholder in the merger (a "deemed redemption"). In order
for the recognized gain calculated as described above of a Louis Dreyfus
shareholder to qualify as capital gain rather than as a dividend taxable as
ordinary income, the deemed redemption must result in a "substantially
disproportionate" reduction in the shareholder's stock interest or must be
"not essentially equivalent to a dividend." Each of these tests is explained
below. In applying these tests, a Louis Dreyfus shareholder will be treated as
owning shares of Dominion common stock actually or constructively owned by
certain related individuals and entities and shares of Dominion common stock
which the shareholder has the right to acquire by exercise of an option.
Because of the complexity of these rules, each Louis Dreyfus shareholder who
believes that such shareholder may be subject to these rules should consult a
tax advisor.
Under the "substantially disproportionate" test, in order for the gain
recognized by a Louis Dreyfus shareholder to qualify as capital gain, the
percentage of outstanding Dominion voting stock that is actually and
constructively owned by the shareholder immediately after the deemed
redemption must be less than 80% of the percentage of the outstanding Dominion
voting stock that is actually and constructively owned by the shareholder
immediately before the deemed redemption.
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Under the "not essentially equivalent to a dividend" test, in order for the
gain recognized by a Louis Dreyfus shareholder to qualify as capital gain, the
deemed redemption must result in a "meaningful reduction" in the shareholder's
proportionate interest in Dominion, given the shareholder's particular facts
and circumstances. The Internal Revenue Service has indicated in published
rulings that any reduction in the percentage interest of a shareholder whose
relative stock interest in a publicly held corporation is minimal (an interest
of less than one percent may satisfy this requirement) and who exercises no
control over corporate affairs should constitute such a "meaningful reduction."
Shareholders who do not satisfy the "substantially disproportionate" test and
(i) whose ownership interests in Dominion common stock immediately prior to the
deemed redemption, determined either directly or by attribution, would not have
been minimal, or (ii) who exercise control over Dominion's corporate affairs
should consult their tax advisors with respect to whether or not any cash they
receive in the merger is "not essentially equivalent to a dividend."
A shareholder who receives cash in lieu of fractional shares of Dominion
common stock will be treated as if such fractional share had been issued to the
shareholder in the merger and redeemed by Dominion for cash.
The aggregate adjusted tax basis of the Dominion common stock received by a
Louis Dreyfus shareholder in the merger generally will equal the shareholder's
adjusted tax basis in the Louis Dreyfus common stock exchanged (excluding the
adjusted tax basis allocated to fractional shares) decreased by the amount of
cash received (excluding cash received for fractional shares) and increased by
the amount of gain recognized (excluding gain recognized on fractional shares).
The holding period of the Dominion common stock received in the merger will
include the holding period of the shares of Louis Dreyfus common stock
exchanged. If a Louis Dreyfus shareholder has differing tax bases and/or
holding periods with respect to the shares of Louis Dreyfus common stock that
the shareholder exchanges in the merger, the shareholder should consult a tax
advisor in order to calculate the tax bases and/or holding periods of the
Dominion common stock received.
Tax Consequences to Dissenting Shareholders of Louis Dreyfus
A shareholder of Louis Dreyfus that is a U.S. Holder who receives cash in
respect of Louis Dreyfus common stock pursuant to the exercise of dissenters'
rights will recognize gain or loss equal to the difference between the amount
of cash received and his or her tax basis in the shares surrendered. Any gain
or loss attributable to the shares normally would be capital gain or loss.
Backup Withholding and Information Reporting
The Internal Revenue Code and Treasury regulations generally require those
who make specified payments, including payments of cash to shareholders
exchanging shares of Louis Dreyfus common stock in the merger, to report such
payments to the Internal Revenue Service.
These rules require Dominion or its exchange agent, as the case may be, to
withhold tax from payments made to exchanging shareholders who fail to provide
the information
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necessary to establish exemption from withholding, including a correct taxpayer
identification number or certification of foreign status, or if the Internal
Revenue Service or a broker informs Dominion or its exchange agent that
withholding is required. The information reporting and backup withholding rules
do not apply to payments to corporations, whether domestic or foreign.
Any amounts withheld under the backup withholding rules may be credited
against any U.S. federal income tax liability of the recipient of the payment.
Interests of Certain Persons in the Merger
Change in Control Agreements
Certain officers of Louis Dreyfus have change in control agreements providing
for the payment of severance benefits upon involuntary termination of
employment, other than for cause, within two years after a change in control.
Notwithstanding the provisions of the change in control agreements, Louis
Dreyfus and Dominion have agreed that the amounts payable under the change in
control agreements will be paid to the affected officers on the closing date of
the merger. The amount of the payments for executive officers is equal to two
times the executive officer's annual compensation, which is defined as annual
salary immediately prior to the date on which a change of control occurs plus
the average annual bonus received by the affected officer over the three years
immediately prior to the change in control. The expected amount of the payments
to the Louis Dreyfus executive officers under the terms of change in control
agreements are as follows:
Name Title Amount
---- ----- ----------
Mark E. Monroe.......... President and Chief Executive Officer $1,513,333
Jeffrey A. Bonney....... Executive Vice President and Chief Financial Officer 580,000
Richard E. Bross........ Executive Vice President--Land and Operations 756,667
Executive Vice President--Engineering and
Ronnie K. Irani......... Exploration 883,333
Kevin R. White.......... Executive Vice President--Corporate Development and 553,333
Strategic Planning
An additional $1.3 million will be paid to other officers having change in
control agreements providing for a payment of one times annual compensation
defined as in the same manner as for the above named executive officers.
Stock Options and Restricted and Deferred Stock
The Louis Dreyfus Stock Option Plan ("Stock Option Plan") provides for awards
of stock options to employees and non-employee directors selected by the
compensation committee of the board of directors. Upon a change of control,
which will occur when the shareholders approve the merger, all stock options
previously granted will become fully vested and exercisable. As of the date of
the merger agreement, the executive officers named above held 644,125
outstanding and unvested stock options that would vest as a result of a change
in control.
The merger agreement provides that each option holder shall have the right
to: (1) elect to have their Louis Dreyfus options exchanged for options to
purchase shares of Dominion common stock or (2) have their options
automatically converted into options to acquire the Merger Consideration. See
"The Merger Agreement--Treatment of Louis Dreyfus Stock Options."
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If the shareholders approve the merger, 17,880 shares of restricted stock
held by the above named executive officers will vest and a total of 79,877
shares (including the newly vested shares) will be distributed to such
executive officers from existing deferred stock trusts. In addition, 48,096
shares of deferred stock awards will be distributed to Louis Dreyfus board of
directors.
Bonuses
The merger agreement also provides that officers with change in control
agreements are entitled to receive on the closing date of the merger a pro rata
portion of their 2001 annual
bonuses. Other employees of Louis Dreyfus are also entitled to receive their
annual 2001 bonus on or before February 15, 2002 unless they are terminated for
cause or terminate their employment voluntarily before then.
Employee Benefits
The merger agreement generally requires Dominion to honor Louis Dreyfus'
existing employee benefit plans and commitments in accordance with their terms
after the merger, which requirement will be satisfied by Dominion's making
available to former employees of Louis Dreyfus benefits under Dominion employee
benefit plans. See "The Merger Agreement--Treatment of Louis Dreyfus Stock
Options." Dominion has agreed that its severance plan will apply for purposes
of calculating severance benefits for any Louis Dreyfus employees (other than
employees having change in control agreements) terminated by Dominion after the
merger. The Dominion severance plan generally provides severance benefits that
are more favorable to employees than Louis Dreyfus' existing plan.
Directors and Officers Indemnification and Insurance
The merger agreement provides that after the effective time, Dominion will
indemnify to the fullest extent permitted under applicable law each current and
former officer or director of Louis Dreyfus and certain other persons against
all losses, claims, damages, liabilities, costs or expenses (including
attorneys fees) in connection with any claim arising out of or pertaining to
acts or omissions by them and their capacities as such whether commenced,
asserted or claimed before or after the effective time. Dominion also agrees
that all existing rights to indemnification in the certificate of
incorporation, bylaws and any indemnification agreement of Louis Dreyfus shall
survive the merger and continue in effect for a period of six years after the
effective time. For a period of six years after the effective time, Dominion is
required to maintain directors and officers liability insurance covering
current and former directors and officers of Louis Dreyfus on terms
substantially no less advantageous to them from Louis Dreyfus' existing
insurance. In this regard, Dominion is not required to pay annual premiums in
excess of 200% of the last annual premium paid by Louis Dreyfus. Dominion has a
right to cause this requirement to be satisfied by purchasing tail coverage for
a six-year period on terms and conditions no less advantageous than
Louis Dreyfus' existing insurance.
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The Principal Shareholders' Benefits
Certain directors of Louis Dreyfus who are employees of the Principal
Shareholders or their affiliates participate in a stock equivalent compensation
plan sponsored by an affiliate of the Principal Shareholders which entitles
them to receive a cash payment on termination of their employment with such
affiliate or earlier if so determined by such affiliate. Compensation payable
to such directors is equal to the underlying value of the equivalent shares of
Louis Dreyfus common stock. Pursuant to the terms of this plan, Daniel R. Finn,
Jr., Gerard Louis-Dreyfus, Ernest F. Steiner and Simon B. Rich, Jr. have each
been awarded stock equivalent units representing 200,000, 60,000, 25,000 and
25,000 shares of Louis Dreyfus common stock, respectively.
Accounting Treatment
Dominion will account for the merger under the purchase method of accounting.
Purchase accounting requires that the purchase price and costs of the
acquisition be allocated to all of the assets acquired and liabilities assumed,
based upon relative fair values.
Dominion will also recognize goodwill representing the portion of the
purchase price in excess of the estimated fair value of identified assets and
liabilities. As provided in Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, for business combinations completed
after June 30, 2001, the goodwill will not be subject to amortization. Instead,
goodwill will be subject to review for impairment under the provisions of the
new standard.
Louis Dreyfus Shareholder Lawsuit Regarding the Merger
On September 10, 2001, a suit was filed against Louis Dreyfus and the members
of its board of directors concerning the merger. The complaint, which purports
to be a class action complaint, was filed in the District Court of Oklahoma
County, Oklahoma, under the case name David Osher v. Mark E. Andrews, III,
Daniel R. Finn, Jr., E. William Barnett, Richard E. Bross, Peter G. Gerry,
Gerard Louis-Dreyfus, Mark E. Monroe, John H. Moore, James R. Paul, Nancy K.
Quinn, Simon B. Rich, Jr., Ernest F. Steiner and Louis Dreyfus Natural Gas
Corp. The petition seeks rescission of the merger agreement and seeks
injunctive relief and damages based on the alleged failure of the directors to
perform properly their fiduciary duty in connection with the proposed merger.
The petition also seeks an award of costs and attorneys' fees. The complaint
was served on Louis Dreyfus on September 14, 2001. Louis Dreyfus intends to
vigorously defend this lawsuit and does not currently expect it will interfere
with the consummation of the merger.
Resales of Dominion Common Stock
The Dominion common stock to be issued to Louis Dreyfus shareholders in
connection with the merger has been registered with the Securities and Exchange
Commission. All shares of Dominion common stock received by Louis Dreyfus
shareholders upon consummation of the merger will be freely transferable by
those Louis Dreyfus shareholders
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who are not deemed "affiliates" (as defined under the Securities Act but
generally including executive officers, directors and shareholders owning 10
percent or more of Louis Dreyfus, or the parties to the principal shareholders
agreement. See "The Merger--Principal Shareholders Agreement").
Louis Dreyfus has agreed in the merger agreement to use its reasonable best
efforts to cause each person identified by Louis Dreyfus as an affiliate of
Louis Dreyfus to deliver to Dominion a written agreement to not sell, pledge,
transfer or otherwise dispose of any Dominion common stock issued to him or her
pursuant to the merger except in accordance with the Securities Act. The stock
certificates representing Dominion common stock issued to such affiliates in
the merger will bear a legend with respect to the applicable restrictions.
Stock Exchange Listing
Dominion will file a listing application with the New York Stock Exchange
covering the shares of Dominion common stock to be issued pursuant to the
merger or upon the exercise of Louis Dreyfus stock options that are converted
into Dominion stock options. The obligations of Dominion and Louis Dreyfus to
effect the merger are subject to the condition that these shares of Dominion
common stock be approved for listing on the New York Stock Exchange, subject
only to official notice of issuance.
The common stock of Dominion which Louis Dreyfus shareholders shall receive
in exchange for Louis Dreyfus common stock will trade under the symbol "D" on
the New York Stock Exchange.
If the merger is completed, Louis Dreyfus common stock will be delisted from
the New York Stock Exchange.
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THE MERGER AGREEMENT
The description of the amended merger agreement set forth below highlights
certain important terms of the merger agreement, a copy of which is attached to
this proxy statement/prospectus as Annex A. This description does not purport
to be complete and it may not include all the information that interests you.
Louis Dreyfus and Dominion urge you to read the merger agreement carefully and
in its entirety.
Overview
At the effective time of the merger, Louis Dreyfus will merge with and into a
wholly owned subsidiary of Dominion. The Dominion subsidiary will be the
surviving corporation in the merger, and, following the merger, the surviving
corporation will be wholly owned by CNG. The surviving corporation will assume
all the rights and obligations of Louis Dreyfus.
Effective Time
Louis Dreyfus and the Dominion subsidiary will execute and file certificates
of merger with the Oklahoma Secretary of State and the Delaware Secretary of
State promptly after the day on which the last condition to completing the
merger is satisfied or waived or at such other time as Dominion and Louis
Dreyfus may agree. The merger will become effective at the time and on the date
on which those documents are filed or such other time and date on which the
parties agree and specify in those documents. That time is referred to as the
"effective time."
Effects of the Merger
At the effective time of the merger:
. each outstanding share of Louis Dreyfus common stock, other than (1)
shares owned or held by Dominion, its subsidiaries or Louis Dreyfus,
including treasury stock, and (2) shares held by Louis Dreyfus
shareholders who validly exercise their appraisal rights under Oklahoma
law, will be automatically converted into the right to receive $20.00
in cash and 0.3226 shares of Dominion common stock;
. if the merger closes on or after the record date for Dominion's regular
dividend payable in December 2001 and/or March 2002, you will receive
cash equal to the dividend that would have been paid to you if you had
been a Dominion shareholder on the relevant record date (you will not
receive these amounts, however, if breaches by Louis Dreyfus of its
obligations under the merger agreement cause the merger to occur after
the relevant record date for these dividends);
. shares of Louis Dreyfus common stock held by Louis Dreyfus shareholders
who exercise their appraisal rights under Oklahoma law will be treated
as described under "The Merger--Appraisal Rights of Shareholders,"
assuming that those shareholders validly exercise their appraisal
rights; and
. shares of Louis Dreyfus common stock owned or held by Dominion, its
subsidiaries or Louis Dreyfus, including treasury stock, will be
canceled.
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If, before the effective time of the merger, the issued and outstanding
shares of Dominion common stock are changed into a different number of shares
as a result of a reclassification, stock split, reverse stock split, stock
dividend, stock distribution or similar event, an appropriate adjustment will
be made to the consideration to be received by Louis Dreyfus shareholders.
For a description of Dominion common stock and a description of the
comparative rights of holders of Dominion common stock and Louis Dreyfus common
stock, see "Description of Dominion Capital Stock" and "Comparative Rights of
Shareholders."
Exchange of Stock Certificates
Exchange Agent
Dominion will deposit with its exchange agent, Mellon Investor Services LLC,
certificates representing Dominion common stock issuable and cash payable in
exchange for outstanding Louis Dreyfus common stock. Dominion will also make
funds available to the exchange agent from time to time as needed to pay any
cash instead of fractional shares or any dividends or other distributions
declared by Dominion on its common stock with a record date after the effective
time of the merger and a payment date on or before the date the relevant Louis
Dreyfus stock certificate is surrendered.
Exchange Procedures
LOUIS DREYFUS STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED
PROXY CARD. A TRANSMITTAL LETTER AND ACCOMPANYING INSTRUCTIONS WILL BE PROVIDED
TO LOUIS DREYFUS SHAREHOLDERS FOLLOWING THE MERGER.
If you own Louis Dreyfus common stock, promptly after the merger the exchange
agent will mail to you a transmittal letter and instructions explaining how to
surrender your certificates to the exchange agent.
Louis Dreyfus shareholders who surrender their stock certificates to the
exchange agent, together with a properly completed and signed transmittal
letter and any other documents required by the instructions to the transmittal
letter, will receive for each share of Louis Dreyfus common stock:
. 0.3226 shares of Dominion common stock; and
. after giving effect to any required tax withholdings, a check in the
aggregate amount of:
. $20.00;
. the amount of cash being paid in lieu of fractional shares of
Dominion common stock; and
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. if the merger closes on or after the record date for Dominion's
regular quarterly dividend payable in December 2001 and/or March
2002 cash equal to the dividend that would have been paid to such
shareholder if such shareholder had been a Dominion shareholder on
the relevant record date. Louis Dreyfus shareholders will not
receive these amounts if breaches by Louis Dreyfus of some of its
obligations under the merger agreement cause the merger to occur
after the relevant record date of these dividends.
If you have a Louis Dreyfus stock certificate, you should surrender that
certificate for exchange after the effective time of the merger. Until you
surrender your Louis Dreyfus stock certificate, dividends or other
distributions declared with a record date after the effective time of the
merger will accrue, but will not be paid, on shares of Dominion common stock
that you are entitled to receive as a result of the conversion of your shares
of Louis Dreyfus common stock. When you surrender your certificates, any unpaid
dividends or other distributions will be paid, less the amount of any
withholding taxes that may be required. No interest will be paid or accrued on
the cash portion of the merger consideration.
The exchange agent will deliver to Dominion on demand, shares of Dominion
common stock to be issued in the merger or funds set aside by Dominion to pay
the cash consideration, cash in lieu of fractional shares in connection with
the merger or to pay dividends on shares of Dominion common stock to be issued
in the merger that are not claimed by former Louis Dreyfus shareholders within
180 days after the effective time of the merger. Thereafter, Dominion will act
as the exchange agent and former Louis Dreyfus shareholders may look only to
Dominion for payment of their shares of Dominion common stock, cash
consideration, cash in lieu of fractional shares and unpaid dividends and
distributions. None of Dominion, the surviving corporation, the exchange agent
or any other person will be liable to any former Louis Dreyfus shareholder for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
If any certificates for shares of Dominion common stock are to be issued in a
name other than that in which the Louis Dreyfus common stock certificate
surrendered in exchange for such shares is registered, the person requesting
the exchange must (1) pay any transfer or other taxes required by reason of the
issuance of certificates for shares of Dominion common stock in a name other
than that of the registered holder of the certificate surrendered or (2)
establish to the satisfaction of Dominion or the exchange agent that such tax
has been paid or is not applicable.
At the effective time of the merger, the stock transfer books of Louis
Dreyfus will be closed and no further issuances or transfers of shares of Louis
Dreyfus common stock will be made. If, after the effective time, valid Louis
Dreyfus stock certificates are presented to the surviving corporation for any
reason, they will be cancelled and exchanged as described above to the extent
allowed by applicable law.
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Fractional Shares
No fractional shares of Dominion common stock will be issued to Louis Dreyfus
shareholders. Instead of fractional shares, each Louis Dreyfus shareholder
otherwise entitled to a fractional share will receive, in cash and without
interest, an amount representing the fractional share, rounded to the nearest
one-hundredth of a share, multiplied by the closing price of Dominion common
stock on the date the merger is complete.
Lost, Stolen or Destroyed Certificates
If a Louis Dreyfus stock certificate has been lost, stolen or destroyed, the
exchange agent will issue the consideration properly payable in accordance with
the merger agreement, without interest, upon receipt of (1) an affidavit of
that fact by the person claiming the certificate is lost, stolen or destroyed
and (2) appropriate and customary indemnification or the posting of a bond in
the form customarily required by Dominion to indemnify against any claim that
may be made against it with respect to such certificate.
Representations and Warranties
Representations and Warranties
The merger agreement contains customary representations and warranties by
each of Dominion and Louis Dreyfus relating to, among other things:
. corporate organization and similar corporate matters;
. capital structure;
. authority relative to the transaction;
. documents filed with the Securities and Exchange Commission and the
financial statements included in those documents;
. absence of contract violations or conflicts; and
. broker's fees.
Additional Representations and Warranties of Louis Dreyfus
In addition to those described above, the merger agreement also contains
additional representations and warranties by Louis Dreyfus relating to, among
other things:
. subsidiaries;
. the operation of Louis Dreyfus' business in the ordinary course since
June 30, 2001, the absence of material undisclosed liabilities and no
occurrence of a material adverse effect with respect to Louis Dreyfus;
. legal proceedings;
. taxes;
. benefit plans and employment matters;
. environmental matters;
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. compliance with laws;
. intellectual property;
. oil and gas reserves;
. hedging activities;
. certain contracts and indebtedness;
. title to properties;
. insurance;
. opinion of financial advisors;
. board approval and recommendation of the merger;
. the requisite vote required for approval and adoption of the merger;
. status under Natural Gas Act and Texas law relating to gas gathering
systems; and
. certain approvals.
Additional Representations and Warranties of Dominion
In addition to the those described above, the merger agreement also contains
additional representations and warranties by Dominion relating to, among other
things:
. financing for the transaction;
. no Dominion shareholder vote required for the merger; and
. no occurrence of a material adverse effect with respect to Dominion.
Covenants Under the Merger Agreement
Conduct of Louis Dreyfus Pending the Merger
Under the merger agreement, Louis Dreyfus has agreed that during the period
before completion of the merger, except in connection with the transactions
contemplated by the merger agreement, it will carry on its business in the
ordinary course consistent with past practice, and will use all reasonable
efforts to maintain intact its present business, maintain its relationships
with customers, suppliers and others having business dealings with it, keep its
current key officers and employees and maintain customary insurance in effect.
Subject to certain exceptions, the merger agreement places specific
restrictions on the ability of Louis Dreyfus and its subsidiaries to:
. acquire, sell, encumber, lease, transfer or dispose of assets, rights
or securities that are material or terminate, materially modify or
enter into any material commitment or line of business, in each case
outside of the ordinary course of business or acquire by merger or
purchase substantially all the assets of any other person;
. amend its certificate of incorporation or bylaws;
. split, combine or reclassify any shares or interests in its capital
stock;
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. declare or pay dividends on its capital stock;
. redeem or acquire, or offer to redeem or acquire, any shares of its
capital stock or securities representing the right to acquire its
capital stock other than pursuant to terms of outstanding employee
benefit plans;
. issue securities other than those issuable upon exercise of options
outstanding on the date of the merger agreement;
. modify the terms of any existing indebtedness or issue any debt
securities, except as incurred in the ordinary course consistent with
past practice for working capital management purposes;
. guarantee or otherwise become responsible for the obligations of
another party, or make any loans or advances except to or for the
benefit of any subsidiary of Louis Dreyfus or except for indebtedness
of $5,000,000 or less in the aggregate;
. authorize, recommend or propose any material change in its
capitalization;
. grant or increase severance or termination pay;
. adopt or establish any new employee benefit plan, amend in any material
respect any employee benefit plan or, other than in the ordinary course
of business, increase the compensation or fringe benefits of any
employee or pay any material benefit not required by an existing
benefit plan;
. other than in the ordinary course of business, enter into or materially
amend any employment, consulting, severance or indemnification
agreement, or other obligation to any employee;
. settle any material tax liability or litigation involving the payment
of more than $5 million or pay claims or liabilities not reserved in
the Louis Dreyfus balance sheet of $5 million individually or $10
million in the aggregate;
. make or commit to make capital expenditures in excess of a specified
amount;
. make any material changes in its tax accounting methods;
. other than in the ordinary course of business, write off any accounts
or notes receivable in excess of $5 million;
. take any action that would reasonably be expected to prevent the merger
from qualifying as a reorganization described in Section 368(a) of the
United States Internal Revenue Code of 1986, as amended;
. enter into or amend any agreement with any shareholder of Louis Dreyfus
with respect to holding, voting or disposing of shares;
. cause the acceleration of rights, benefits or payments under any
employee benefit plan other than as a result of the merger;
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. enter into any fixed price oil or gas forward sales contracts or fixed
price purchase or sale contracts that would result in physical delivery
of its oil or gas production for the year 2001, 2002 or 2003 or fixed
price hedging arrangements with respect to its oil production or more
than 10% of its budgeted gas operations for 2001, 2002 or 2003; or
. agree to take any of the actions described in the preceding bullet
points.
Conduct of Dominion Pending the Merger
Subject to certain exceptions, during the period before the completion of the
merger, the merger agreement places specific restrictions on the ability of
Dominion to:
. acquire by merger or otherwise any business or assets if the
transaction would prevent or materially delay the merger;
. adopt or propose any amendments to its charter documents which would
have a materially adverse effect on the consummation of the merger;
. take any action that would reasonably be expected to prevent the merger
from qualifying as a reorganization as described in Section 368(a) of
the Internal Revenue Code;
. except for the payment of ordinary cash dividends on its common stock,
split, combine or reclassify any shares of its capital stock, or set
aside or pay any dividend, unless the merger consideration is adjusted
proportionately;
. adopt a plan of complete or partial liquidation or dissolution; or
. agree to take any of the actions described in the preceding bullet
points.
Other Covenants
In addition to covenants specifically described under "The Merger" or "The
Merger Agreement," the merger agreement contains a number of mutual covenants
of Dominion and Louis Dreyfus, including covenants relating to:
. accuracy of information to be supplied for inclusion in this proxy
statement/prospectus and the related registration statement;
. keeping each other apprised and using their reasonable best efforts to
prevent or remedy their material breach of a representation or warranty
contained in the merger agreement or their material failure to comply
with their obligations under the merger agreement; and
. cooperation in obtaining governmental approvals necessary to the
consummation of the merger and using their respective reasonable best
efforts to do, or cause to be done, all things required to consummate
and make effective the transactions contemplated by the merger
agreement.
The merger agreement requires Louis Dreyfus to call a meeting of its
shareholders for the purpose of approving the merger agreement, and subject to
fiduciary obligations under applicable law, to use its reasonable best efforts
to obtain the necessary approval.
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Dominion is required to use its reasonable best efforts to cause the shares
of its common stock that are to be issued in the merger or to be issued upon
exercise of options to be approved for listing on the New York Stock Exchange,
subject to official notice of issuance, prior to the date on which the merger
occurs.
In addition, as soon as practicable following the merger, the surviving
corporation is required to cease using the Louis Dreyfus name.
No Solicitation of Competing Transactions
No Solicitation of Acquisition Proposals
The merger agreement contains detailed provisions prohibiting Louis Dreyfus
from seeking an acquisition proposal as an alternative to the merger. Under
these "no solicitation" provisions, Louis Dreyfus has agreed that it will not:
. solicit, initiate, or encourage any inquiries relating to, or the
submission of, any acquisition proposal, as described below;
. participate in any discussions regarding or take any other action to
facilitate any inquiries or the making of any proposal or offer that
is, or may reasonably be expected to lead to, an acquisition proposal;
or
. approve, recommend or accept any acquisition proposal, or enter into
any letter of intent or agreement with respect to any acquisition
proposal.
The merger agreement permits Louis Dreyfus or its board of directors to
comply with Rules 14d-9 and 14e-2 under the Securities Exchange Act with regard
to an acquisition proposal if the Louis Dreyfus board of directors does not
recommend that the shareholders of Louis Dreyfus tender their shares in
connection with any such tender or exchange offer unless the Louis Dreyfus
board of directors shall have determined in good faith, after consultation with
its financial advisors and outside counsel, that the relevant acquisition
proposal is a superior proposal, as described below.
If prior to the special meeting of shareholders of Louis Dreyfus, Louis
Dreyfus receives an unsolicited bona fide written acquisition proposal from a
third party that the board of directors determines in good faith, after
receiving the advice of a financial advisor of nationally recognized
reputation, is reasonably likely to be a superior proposal, Louis Dreyfus and
its representatives may conduct discussions or provide information as it
determines, but only if, prior to providing any information or engaging in any
discussions:
. the third party shall have entered into a confidentiality agreement not
materially less favorable to Louis Dreyfus than the confidentiality
agreement with Dominion and containing additional provisions that
expressly permit Louis Dreyfus to comply with the provisions of its no
solicitation obligations to Dominion; and
. the board of directors determines in its good faith judgment, after
consultation with outside counsel, that it is required to do so in
order to comply with its fiduciary duties.
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Louis Dreyfus must promptly notify Dominion if it receives any acquisition
proposal, including the identity of the party submitting the proposal. Within
24 hours of receipt of an inquiry, proposal or offer that could reasonably be
expected to lead to an acquisition proposal, Louis Dreyfus must provide
Dominion with the material terms and conditions other aspects of any inquiry,
proposal or offer of this type. Louis Dreyfus must also notify Dominion if
Louis Dreyfus intends to engage in discussions or provide information.
For this purpose, an acquisition proposal is any third party tender offer,
merger, consolidation, business combination or similar transaction involving
all or more than 10% of Louis Dreyfus assets, 10% or more of Louis Dreyfus
capital stock, or any acquisition of 10% or more of Louis Dreyfus capital stock
or assets in a single transaction or a series of related transactions.
For purposes of the merger agreement, a "superior proposal" means any
unsolicited bona fide written acquisition proposal which:
. contemplates a merger or other business combination, reorganization,
share exchange, recapitalization, liquidation, dissolution, tender
offer, exchange offer or similar transaction involving Louis Dreyfus as
a result of which Louis Dreyfus shareholders prior to such transaction
in the aggregate cease to own at least 50% of the voting securities of
the ultimate parent entity resulting from such transaction or a sale,
lease, exchange, transfer or other disposition of at least 50% of the
value of the assets of Louis Dreyfus and its subsidiaries, taken as a
whole; and
. is on terms which the Louis Dreyfus board of directors determines,
after consultation with its financial advisor and outside counsel,
taking into account, among other things, all legal, financial,
regulatory and other aspects of the proposal and the person making the
proposal, would, if consummated, result in a transaction that is more
favorable to its shareholders from a financial point of view than the
transactions contemplated by the merger agreement, including the terms
of any proposal by Dominion to modify the terms of the transactions
contemplated by the merger agreement, and is reasonably likely to be
financed and otherwise completed without undue delay.
Conditions of the Merger
Conditions to Both Parties' Obligations
Dominion or Louis Dreyfus may choose not to complete the merger unless each
of the following conditions is satisfied or waived:
. the merger agreement has been adopted by the affirmative vote of the
holders of a majority of the outstanding shares of Louis Dreyfus common
stock;
. any waiting period applicable under the Hart-Scott-Rodino Act
applicable to the merger has expired or been terminated;
. no restraining order or injunction prohibiting completion of the merger
is in effect and the completion of the merger is not illegal under any
applicable law;
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. the registration statement of which this proxy statement/prospectus is
a part has been declared effective by the Securities and Exchange
Commission and is not subject to any stop order or proceedings seeking
a stop order;
. the shares of Dominion common stock to be issued in the merger have
been authorized for listing on the New York Stock Exchange, subject to
official notice of issuance; and
. receipt by Dominion and Louis Dreyfus of an opinion from their
respective outside counsel that the merger will be treated as a
reorganization under Section 368(a) of the Internal Revenue Code.
Additional Conditions to Dominion's Obligations
Dominion's obligation to complete the merger is also subject to the
satisfaction or waiver of the following conditions:
. the representations and warranties of Louis Dreyfus must be true and
correct as of the date of the merger agreement and, except for
representations and warranties that speak as of an earlier date, as of
the closing date of the merger, except for circumstances which, when
considered individually or in the aggregate, would not reasonably be
expected to have a company material adverse effect, as defined below;
and
. Louis Dreyfus must not have breached in any material respect any
obligation that it is required to perform in the merger agreement.
For purposes of the merger agreement, company material adverse effect means a
material adverse effect on or change in:
. business, assets and liabilities (taken together) or the consolidated
financial condition of Louis Dreyfus; or
. Louis Dreyfus' ability to consummate the transactions contemplated by
the merger agreement or fulfill the conditions to closing.
However, there will be no company material adverse effect to the extent that
any material adverse effect or change is caused by or results from conditions
affecting the United States economy generally or the economy of a nation or
region in which Louis Dreyfus conducts business or generally affecting the
industries (including the natural gas industry) in which Louis Dreyfus conducts
business (including the price of natural gas), or is caused by or results from
the announcement or pendency of the merger.
Additional Conditions to Louis Dreyfus' Obligations
Louis Dreyfus' obligation to complete the merger is also subject to the
satisfaction or waiver of the following conditions:
. the representations and warranties of Dominion must be true and correct
as of the date of the merger agreement and, except for representations
and warranties that speak as of an earlier date, as of the closing date
of the merger, except for
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circumstances which, when considered individually or in the aggregate,
would not reasonably be expected to have a Dominion material adverse
effect, as defined below; and
. Dominion must not have breached in any material respect any obligation
that it is required to perform in the merger agreement.
For purposes of the merger agreement, the term Dominion material adverse
effect means a material adverse effect on or change in:
. business, assets and liabilities (taken together) or the consolidated
financial condition of Dominion; or
. Dominion's ability to consummate the transactions contemplated by the
merger agreement or fulfill the conditions to closing.
However, there will be no Dominion material adverse effect to the extent that
any material adverse effect or change is caused by or results from conditions
affecting the United States economy generally or the economy of a nation or
region in which Dominion conducts business or generally affecting the
industries (including the natural gas industry) in which Dominion conducts
business (including the price of natural gas), or is caused by or results from
the announcement or pendency of the merger.
Treatment of Louis Dreyfus Stock Options
The merger agreement provides that prior to the effective time of the merger,
Dominion will offer each holder of an option to purchase shares of Louis
Dreyfus common stock an election to have their options exchanged for options to
purchase shares of Dominion common stock. In the event an option holder makes
this election, each option in Louis Dreyfus common stock will be automatically
converted at the effective time of the merger into a substituted option to
purchase shares of Dominion common stock. The number of shares of Dominion
common stock covered by the substituted option will be equal to the product of
the number of shares of Louis Dreyfus common stock that could have been
purchased under the option multiplied by the quotient obtained by dividing the
per share amount by an average price of Dominion common stock. The exercise
price of each substituted option will be equal to the quotient obtained by
dividing the per share option exercise price of the Louis Dreyfus option by the
quotient obtained by dividing the per share amount by an average price of
Dominion common stock. The average price of Dominion common stock is the
average of the volume weighted averages of the trading price of Dominion common
stock for the 10 consecutive trading days ending on the third trading day
immediately preceding the effective time of the merger. The "per share amount"
is the value of the cash and Dominion common stock paid to holders of Louis
Dreyfus common stock with Dominion common stock valued at the average price.
The merger agreement provides that for those option holders who do not elect
to have their options exchanged for substituted options to purchase Dominion
common stock, their options will automatically be converted into an option to
acquire the merger consideration, and the per share exercise price shall be
appropriately adjusted, as if the option to purchase Louis Dreyfus common stock
had been exercised immediately before the effective time of the merger.
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Except for the conversion described above, all of these Dominion options will
have the same terms and conditions as the Louis Dreyfus options that they
replace.
Termination
The merger agreement may be terminated at any time prior to the merger,
whether before or after Louis Dreyfus shareholder approval has been obtained:
. By mutual written consent;
. By either party if:
. the merger is not completed by March 31, 2002, except that this
right to terminate will not be available to a party whose failure to
fulfill in any material respect any obligation under any provision
of the merger agreement has been the cause of, or resulted in, the
failure of the merger to be completed by March 31, 2002;
. the holders of a majority of the outstanding Louis Dreyfus common
stock have not approved the merger; or
. any court or other governmental authority issues a non-appealable
final order, decree or ruling which permanently enjoins or prohibits
the merger, so long as the party seeking termination has used
reasonable best efforts to avoid entry of, or have vacated, such
order, decree or ruling;
. By Dominion if:
. the Louis Dreyfus board of directors withdraws, modifies or changes
in any manner adverse to Dominion its approval or recommendation of
the merger or recommends or approves another acquisition proposal;
. Louis Dreyfus breaches the no solicitation provision of the merger
agreement in a material respect and Dominion is adversely affected
by the breach; or
. subject to a right to cure, Louis Dreyfus breaches or fails to
satisfy any of its obligations that results in the conditions to the
obligations of Dominion not being able to be satisfied on or before
the closing date, except that Dominion cannot terminate if it is in
material breach of the merger agreement;
. By Louis Dreyfus if:
. prior to the shareholders' meeting, it receives a superior proposal
and resolves to accept such proposal, and has complied in all
material respects with the no solicitation provisions of the merger
agreement; or
. subject to a right to cure, Dominion breaches or fails to satisfy
any obligation that results in the conditions to the obligations of
Louis Dreyfus not being able to be satisfied on or before the
closing date, except that Louis Dreyfus cannot terminate if it is in
material breach of the merger agreement.
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Termination Fee
Louis Dreyfus will be required to pay a termination fee of $70 million if the
merger agreement is terminated in the following circumstances:
. the merger agreement is terminated by Louis Dreyfus in order to accept
a superior proposal;
. the merger agreement is terminated by Dominion because:
. the Louis Dreyfus board of directors withdraws, modifies or changes,
in a manner adverse to Dominion, its recommendation of the merger;
. Louis Dreyfus breaches its no solicitation obligation in a material
respect and Dominion is adversely affected; or
. the merger agreement is terminated:
. by Dominion because Louis Dreyfus breached in a material respect any
of its material agreements or covenants in the merger agreement;
. by Louis Dreyfus or Dominion because the merger did not occur by
March 31, 2002 and Louis Dreyfus breached in a material respect any
of its material agreements or covenants in the merger agreements; or
. by Louis Dreyfus or Dominion because Louis Dreyfus shareholders did
not approve the merger;
. and, in each case:
-- there was outstanding another publicly announced acquisition
proposal;
-- Dominion was not in material breach of the merger agreement;
-- the Louis Dreyfus shareholders did not approve the merger;
-- the Louis Dreyfus board of directors did not withdraw, modify or
change its recommendation of the merger; and
-- within 12 months after termination, Louis Dreyfus enters into an
agreement (which is ultimately consummated) or consummates a
transaction with the proponent of the acquisition proposal or
another party pursuant to a superior acquisition proposal.
Expenses
All costs and expenses incurred in connection with the merger agreement, the
related transactions and the printing and filing of this proxy
statement/prospectus will be paid by the company incurring such expenses.
Amendment and Waiver
Dominion and Louis Dreyfus may amend the merger agreement by action taken or
authorized by their respective boards of directors, at any time before or after
approval of the matters presented in connection with the merger by Louis
Dreyfus shareholders, provided
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that, after any such approval, the parties will make no amendment which by law
requires further approval by such shareholders without such further approval.
Any failure of Dominion or Louis Dreyfus to comply with its obligations may be
waived prior to the effective time of the merger only in writing by the party
entitled to the benefit of the obligation, but such waiver shall not operate as
a waiver or estoppel with respect to any subsequent or other failure.
REGULATORY MATTERS
A summary of the material regulatory requirements affecting the merger is set
forth below. While Dominion and Louis Dreyfus are not aware of any other
material governmental approvals or actions required to complete the merger,
should any approval or action be required, Dominion and Louis Dreyfus
anticipate seeking the required approval or action. Dominion and Louis Dreyfus
cannot provide any assurance, however, that the approval or action, if needed,
could be obtained within the timeframe contemplated by, or on terms consistent
with, the merger agreement.
Antitrust Considerations
Under the Hart-Scott-Rodino Act (HSR Act), Dominion and Louis Dreyfus cannot
consummate the merger until each has submitted certain information to the
Antitrust Division of the Department of Justice and the Federal Trade
Commission. Additionally, each company must satisfy specified HSR Act waiting
period requirements. Dominion and Louis Dreyfus made the required filings on
September 18, 2001. The expiration or earlier termination of the HSR Act
waiting period will not prevent the Department of Justice or the Federal Trade
Commission from challenging the merger on antitrust grounds. Neither Dominion
nor Louis Dreyfus believes the merger will violate federal antitrust laws. If
the merger is not consummated within 12 months after the expiration or earlier
termination of the HSR Act waiting period, Dominion and Louis Dreyfus must
submit new information to the Department of Justice and the Federal Trade
Commission, and a new HSR Act waiting period will begin.
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THE COMPANIES
Dominion
Dominion is a fully integrated gas and electric energy holding company
headquartered in Richmond, Virginia. As of June 30, 2001, Dominion had
approximately $32.3 billion in assets.
Primary Operating Segments
Dominion's primary operating segments are:
Dominion Energy--Dominion Energy manages Dominion's 22,000 megawatt portfolio
of electric power generation assets, its 7,600 miles of gas transmission
pipeline and a 959 billion cubic foot natural gas storage network. It also
guides Dominion's generation growth strategy and its commodity trading,
marketing and risk management activities. Dominion currently operates
generation facilities in Virginia, West Virginia, North Carolina, Illinois and
Connecticut.
Dominion Delivery--Dominion Delivery manages Dominion's local electric and
gas distribution systems serving 3.8 million customers, its 6,000 miles of
electric transmission lines and its customer service operations. Dominion
currently operates transmission and distribution systems in Virginia, West
Virginia, North Carolina, Pennsylvania and Ohio. Dominion Delivery also
includes Dominion's managing equity interest in Dominion Fiber Ventures, LLC,
which owns Dominion Telecom with its 3,620 route-mile fiber optic network and
related telecommunications and advanced data services located principally in
the northeast quadrant of the United States.
Dominion Exploration & Production--Dominion Exploration & Production manages
Dominion's onshore and offshore oil and gas exploration and production
activities. With approximately 2.8 Tcfe of natural gas reserves and 320 Bcfe of
annual production, Dominion Exploration & Production is one of the nation's
largest independent oil and gas operators. It operates on the outer continental
shelf and deep water areas of the Gulf of Mexico, western Canada, the
Appalachian Basin and other selected regions in the continental United States.
Principal Legal Subsidiaries
Dominion's principal legal subsidiaries include Virginia Electric and Power
Company, a regulated public utility engaged in the generation, transmission,
distribution and sale of electric energy in Virginia and northeastern North
Carolina, Consolidated Natural Gas Company, a producer, transporter,
distributor and retail marketer of natural gas serving customers in
Pennsylvania, Ohio, West Virginia and New York and Dominion Energy, Inc., an
independent power and natural gas exploration and production subsidiary.
Opportunities
Dominion is operating in an industry undergoing fundamental change. Dominion
believes that the United States energy markets are currently characterized by
increasing
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demand that is outpacing supply. This situation results from increased use of
energy, inadequate investment in new generation facilities and the need to
replace older power plants. Further, a new competitive environment is emerging
from a past characterized by cost-of-service rate regulation and monopoly
franchise territories. This situation creates opportunities for development of
new generation capacity and acquisition of existing generation assets. Dominion
believes these opportunities will be significant as capacity shortages persist
and various industry participants seek to divest generation assets to comply
with regulatory directives and implement changing business strategies.
Dominion believes similar opportunities exist in its delivery and exploration
and production businesses as demand outpaces supply. Today's commodity prices
reflect the current demand for natural gas and oil and, with more than 90% of
new power plants under development planning to use natural gas for fuel,
Dominion believes the long term fundamentals of delivery and production of
natural gas and oil will remain strong.
Changes in the energy markets also require that producers and their principal
customers manage the risks associated with producing and delivering energy
commodities. Knowledgeable industry participants are able to market energy
commodities profitably and to manage the risks associated with commodity market
price fluctuations.
Competitive Strengths
Dominion believes that it is well positioned in the new energy environment
based on its following competitive strengths:
Size and Scale--Dominion's size and scale give it the critical mass needed to
provide the financial strength, flexibility and economies of scale necessary to
compete in the new energy marketplace. In addition, its size has provided
better access to capital and improved opportunities for expansion.
MAIN to Maine Focus--Dominion is concentrating its efforts in the Midwest,
Northeast and Mid-Atlantic regions of the United States, which Dominion calls
the "MAIN to Maine" region. In the power industry, "MAIN" means the Middle
American Interconnected Network, which comprises the states of Missouri,
Illinois, Wisconsin, Michigan and Indiana. The MAIN to Maine region is home to
approximately 40% of the nation's demand for energy. It also has some of the
nation's highest energy prices and, as a result, is rapidly moving toward
industry deregulation and restructuring.
Integrated Asset Base--Dominion has the capability to discover and produce
gas, store it, sell it or use it to generate power; it can generate electricity
to sell to customers in its retail markets or in wholesale transactions. This
optionality gives Dominion the ability to produce and sell energy in whatever
form it finds most useful and economic. Dominion also operates North America's
largest natural gas storage system, which gives it the flexibility to provide
supply when it is most economically advantageous to do so. As a fully
integrated enterprise active in all aspects of the energy supply chain,
Dominion has the ability to optimize the value of its energy portfolio to
maximize return on invested capital.
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Market Knowledge--Dominion capitalizes on its in-depth knowledge of its
trading and customer markets. Specifically, its knowledge of the energy trading
market allows it to not only manage market risks but also to maximize the value
of its energy portfolio. As Dominion's industry deregulates, Dominion knows
that it must remain focused on reliably and efficiently serving its customer
base in order to retain existing customers and add new ones.
Investor Focus--The financial interests of Dominion's employees and
management are strongly aligned with the interests of its investor base. They
own more than 16 million shares and together would be Dominion's largest
shareholder. Incentive programs in the form of stock options further align the
interests of Dominion's employees with those of its investors.
Focused Growth
Dominion's growth strategy is focused on the MAIN to Maine region and
building on the platform provided by its current asset base.
Dominion Energy--During the period from 2000 to 2005, Dominion plans to have
added nearly 10,000 megawatts of generation capacity through new plants,
expanded capacity and acquisitions. As part of this plan, 1,100 megawatts of
gas-fired generation capacity are already on line. An additional 800 megawatts
is under construction or in regulatory approval stages in Virginia. Dominion
recently acquired, for approximately $1.3 billion, the 2,000 megawatt Millstone
nuclear facility in Connecticut. Dominion sited four new generation plants with
combined capacity of approximately 2,000 megawatts along the Dominion gas
pipelines in Ohio, Pennsylvania and West Virginia. Additional anticipated
capacity expansion of 4,000 megawatts is also planned, including capacity
expansions at its Elwood facility in Illinois. To support these plans, Dominion
has acquired or has options to acquire 45 General Electric turbines and eight
steam turbines which will be sufficient to support its 8,000 megawatts of
generation expansion.
Dominion Delivery--Dominion expects continued growth in its distribution
business as a result of increasing its customer base and improving its
operational efficiencies through technological advances and development.
Dominion has targeted expansion of Dominion Telecom's fiber optic network by
focusing on smaller markets not yet targeted by the expansion strategies of
major telecommunications companies.
Dominion Exploration & Production--Over the next four years, Dominion plans
10 to 15 percent average annual growth in Bcfe production. Dominion anticipates
that this growth will be both drill-bit driven from existing resources
including its offshore and Gulf Coast exploration program and through
acquisitions.
Because of the changes Dominion's industry is undergoing, Dominion continues
to encounter opportunities for acquisitions of assets and business combinations
that would be consistent with its strategic principles. Dominion regularly
investigates any opportunities it
71
learns about that may increase shareholder value or build on its existing asset
platform. Dominion often participates in bidding and negotiating processes for
those transactions. Any acquisitions or combinations of this type will likely
require Dominion to access external financing sources or issue additional
equity.
Louis Dreyfus
Louis Dreyfus is one of the largest independent natural gas companies in the
United States engaged in the acquisition, development, exploration, production
and marketing of natural gas and crude oil. Louis Dreyfus' acquisition,
development and exploration activities are primarily conducted in three
geographically concentrated core areas: the Permian Region which includes west
Texas, southeast New Mexico and the San Juan Basin; the Mid-Continent Region
which includes Oklahoma, Kansas, the panhandle of Texas, east Texas, southwest
Arkansas and north Louisiana; and the Gulf Coast Region, which includes south
Texas and offshore Gulf of Mexico. Louis Dreyfus' proved reserves as of
December 31, 2000 totaled 1.8 Tcfe and future net revenues from these reserves
had a discounted present value of $3.7 billion. Properties that Louis Dreyfus
operates contain approximately 79% of Louis Dreyfus' total proved reserves.
Natural gas reserves comprised 89% of Louis Dreyfus' year-end proved reserve
position and 82% of Louis Dreyfus' reserves were proved developed. The average
reserve life of its proved reserves was 13.2 years.
72
DESCRIPTION OF DOMINION CAPITAL STOCK
General
As of June 30, 2001, Dominion's authorized capital stock was 520,000,000
shares. Those shares consisted of 20,000,000 shares of preferred stock, of
which 665,000 shares were issued to a subsidiary trust. The trust is
beneficially owned by Dominion and consolidated in the preparation of
Dominion's consolidated financial statements. The authorized shares also
consisted of 500,000,000 of common stock of which approximately 248,100,000
shares were outstanding as of June 30, 2001. No holder of shares of common
stock or preferred stock has any preemptive rights.
Common Stock
Listing
Dominion's outstanding shares of common stock are listed on the New York
Stock Exchange under the symbol "D." Any additional common stock Dominion
issues will also be listed on the New York Stock Exchange.
Dividends
Common shareholders may receive dividends when declared by the board of
directors. Dividends may be paid in cash, stock or other form. In certain
cases, common shareholders may not receive dividends until Dominion has
satisfied its obligations to any preferred shareholders. Under certain
circumstances Dominion's ability to pay cash dividends is restricted by the
terms of an indenture.
Fully Paid
All outstanding shares of common stock are fully paid and non-assessable. Any
additional common stock Dominion issues will also be fully paid and non-
assessable.
Voting Rights
Each share of common stock is entitled to one vote in the election of
directors and other matters. Common shareholders are not entitled to cumulative
voting rights.
Other Rights
Dominion will notify common shareholders of any shareholders' meetings
according to applicable law. If Dominion liquidates, dissolves or winds up its
business, either voluntarily or not, common shareholders will share equally in
the assets remaining after Dominion pays its creditors and preferred
shareholders.
Transfer Agents and Registrars
Dominion, along with Continental Stock Transfer & Trust Company, is transfer
agent and registrar.
73
Preferred Stock
Dominion's board of directors can, without approval of its shareholders,
issue one or more series of preferred stock. The board can also determine the
number of shares of each series and the rights, preferences and limitations of
each series, including the dividend rights, voting rights, conversion rights,
redemption rights and any liquidation preferences of any wholly unissued series
of preferred stock, the number of shares constituting each series and the terms
and conditions of issue. In some cases, the issuance of preferred stock could
delay a change in control of Dominion and make it harder to remove present
management. Under certain circumstances, preferred stock could also restrict
dividend payments to holders of Dominion's common stock.
Dominion's board of directors has designated 665,000 shares of the preferred
stock as Series A Mandatorily Convertible Preferred Stock. All of these shares
were issued to a subsidiary trust. The trust is beneficially owned by Dominion
and consolidated in the preparation of Dominion's consolidated financial
statements.
74
COMPARATIVE RIGHTS OF SHAREHOLDERS
Following the merger, you will own Dominion common stock. The rights of
Dominion shareholders are governed by Virginia law and by Dominion's articles
of incorporation and bylaws. Currently, the rights of Louis Dreyfus
shareholders are governed by Oklahoma law and the certificate of incorporation
and bylaws of Louis Dreyfus. There are differences in the rights of
shareholders under Virginia and Oklahoma laws and under the charter documents
and bylaws of Dominion and Louis Dreyfus. Below is a summary of the more
significant differences in the rights of Dominion and Louis Dreyfus
shareholders.
Dominion and Louis Dreyfus have filed their charter documents as exhibits to
the reports they file with the Securities and Exchange Commission or, in the
case of Dominion, as exhibits to the registration statement of which this proxy
statement/prospectus is a part. For information on obtaining those documents,
see "Where You Can Find More Information."
Dominion Louis Dreyfus
----------------------------------------------------------------------------------------------
Board of Directors Members of the Dominion board of Members of the Louis Dreyfus board
directors serve one-year terms and of directors serve one-year terms
are elected annually. and are elected annually.
----------------------------------------------------------------------------------------------
Payment of Dividends After the merger, dividends paid Under Oklahoma law, dividends are
by Dominion on its capital stock also declared and paid as
will be governed by Virginia law. determined by the board of
Under Virginia law, dividends may directors. However, the ability of
be declared and paid as determined Louis Dreyfus to pay dividends on
by the board of directors, its capital stock is limited by
provided that no dividends may be certain restrictions imposed upon
paid if, after giving effect to corporations under Oklahoma law.
the distribution (i) the Under Oklahoma law, dividends may
corporation would not be able to be declared and paid out of
pay its debts as they become due surplus, or, in case there is no
in the usual course of business, surplus, out of the corporations'
or (ii) the corporation's total net profits for the fiscal year in
assets would be less than the sum which the dividend is declared
of its total liabilities plus any and/or the net profits from the
amount required to be paid to preceding fiscal year. The
holders of preferred stock in the distribution of dividends is not
event of liquidation of the permitted by an Oklahoma
corporation. corporation in the event the
capital of such corporation has
been diminished by depreciation of
property or losses to an amount
less than the aggregate amount of
the capital represented by issued
and outstanding stock having a
preference upon distribution of
assets.
----------------------------------------------------------------------------------------------
Cumulative Voting The articles of incorporation and The certificate of incorporation
bylaws of Dominion do not permit and bylaws of Louis Dreyfus do not
cumulative voting. permit cumulative voting.
----------------------------------------------------------------------------------------------
Preemptive Rights None of the shareholders of None of the shareholders of Louis
Dominion has preemptive rights. Dreyfus has preemptive rights.
75
Dominion Louis Dreyfus
--------------------------------------------------------------------------------------------------
Removal of Directors Under the articles of Under Oklahoma law, any director
incorporation of Dominion and or the entire board of directors
Virginia law, a director may be may be removed, with or without
removed only at a meeting called cause, by the holders of a
for such purpose. Dominion majority of the shares then
directors may be removed from entitled to vote at an election of
office for cause by the vote of directors.
two-thirds of the outstanding
shares entitled to vote.
--------------------------------------------------------------------------------------------------
Board of Director Any vacancies on the board of Vacancies, including those due to
Vacancies directors, however caused, and removal without cause, and newly
newly created directorships may be created directorships may be
filled by a majority vote of the filled by majority vote of the
directors then in office, whether directors then in office, even if
or not a quorum. Directors less than a quorum. Directors
appointed in this manner hold appointed in this manner hold
office until the next annual office until the next annual
meeting of shareholders. meeting of shareholders.
--------------------------------------------------------------------------------------------------
Shareholder Proposals Dominion's shareholders can submit Louis Dreyfus' bylaws do not have
and Director Nominations shareholder proposals and nominate a provision similar or comparable
candidates for the board of to Dominion's bylaws regarding
directors if the shareholders advance notice of director
follow advance notice procedures nominations and other shareholder
described in Dominion's bylaws. proposals.
Director nominations and
shareholder proposals that are
late or that do not include all
required information may be
rejected by Dominion. This could
prevent shareholders from bringing
certain matters before an annual
or special meeting, including
making nominations for directors.
--------------------------------------------------------------------------------------------------
Meetings of Shareholders Under Dominion's bylaws, meetings Under Louis Dreyfus' bylaws,
of the shareholders may be called special meetings of the
only by the chairman of the board, shareholders, for any purpose or
the president or a majority of the purposes described in the notice
board of directors. This provision of the meeting, may be called by
could have the effect of delaying the board of directors or by the
until the next annual president and shall be held at
shareholders' meeting shareholder such place, on such date and at
actions which are favored by the such time as they, she or he shall
holders of a majority of fix.
outstanding voting securities,
because such person or entity,
even if it acquired a majority of
the outstanding voting securities
of Dominion, would be able to take
action as a shareholder, such as
electing new directors or
approving a merger, only at a duly
called shareholders' meeting.
76
Dominion Louis Dreyfus
--------------------------------------------------------------------------------------------------
Shareholder Action Virginia law permits action by the Under the certificate of
Without a Meeting shareholders of a public company incorporation and bylaws of Louis
such as Dominion without a Dreyfus, any action which may be
meeting, provided that all the taken at any special meeting may
shareholders consent in writing to be taken without a meeting if a
the action taken. consent in writing, setting forth
the action, is signed by the
holders of outstanding stock
having not less than the minimum
number of votes that would be
necessary to authorize or take
such action at a meeting at which
all shares entitled to vote were
present and voted. Oklahoma law
provides that directors may not be
elected by less than unanimous
shareholder consent unless there
are no board members in office.
--------------------------------------------------------------------------------------------------
Shareholders' Inspection Under Virginia law, a shareholder Under Oklahoma law, a shareholder
Rights may inspect a corporation's may inspect a corporation's stock
shareholder records, shareholder ledgers, the shareholders' list
minutes, accounting records and and its other books and records
some board of directors minutes if for any purpose reasonably related
the shareholder makes a demand for to such person's interest as a
the records in good faith and for shareholder.
a proper purpose. The shareholder
also must comply with a six months
record ownership requirement and
certain other procedural
requirements when making an
inspection demand.
--------------------------------------------------------------------------------------------------
Directors' Duties The standard of conduct for The Oklahoma standards of conduct
directors of Virginia corporations for directors have developed
is set forth in Section 13.1-690 through written opinions of the
of the Code of Virginia. Directors Oklahoma courts. Generally,
must discharge their duties in directors of Oklahoma corporations
accordance with their good faith are subject to a duty of loyalty
business judgment of the best and a duty of care. The duty of
interest of the corporation. loyalty has been said to require
Directors may rely on the advice directors to refrain from self-
or acts of others, including dealing. The duty of care requires
officers, employees, attorneys, directors to use the amount of
accountants and board committees care which ordinarily careful and
if they have a good faith belief prudent men would use in similar
in their competence. Directors' circumstances.
actions are not subject to a
reasonableness or prudent person
standard. Virginia's federal and
state courts have focused on the
process involved with directors'
decisionmaking and are generally
supportive of directors if they
have based their decision on an
informed process. These elements
of Virginia law could make it more
difficult to take over a Virginia
corporation than corporations in
other states.
77
Dominion Louis Dreyfus
-------------------------------------------------------------------------------------------------
Limitations on Director Dominion's articles of Louis Dreyfus' certificate of
and Officer Liability; incorporation provide that its incorporation provides that its
Indemnification directors and officers will not be directors shall not be liable for
personally liable for monetary monetary damages for breach of the
damages to the corporation for director's fiduciary duty of care
breaches of their fiduciary duty to its shareholders. The provision
as directors or officers, unless in the certificate of
they violated their duty of incorporation does not eliminate
loyalty to the corporation or its the duty of care and, in
shareholders, acted in bad faith, appropriate circumstances,
knowingly or intentionally equitable remedies such as
violated the law, authorized injunctive or other forms of non-
illegal dividends or redemptions monetary relief will remain
or derived an improper personal available under Oklahoma law. In
benefit from their action as addition, each director will
directors or officers. This continue to be subject to
provision applies only to claims liability for breach of the
against directors or officers director's duty of loyalty, as
arising out of their role as well as for acts or omissions not
directors or officers and not in in good faith or involving
any other capacity. Directors and intentional misconduct, for
officers remain liable for knowing violations of law, for
violations of the federal actions leading to improper
securities laws and Dominion personal benefit to the director,
retains the right to pursue legal and for payment of dividends or
remedies other than monetary approval of stock repurchases or
damages, such as an injunction or redemptions that are unlawful
rescission for breach of the under Oklahoma law. The provision
officer's or director's duty of also does not affect a director's
care. responsibilities under any other
law, such as the state or federal
Dominion indemnifies its officers securities laws. Under the
and directors to the fullest Oklahoma statutes, Louis Dreyfus
extent permitted under Virginia has broad powers to indemnify its
law against all liabilities directors and officers against
incurred in connection with their liabilities they may incur in such
service as officers and directors. capacities, including liabilities
under the Securities Act of 1933.
Dominion has, in connection with Louis Dreyfus' certificate of
certain acquisition transactions, incorporation provides that it
entered into agreements with shall indemnify its directors and
directors and officers of the officers to the fullest extent
entities that were the subject of permitted by Oklahoma law. Louis
such acquisitions to indemnify Dreyfus has entered into
them for periods of time following Indemnification Agreements with
the acquisition closing for their each director, which require Louis
acts or omissions as directors and Dreyfus to indemnify such persons
officers of the acquired entity. against certain liabilities and
Some of these individuals are now expenses incurred by any such
directors and officers of persons by reason of their status
Dominion. or service as directors. The
Indemnification Agreements also
set forth procedures that will
apply in the event of a claim for
indemnification under such
agreements. In addition, the
Indemnification Agreements require
that Louis Dreyfus use
commercially reasonable efforts to
maintain policies of directors'
liability insurance.
78
Dominion Louis Dreyfus
------------------------------------------------------------------------------------------------
Common Stock Purchase Dominion does not have a Louis Dreyfus does not have a
Rights shareholders rights plan. shareholders rights plan.
------------------------------------------------------------------------------------------------
Anti-Takeover Statutes Section 13.1-725 of the Code of Louis Dreyfus has opted out of all
Virginia contains several of the anti-takeover provisions
provisions relating to under Oklahoma law.
transactions with interested
shareholders. Interested
shareholders are holders of more
than 10% of any class of a
corporation's outstanding voting
shares. Transactions between a
corporation and an interested
shareholder are referred to as
affiliated transactions. Virginia
law requires that material
affiliated transactions must be
approved by at least two-thirds of
the shareholders not including the
interested shareholder. Affiliated
transactions requiring this two-
thirds approval include mergers,
share exchanges, material
dispositions of corporate assets,
dissolution or any
reclassification of the
corporation with its subsidiaries
which increases the percentage of
voting shares owned by an
interested shareholder by more
than five percent.
For three years following the time
that a shareholder becomes an
interested shareholder, a Virginia
corporation cannot engage in an
affiliated transaction with the
interested shareholder without
approval of two-thirds of the
disinterested voting shares, and
majority approval of disinterested
directors. A disinterested
director is a director who was a
director on the date on which an
interested shareholder became an
interested shareholder or was
recommended for election or
elected by a majority of the
disinterested directors then on
the board. After three years, the
approval of the disinterested
directors is no longer required.
The provisions of Virginia law
relating to affiliated
transactions do not apply if a
majority of disinterested
directors approve the acquisition
of shares making a person an
interested shareholder.
79
Dominion Louis Dreyfus
------------------------------------------------------------------------------------------------
Anti-Takeover Statutes Virginia law permits corporations
(continued) to opt out of the affiliated
transactions provisions. Dominion
has not opted out.
Virginia law also contains
provisions regulating certain
control share acquisitions, which
are transactions causing the
voting strength of any person
acquiring beneficial ownership of
shares of a public corporation in
Virginia to meet or exceed certain
threshold voting percentages (20%,
33 1/3%, 50%). Shares acquired in
a control share acquisition have
no voting rights unless the voting
rights are granted by a majority
vote of all outstanding shares
other than those held by the
acquiring person or any officer or
employee-director of the
corporation. The acquiring person
may require that a special meeting
of the shareholders be held to
consider the grant of voting
rights to the shares acquired in
the control share acquisition.
Dominion's bylaws give it the
right to redeem the shares
purchased by an acquiring person
in a control share acquisition.
Dominion can do this if the
acquiring person fails to deliver
a statement to it listing
information required by the
Virginia Act or if its
shareholders vote not to grant
voting rights to the acquiring
person.
Virginia law permits corporations
to opt out of the control share
acquisition provisions. Dominion
has not opted out.
------------------------------------------------------------------------------------------------
Consolidation, Merger, In addition to the anti-takeover Oklahoma law requires mergers and
Share Exchange and provisions discussed above, consolidations of an Oklahoma
Transfer of Assets Virginia law requires corporation or sales of
consolidations, mergers, share substantially all of its assets to
exchanges and certain asset be approved by a majority vote of
transfers to be approved by the holders of the outstanding
shareholders. Under Virginia law shares of the corporation entitled
and Dominion's articles of to vote thereon. Abstentions,
incorporation, the vote required failures to vote and broker non-
for approval by each voting group votes have the same effect as a
entitled to vote is a plurality of vote against the matter.
the shares represented at a
meeting at which a quorum of the
voting group is present.
Abstentions and broker non-votes
have the same effect as a vote
against the matter.
80
Dominion Louis Dreyfus
-------------------------------------------------------------------------------------------------
Shareholders' Rights in Virginia law provides generally, Under Oklahoma law and Louis
Certain Transactions with certain exceptions, that a Dreyfus' certificate of
shareholder of a Virginia incorporation, a shareholder may
corporation has the right to demand and receive the fair value
demand and receive payment of the of his shares of stock if: (i) the
fair value of the shareholder's corporation merges or consolidates
stock from a successor corporation with another corporation or (ii)
if: (i) the corporation merges or another corporation acquires all
consolidates with another or part of the outstanding shares
corporation; (ii) the of the corporation in a
shareholder's stock is to be transaction subject to shareholder
acquired in a share exchange; approval. These rights are not
(iii) the corporation transfers available in connection with the
its assets other than in the sale of all or substantially all
ordinary course of business; or of the assets or an amendment to
(iv) the corporation alters its Louis Dreyfus' certificate of
charter in a way which alters incorporation because Louis
contractual rights, as expressly Dreyfus has not elected for these
set forth in the charter, of any rights to be available in such
outstanding stock and circumstances.
substantially adversely affects
the shareholder's rights, unless Before a shareholder may assert
the right to do so is reserved by his or her appraisal rights, the
the charter of the corporation. shareholder must have voted
against the decision. Each
In order for a shareholder to shareholder electing to demand the
perfect his or her dissenters' appraisal of the shares must
rights, the shareholder must file deliver to the corporation, before
with the corporation prior to the the taking of the vote on the
vote a demand in writing for the merger or consolidation, a written
fair cash value of his or her demand for appraisal of the shares
shares of his or her intent to of the shareholder. The demand
demand payment. Virginia law will be sufficient if it
provides that the right to fair reasonably informs the corporation
value does not apply, with certain of the identity of the shareholder
exceptions unless shareholders are and that the shareholder intends
required by the terms of agreement thereby to demand the appraisal of
to accept consideration other the shares of the shareholder.
than, among other things, shares
of stock of any stock listed on a Within ten (10) days after the
national securities exchange or effective date of the merger or
cash or a combination thereof. consolidation, the surviving or
resulting corporation must notify
each shareholder of each
constituent corporation who has
provided a written demand for
appraisal and who has not voted in
favor of or consented to the
merger or consolidation that the
merger or consolidation has become
effective. Oklahoma law provides
that no appraisal rights are
available for shares of stock
listed on a national securities
exchange or held of record by more
than two thousand holders.
However, appraisal rights are
available for shares of stock if
the holders are required by the
terms of an agreement of merger or
consolidation to accept for the
stock anything except; (a) shares
of stock of the surviving
81
Dominion Louis Dreyfus
--------------------------------------------------------------------------------------------------
Shareholders' Rights in corporation; (b) shares of stock
Certain Transactions of any other corporation which
(continued) will be either listed on a
national securities exchange or
designated as a national market
system security on an interdealer
quotation system or held of record
by more than two thousand holders;
(c) cash in lieu of fractional
shares; or (d) any combination of
shares of stock, depository
receipts, and cash in lieu of
fractional shares.
Shareholders of Louis Dreyfus have
rights appraisal in connection
with the proposed merger. See "The
Merger--Appraisal Rights of
Shareholders."
--------------------------------------------------------------------------------------------------
Amendment of Articles of Generally, the Dominion articles Louis Dreyfus' certificate of
Incorporation of incorporation may be amended by incorporation may be amended by a
a plurality of the shares vote of the holders of a majority
represented at a meeting where a of outstanding shares of common
quorum is present. Some provisions stock. Except upon the affirmative
of the articles of incorporation, vote of all of the shares issued
however, may only be amended or and outstanding, no amendment to
repealed by a vote of at least the certificate of incorporation
two-thirds of the outstanding may be adopted which would impose
shares entitled to vote. personal liability for the debts
of the corporation on the
shareholders.
82
LEGAL MATTERS
The legality of the Dominion shares being offered hereby is being passed upon
for Dominion by James F. Stutts, Esquire, its Vice President and General
Counsel. Mr. Stutts is a full-time employee and officer of Dominion and
beneficially owned 221,672 shares (including 156,000 options) of Dominion
common stock as of September 25, 2001.
EXPERTS
Dominion
The consolidated financial statements and the related financial statement
schedules incorporated in this prospectus by reference from Dominion's Annual
Report on Form 10-K for the year ended December 31, 2000 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports (which
reports express an unqualified opinion and include an explanatory paragraph
relating to changes in accounting principle for the method of accounting used
to develop the market-related value of pension plan assets, and for the method
of accounting for oil and gas exploration and production activities to the full
cost method), which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
Louis Dreyfus
The consolidated financial statements and the related financial statement
schedule of Louis Dreyfus Natural Gas Corp. at December 31, 2000 and 1999, and
for each of the three years in the period ended December 31, 2000, incorporated
in this prospectus by reference from Louis Dreyfus' Annual Report on Form 10-K
for the year ended December 31, 2000 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
related financial statement schedule have been incorporated in reliance upon
such report given upon their authority as experts in accounting and auditing.
Certain estimates of Louis Dreyfus' oil and gas reserves and related
information as of December 31, 2000 included in Louis Dreyfus' Annual Report on
Form 10-K for the year ended December 31, 2000 and incorporated by reference in
this proxy statement/prospectus have been derived from engineering reports
prepared by Louis Dreyfus' engineers and reviewed and reported on by Ryder
Scott Company L.P., independent petroleum engineers, and all such information
has been so incorporated in reliance on the authority of such firm as experts
regarding the matters contained in their reports.
83
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma information reflects the historical
combined condensed consolidated financial data of Dominion and Louis Dreyfus
after accounting for the merger as a purchase business combination.
Accordingly, you should read the following information together with the
historical consolidated financial statements of Dominion and Louis Dreyfus and
all related notes, which are incorporated into this proxy statement/prospectus
by reference. The unaudited pro forma combined condensed consolidated balance
sheet assumes the merger became effective as of June 30, 2001. The unaudited
combined condensed consolidated statements of income from continuing operations
assume the merger became effective on January 1, 2000.
The information presented below is not necessarily indicative of the results
of operations that might have occurred had the merger actually closed on
January 1, 2000, or the actual financial position that might have resulted had
the merger actually closed on June 30, 2001. The information is also not
indicative of the future results of operations or financial position of
Dominion.
The Transaction
The merger agreement provides that Louis Dreyfus will merge into a direct
wholly owned subsidiary of Dominion.
The unaudited pro forma combined condensed consolidated financial data assume
that 1) all Louis Dreyfus shares of common stock were exchanged for cash
consideration of $20.00 per share plus an exchange ratio of 0.3226 per share of
Dominion common stock and 2) all employee and director stock options were
exchanged for equivalent options to purchase shares of Dominion common stock.
The total consideration for the transaction using this value was approximately
$1.8 billion, excluding the assumption of $523 million of Louis Dreyfus debt.
Accounting Treatment
The merger will be accounted for by the purchase method of accounting. Under
the purchase method, identifiable assets and liabilities of Louis Dreyfus will
be recorded at their fair values. The remaining difference between the purchase
price of Louis Dreyfus, including direct costs of the acquisition, will be
recorded as goodwill. Allocations included in the unaudited pro forma
statements are based on preliminary analysis. Accordingly, the final value of
the purchase price and its allocation may differ, perhaps significantly, from
the amount included in these pro forma statements.
84
DOMINION RESOURCES AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME FROM
CONTINUING OPERATIONS
Year Ended December 31, 2000
------------------------------------------------------
Dominion Louis Dreyfus Pro Forma Pro Forma
(As Reported) (As Reported)(A) Adjustments Combined
------------- ---------------- ----------- ---------
(Millions, except per share amounts)
Operating Revenue........ $9,260 $ 474 $9,734
Operating Expenses:
Electric fuel and energy
purchases, net......... 1,106 1,106
Purchased electric
capacity............... 741 741
Purchased gas, net...... 1,453 1,453
Liquids, pipeline
capacity and other
purchases.............. 299 299
Restructuring and other
acquisition-related
costs.................. 460 460
Other operations and
maintenance............ 2,011 117 $(36)(G) 2,092
Depreciation, depletion
and amortization....... 1,176 129 28 (E) 1,333
Other taxes............. 485 31 516
------ ----- ---- ------
Total operating
expenses.............. 7,731 277 (8) 8,000
------ ----- ---- ------
Income from operations... 1,529 197 8 1,734
Other income............. 93 3 96
Interest and related
charges................. 1,024 41 44 (B) 1,109
------ ----- ---- ------
Income before income
taxes................... 598 159 (36) 721
Income taxes............. 183 61 (14)(D3) 230
------ ----- ---- ------
Income from continuing
operations.............. $ 415 $ 98 $(22) $ 491
====== ===== ==== ======
Average shares of common
stock--basic............ 235.2 41.8 249.3
Earnings per share--
basic:
Income from continuing
operations............. $ 1.76 $2.35 $ 1.97
====== ===== ======
Average shares of common
stock--diluted.......... 235.9 42.8 250.3
Earnings per share--
diluted:
Income from continuing
operations............. $ 1.76 $2.29 $ 1.96
====== ===== ======
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Data.
85
DOMINION RESOURCES AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME FROM
CONTINUING OPERATIONS
Six Months Ended June 30, 2001
------------------------------------------------------
Dominion Louis Dreyfus Pro Forma Pro Forma
(As Reported) (As Reported)(A) Adjustments Combined
------------- ---------------- ----------- ---------
(Millions, except per share amounts)
Operating Revenue........ $5,507 $ 368 $5,875
Operating Expenses:
Electric fuel and energy
purchases, net......... 660 660
Purchased electric
capacity............... 346 346
Purchased gas, net...... 1,305 1,305
Liquids, pipeline
capacity and other
purchases.............. 112 112
Other operations and
maintenance............ 1,257 68 $(21)(G) 1,304
Depreciation, depletion
and amortization....... 596 65 14 (E) 675
Other taxes............. 217 23 240
------ ----- ---- ------
Total operating
expenses.............. 4,493 156 (7) 4,642
------ ----- ---- ------
Income from operations... 1,014 212 7 1,233
Other income............. 40 1 41
Interest and related
charges................. 510 17 22 (B) 549
------ ----- ---- ------
Income before income
taxes................... 544 196 (15) 725
Income taxes............. 226 75 (6)(D3) 295
------ ----- ---- ------
Income from continuing
operations.............. $ 318 $ 121 $ (9) $ 430
====== ===== ==== ======
Average shares of common
stock--basic............ 246.8 43.9 260.9
Earnings per share--
basic:
Income from continuing
operations............. $ 1.29 $2.76 $ 1.65
====== ===== ======
Average shares of common
stock--diluted.......... 249.4 44.7 264.0
Earnings per share--
diluted:
Income from continuing
operations............. $ 1.27 $2.71 $ 1.63
====== ===== ======
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Data.
86
DOMINION RESOURCES AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2001
At June 30, 2001
----------------------------------------------------------
Dominion Louis Dreyfus Pro Forma Pro Forma
(As Reported) (As Reported)(A) Adjustments Combined
------------- ---------------- ----------- ---------
(Millions)
ASSETS
------
Current Assets:
Cash and cash
equivalents........... $ 476 $ 2 $ 478
Accounts receivable,
net................... 2,794 103 2,897
Inventories............ 437 437
Investment securities-
trading............... 307 307
Mortgage loans held
for sale.............. 639 639
Commodity contract
assets................ 1,430 68 1,498
Prepayments............ 216 216
Other.................. 372 4 376
------- ------ -------
Total current
assets.............. 6,671 177 6,848
------- ------ -------
Investments............. 3,447 3,447
Property, Plant and
Equipment:
Property, plant and
equipment............. 29,978 2,097 $ 585 (D1) 32,660
Accumulated
depreciation,
depletion, and
amortization.......... (14,211) (642) 642 (D1) (14,211)
------- ------ ------ -------
Total property, plant
and equipment....... 15,767 1,455 1,227 18,449
------- ------ ------ -------
Deferred Charges and
Other Assets:
Goodwill, net.......... 3,663 242 (D2) 3,905
Prepaid pension
costs................. 1,419 1,419
Other.................. 1,286 64 1,350
------- ------ ------ -------
Total deferred
charges and other
assets.............. 6,368 64 242 6,674
------- ------ ------ -------
Total assets............ $32,253 $1,696 $1,469 $35,418
======= ====== ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Securities due within
one year.............. $ 975 $ 975
Short-term debt........ 1,491 $ 875 (B) 2,366
Accounts payable,
trade................. 2,175 $ 81 19 (F) 2,275
Commodity contract
liabilities........... 1,279 26 1,305
Other.................. 1,425 35 1,460
------- ------ ------ -------
Total current
liabilities......... 7,345 142 894 8,381
------- ------ ------ -------
Long-Term Debt:
Long-term debt......... 11,487 523 12,010
Notes payable-
affiliates............ 643 643
------- ------ -------
Total long-term
debt................ 12,130 523 12,653
------- ------ -------
Deferred Credits and
Other Liabilities:
Deferred taxes......... 3,013 146 449 (D3) 3,608
Other.................. 1,131 95 1,226
------- ------ ------ -------
Total deferred
credits and other
liabilities......... 4,144 241 449 4,834
------- ------ ------ -------
Total liablilities... 23,619 906 1,343 25,868
------- ------ ------ -------
Obligated manditorily
redeemable preferred
securities of
subsidiary trusts...... 935 935
------- -------
Subsidiary preferred
stock not subject to
mandatory redemption... 509 509
------- -------
Common Shareholders'
Equity:
Common stock........... 6,086 14 (C) 6,100
Other paid-in
capital............... 23 509 393 (C,H,I) 925
Accumulated other
comprehensive
income................ 51 35 (35) (I) 51
Retaining earnings..... 1,030 248 (248) (I) 1,030
Treasury stock......... (2) 2 (I)
------- ------ ------ -------
Total common
shareholders'
equity................ 7,190 790 126 8,106
------- ------ ------ -------
Total liabilities and
shareholders' equity... $32,253 $1,696 $1,469 $35,418
======= ====== ====== =======
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Data.
87
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Combined Condensed Consolidated Financial Data are
based on the following assumptions:
A. Certain revenues, expenses, assets and liabilities of Louis Dreyfus have
been reclassified to conform with Dominion's presentation.
B. The issuance of $875 million of commercial paper by Dominion at 5% to fund
the cash distributed in exchange for the outstanding shares of Louis Dreyfus
at the closing of the merger. Dominion anticipates replacing a significant
portion of the commercial paper with proceeds from the issuance of debt
and/or preferred securities.
C. The issuance of 14.1 million shares of Dominion common stock at the closing
of the merger based on the exchange ratio of 0.3226 share of Dominion common
stock for each share of Louis Dreyfus common stock, amounting to $884
million, and the conversion of Louis Dreyfus employee stock options into
Dominion common stock options with an estimated fair value of $32 million.
D. Purchase adjustments which have been made to the assets and liabilities of
Louis Dreyfus to reflect the effect of the merger accounted for as a
purchase business combination are as follows (in millions):
Purchase Adjustments
--------------------
Total exploration and production properties (1)...................... $1,227
Goodwill (2)......................................................... 242
Deferred taxes (3)................................................... 449
1. Exploration and production properties are adjusted to reflect the Louis
Dreyfus exploration and production properties at estimated fair value.
The fair value of proved reserves were estimated to be $1.8 billion and
unproved properties were estimated to be $842 million.
2. Goodwill is recognized, representing the portion of the purchase price
in excess of the estimated fair value of identified assets and
liabilities. No amortization of goodwill is included in the Unaudited
Pro Forma Combined Condensed Consolidated Financial Data, as provided in
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, for business combinations completed after June 30,
2001. The allocation of the purchase price will be based on the fair
value of identified assets and liabilities as of the date the business
combination is completed. Accordingly, goodwill will be adjusted as a
result of the determination of such fair values and thus will differ
from the amount reported in the Unaudited Pro Forma Combined Condensed
Consolidated Balance Sheet.
3. Deferred taxes are adjusted to record the additional deferred taxes,
resulting primarily from the recognition of the estimated fair value of
the Louis Dreyfus exploration and production properties. The estimated
provision for income taxes related to the pro forma adjustments are
based on an assumed combined federal and state income tax rate of 38%.
88
E. Pro forma adjustments reflect the additional depletion related to the
adjustment of the Louis Dreyfus exploration and production properties to
estimated fair value under the full cost method of accounting. See Note G.
F. The companies expect to record direct costs of the merger (including fees of
financial advisors, legal counsel, independent auditors and payments under
certain employment contracts). The direct costs of the merger are estimated
to be $19 million. The estimated charges and nature of costs included
therein are subject to change, as more accurate estimates become available.
The Unaudited Pro Forma Combined Condensed Consolidated Financial Data do
not reflect the nonrecurring costs and expenses associated with integrating
the operations of the two companies, nor any of the anticipated recurring
expense savings arising from the integration.
G. Dominion uses the full cost method to account for its oil and gas
operations. Louis Dreyfus utilizes the successful efforts method of
accounting for its oil and gas operations. The pro forma data reflect an
estimate of the change from the successful efforts method to the full cost
method for the Louis Dreyfus oil and gas operations. This change resulted in
a $5 million increase in earnings in the Unaudited Pro Forma Combined
Condensed Consolidated Statements of Income from Continuing Operations for
the year ended December 31, 2000 and the six months ended June 30, 2001,
respectively.
H. The Louis Dreyfus Stock Option Plan ("Stock Option Plan") provides for
awards of stock options to certain employees and non-employee directors.
Approval by the shareholders of the merger will constitute a change of
control under the Stock Option Plan. Unless the Louis Dreyfus Compensation
Committee provides otherwise, upon a change of control (i) all stock options
previously granted will become fully vested and exercisable, and (ii) for 60
days after the change of control, the option holders may surrender their
options and receive a cash payment in an amount equal to the difference
between the fair market value on the date preceding the date of surrender of
the shares subject to the option and the aggregate exercise price for the
shares under the options. However, the merger agreement provides that before
the approval of the merger by the shareholders, Louis Dreyfus will cause its
Compensation Committee to exercise its authority under the Stock Option Plan
to make a determination that option holders will not be permitted to
surrender for cancellation their outstanding options for a cash payment
following a change in control. As of the date of the merger agreement,
Louis Dreyfus employees held 1.9 million outstanding and unvested stock
options that would vest as a result of a change in control. The Unaudited
Pro Forma Combined Condensed Consolidated Financial Data assumes that such
options are exchanged for options for 1.2 million shares of Dominion common
stock.
I. The application of the purchase method of accounting eliminates the
preexisting balances of Louis Dreyfus' other paid-in capital, accumulated
other comprehensive income, retained earnings and treasury stock.
89
SUBMISSION OF SHAREHOLDER PROPOSALS
In order for proposals of Louis Dreyfus shareholders intended to be presented
for action at the annual meeting of shareholders to be held in 2002 (if the
merger does not close before that time) and to be considered for inclusion in
the Louis Dreyfus proxy statement and form of proxy relating to that meeting,
such proposals must be received by Louis Dreyfus on or before December 16,
2001. In addition, the proxy solicited by the board of directors for the 2002
annual meeting will confer discretionary authority to vote on any proposal
presented at the 2002 annual meeting, unless Louis Dreyfus is provided with
notice of the proposal no later than March 2, 2002. All shareholder proposals
should be delivered to the attention of the corporate secretary of Louis
Dreyfus at its principal corporate offices, 14000 Quail Springs Parkway, Suite
600, Oklahoma City, Oklahoma 73134.
OTHER MATTERS
Louis Dreyfus management does not know of any matters to be presented for
action at the special meeting other than those listed in the Notice of Meeting.
If any other matters properly come before the special meeting, it is intended
that the proxy solicited by the Louis Dreyfus board of directors will be voted
in accordance with the recommendation of the board of directors.
90
WHERE YOU CAN FIND MORE INFORMATION
Dominion and Louis Dreyfus file annual, quarterly and special reports, proxy
statements and other information with the SEC. Dominion's and Louis Dreyfus'
SEC filings are available to the public over the Internet at the SEC's web site
at http://www.sec.gov. You may also read and copy any document Dominion or
Louis Dreyfus filed at the SEC's public reference rooms in Washington, D.C.,
New York and Chicago. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. You may also read and copy these
documents at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The SEC allows companies to "incorporate by reference" the information filed
with them, which means that Dominion and Louis Dreyfus can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this proxy
statement/prospectus, and information that is later filed by the companies with
the Securities and Exchange Commission will automatically update and supersede
this information. The documents listed below and any future filings made with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 are incorporated by reference, until such time as all of the offering
of the securities covered by this proxy statement/prospectus has been
completed:
Filed by Dominion:
. Annual Report on Form 10-K for the year ended December 31, 2000;
. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001
and June 30, 2001;
. Current Reports on Form 8-K filed January 12, 2001, January 24, 2001,
May 25, 2001 and September 10, 2001; and
. The description of Dominion's common stock contained in Form 8-B (Item
4) dated April 29, 1983.
Filed by Louis Dreyfus:
. Annual Report on Form 10-K for the year ended December 31, 2000;
. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001
and June 30, 2001; and
. Current Reports on Form 8-K filed September 12, 2001 and September 24,
2001.
91
You may request a copy of these filings at no cost, by writing or telephoning
the respective companies at the following addresses:
Corporate Secretary
Dominion Resources, Inc.
120 Tredegar Street
Richmond, Virginia 23219
(804) 819-2000
Corporate Secretary
Louis Dreyfus Natural Gas Corp.
14000 Quail Springs Parkway, Suite 600
Oklahoma City, Oklahoma 73134
(405) 749-1300
You should rely on the information incorporated by reference or provided in
this proxy statement/prospectus. No one else is authorized to provide you with
different information. No offer is being made of these securities in any state
where the offer is not permitted. You should not assume that the information in
this proxy statement/prospectus is accurate as of any date other than the date
on the front of this document.
92
ANNEXES
A. Agreement and Plan of Merger (as amended and restated).
B. Principal Shareholders Agreement.
C. Fairness Opinion of Lehman Brothers Inc.
D. Section 1091 of the Oklahoma General Corporation Act.
93
ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
(as amended and restated)
BY AND AMONG
DOMINION RESOURCES, INC.,
CONSOLIDATED NATURAL GAS COMPANY
AND
LOUIS DREYFUS NATURAL GAS CORP.
Dated as of September 9, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE I
THE ACQUISITION
Page
----
Section 1.1 Formation of Newco; the Merger; Contribution to Sub......... A-2
Section 1.2 The Closing................................................. A-2
Section 1.3 Effective Time.............................................. A-2
Section 1.4 Certificate of Incorporation................................ A-3
Section 1.5 Bylaws...................................................... A-3
Section 1.6 Board of Directors and Officers............................. A-3
ARTICLE II
CONVERSION OF COMPANY SHARES
Section 2.1 Effect On Capital Stock..................................... A-3
Section 2.2 Exchange of Certificates for Shares......................... A-4
Section 2.3 Dissenters' Rights.......................................... A-7
Section 2.4 Adjustments to Prevent Dilution............................. A-7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Existence; Good Standing; Corporate Authority............... A-7
Section 3.2 Authorization, Validity and Effect of Agreements............ A-8
Section 3.3 Capitalization.............................................. A-8
Section 3.4 Subsidiaries................................................ A-8
Section 3.5 No Violation................................................ A-9
Section 3.6 No Conflict................................................. A-9
Section 3.7 SEC Documents and Financial Statements...................... A-10
Section 3.8 Litigation.................................................. A-11
Section 3.9 Absence of Certain Changes.................................. A-11
Section 3.10 Taxes....................................................... A-11
Section 3.11 Employee Benefit Plans...................................... A-14
Section 3.12 Labor and Employment Matters................................ A-15
Section 3.13 Environmental Matters....................................... A-16
Section 3.14 Compliance with Laws........................................ A-17
Section 3.15 Intellectual Property....................................... A-17
Section 3.16 Oil and Gas Reserves........................................ A-18
Section 3.17 Financial and Commodity Hedging............................. A-18
Section 3.18 Indebtedness and Certain Contracts.......................... A-18
Section 3.19 Title to Properties......................................... A-19
Section 3.20 Insurance................................................... A-20
Section 3.21 No Brokers.................................................. A-20
Section 3.22 Opinion of Financial Advisors............................... A-20
Section 3.23 Board Recommendation; Vote Required......................... A-20
Section 3.24 Holding Company; Investment Company; Utility................ A-21
Section 3.25 Certain Approvals........................................... A-21
i
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Page
----
Section 4.1 Existence; Good Standing; Corporate Authority............. A-21
Section 4.2 Authorization, Validity and Effect of Agreements.......... A-22
Section 4.3 Capitalization............................................ A-22
Section 4.4 No Violation.............................................. A-23
Section 4.5 No Conflict............................................... A-23
Section 4.6 SEC Documents............................................. A-24
Section 4.7 Financing................................................. A-24
Section 4.8 No Brokers................................................ A-24
Section 4.9 No Vote Required.......................................... A-24
Section 4.10 Absence of Changes........................................ A-25
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1 Conduct of Business by the Company Pending the Merger..... A-25
Section 5.2 Conduct of Business of Parent............................. A-27
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation by the Company............................ A-28
Section 6.2 Shareholders' Meeting..................................... A-30
Section 6.3 Filings; Reasonable Best Efforts.......................... A-30
Section 6.4 Access to Information..................................... A-32
Section 6.5 Notification of Certain Matters........................... A-33
Section 6.6 Registration Statement; Proxy Statement................... A-33
Section 6.7 Listing Application....................................... A-34
Section 6.8 Agreements of Affiliates.................................. A-34
Section 6.9 Indemnification and Insurance............................. A-34
Section 6.10 Employee Benefits......................................... A-36
Section 6.11 Reorganization............................................ A-38
Section 6.12 Public Statements......................................... A-38
Section 6.13 Fees and Expenses......................................... A-39
Section 6.14 Company Name and Trademarks............................... A-39
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger.................................................... A-39
Section 7.2 Conditions to Obligation of the Company to Effect the
Merger.................................................... A-39
Section 7.3 Conditions to Obligation of Parent to Effect the Merger... A-40
ii
ARTICLE VIII
TERMINATION
Page
----
Section 8.1 Termination by Mutual Consent.............................. A-41
Section 8.2 Termination by Parent or the Company....................... A-41
Section 8.3 Termination by the Company................................. A-42
Section 8.4 Termination by Parent...................................... A-42
Section 8.5 Effect of Termination...................................... A-43
Section 8.6 Extension; Waiver.......................................... A-44
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Nonsurvival of Representations, Warranties and Agreements.. A-45
Section 9.2 Notices.................................................... A-45
Section 9.3 Assignment; Binding Effect; Benefit........................ A-46
Section 9.4 Entire Agreement........................................... A-46
Section 9.5 Amendments................................................. A-46
Section 9.6 Governing Law.............................................. A-46
Section 9.7 WAIVER OF JURY TRIAL....................................... A-46
Section 9.8 Counterparts; Facsimile Transmission of Signatures......... A-47
Section 9.9 Headings................................................... A-47
Section 9.10 Interpretation............................................. A-47
Section 9.11 Waivers.................................................... A-48
Section 9.12 Incorporation of Exhibits.................................. A-48
Section 9.13 Severability............................................... A-48
Section 9.14 Enforcement of Agreement................................... A-48
Section 9.15 Obligation of Sub.......................................... A-48
iii
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of September 9,
2001, is among DOMINION RESOURCES, INC., a Virginia corporation ("Parent"),
CONSOLIDATED NATURAL GAS COMPANY, a Delaware corporation and a direct and
wholly owned subsidiary of Parent ("Sub"), and LOUIS DREYFUS NATURAL GAS CORP.,
an Oklahoma corporation (the "Company").
RECITALS
[from Agreement and Plan of Merger dated as of September 9, 2001]
A. The respective Boards of Directors of each of Parent, Sub and the Company
have determined that the merger of the Company with and into Sub (the
"Merger"), in the manner contemplated herein, is advisable and in the best
interests of their respective corporations and shareholders, and, by
resolutions duly adopted, have approved and adopted this Agreement.
B. It is intended for federal income tax purposes that the Merger qualify as
a reorganization within the meaning of section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder (the "Treasury Regulations").
C. As a condition and inducement to the willingness of Parent to enter into
this Agreement, certain principal shareholders of the Company have entered into
an agreement with Parent and Sub pursuant to which such shareholders have (i)
agreed, among other things, to vote their Company Shares in favor of the Merger
and (ii) granted to Parent and Sub an irrevocable proxy to vote their Company
Shares upon the terms and conditions set forth therein (the "Principal
Shareholders Agreement").
[from Amendment No. 1 dated as of September 17, 2001]
Parent, Sub and the Company have entered into the Agreement and Plan of
Merger dated as of September 9, 2001 (the "Original Agreement") which provides
for the merger of the Company with and into Sub. Section 1.1 of the Original
Agreement provides that Parent may, at its election, substitute for Sub any
direct wholly owned subsidiary of Parent as a constituent corporation to the
Merger. Parent has determined to form a new corporation ("Newco") as a direct
wholly owned subsidiary of Parent and that Newco rather than Sub shall be the
corporation with and into which the Company shall merge. In order to accomplish
the intended purpose of the transaction that the Company be acquired by Sub,
promptly following the Effective Time of the Merger, Parent will contribute to
Sub all of the outstanding capital stock of the Surviving Corporation.
Accordingly, the parties have entered into this Amendment. The Original
Agreement and this Amendment are referred to collectively as the "Agreement."
Capitalized terms used, but not defined, herein have the meaning given to such
terms in the Original Agreement.
A-1
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE ACQUISITION
Section 1.1 Formation of Newco; the Merger; Contribution to Sub.
Prior to the Effective Time, Parent shall form a new corporation
("Newco") under the Delaware General Corporation Law ("DGCL"). Newco
shall be a direct wholly owned subsidiary of Parent and shall be
formed solely for the purpose of engaging in the transactions
contemplated hereby, and will engage in no other business activities,
will not have any material liabilities and will conduct its operations
only as contemplated under this Agreement. Parent shall take all
necessary action to cause the Agreement, as amended, to be duly
authorized, executed, delivered and performed by Newco. Subject to the
terms and conditions of this Agreement, at the Effective Time (as
defined in Section 1.3), the Company shall be merged with and into
Newco in accordance with this Agreement, and the separate corporate
existence of the Company shall thereupon cease. Newco (sometimes
hereinafter referred to as the "Surviving Corporation") shall be the
surviving corporation in the Merger and shall be a wholly owned
subsidiary of Parent. The Merger shall have the effects specified in
the DGCL and the Oklahoma General Corporation Act (the "OGCA").
Promptly following the Effective Time Parent shall contribute to Sub
all of the outstanding capital stock of the Surviving Corporation and
the Surviving Corporation shall become a wholly owned subsidiary of
Sub. At the election of Parent, any direct wholly owned subsidiary of
Parent may be substituted for Newco as a constituent corporation in
the Merger. In such event, the parties hereto agree to execute an
appropriate amendment to this Agreement in order to reflect such
substitution.
Section 1.2 The Closing. Subject to the terms and conditions of
this Agreement, the closing of the Merger (the "Closing") shall take
place (i) at the offices of McGuireWoods LLP, One James Center,
Richmond, Virginia, at 9:00 a.m., local time, on the first business
day immediately following the day on which the last to be fulfilled or
waived of the conditions set forth in Article VII (other than those
conditions that by their nature are to be satisfied at the Closing,
but subject to fulfillment or waiver of those conditions) shall be
fulfilled or waived in accordance herewith or (ii) at such other time,
date or place as Parent and the Company may agree in writing. The date
on which the Closing occurs is hereinafter referred to as the "Closing
Date."
Section 1.3 Effective Time. If all the conditions to the Merger set
forth in Article VII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated as provided
in Article VIII, on the
A-2
Closing Date, certificates of merger (the "Certificates of Merger")
meeting the requirements of Section 251 of the DGCL and Section 1082
of the OGCA shall be properly executed and filed with the Secretary of
State of the State of Delaware and the Secretary of State of the State
of Oklahoma, respectively. The Merger shall become effective upon the
filing of the Certificates of Merger with the Secretaries of State of
the State of Delaware and Oklahoma in accordance with the DGCL and the
OGCA, or at such later time that the parties hereto shall have agreed
upon and designated in such filing as the effective time of the Merger
(the "Effective Time").
Section 1.4 Certificate of Incorporation. The certificate of
incorporation of Newco in effect immediately prior to the Effective
Time shall be the certificate of incorporation of the Surviving
Corporation, until duly amended in accordance with applicable law.
Section 1.5 Bylaws. The bylaws of Newco in effect immediately prior
to the Effective Time shall be the bylaws of the Surviving
Corporation, until duly amended in accordance with applicable law.
Section 1.6 Board of Directors and Officers. The board of directors
of the Surviving Corporation shall consist of the board of directors
of Newco, as it existed immediately prior to the Effective Time. The
officers of Newco immediately prior to the Effective Time shall be the
officers of the Surviving Corporation.
ARTICLE II
CONVERSION OF COMPANY SHARES
Section 2.1 Effect On Capital Stock. At the Effective Time, the
Merger shall have the following effects on the capital stock of the
Company and Newco, without any action on the part of the holder of any
capital stock of the Company or Newco:
(a) Conversion of the Company Shares. Subject to the provisions of
this Section 2.1 and Section 2.3, each share of common stock, $0.01
par value, of the Company (each a "Company Share" and collectively the
"Company Shares") issued and outstanding immediately prior to the
Effective Time (but not including any Dissenting Shares (as defined
below) and any Company Shares that are owned by (i) Parent, Newco or
any other direct or indirect Subsidiary of Parent or (ii) by the
Company (the "Excluded Company Shares")) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into the right to receive (i) $20.00 in cash (the "Cash
Consideration"), (ii) 0.3226 (the "Exchange Ratio") of a Parent Common
Share (the "Share Consideration" and, together with the Cash
Consideration, the "Merger Consideration") and (iii), in the event the
Effective Time does not occur on or before the record date for the
regular quarterly dividend on Parent Common Shares payable in December
2001 (the "December 2001 Dividend") and/or March 2002 (the "March 2002
A-3
Dividend"), as the case may be, and such failure was not the result of
a failure by the Company to perform or observe in any material respect
any of its obligations under this Agreement, an amount in cash equal
to the December 2001 Dividend and/or the March 2002 Dividend, as the
case may be, payable in respect of a Parent Common Share multiplied by
the Exchange Ratio (which sum shall be part of the Cash
Consideration). "Parent Common Share" shall mean the common shares, no
par value, of Parent.
(b) Cancellation of Excluded Company Shares. Each Excluded Company
Share issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of
the holder thereof, no longer be outstanding, shall be canceled and
retired without payment of any consideration therefor and shall cease
to exist.
(c) Newco. At the Effective Time, each share of common stock, no par
value, of Newco issued and outstanding immediately prior to the
Effective Time shall
remain outstanding as shares of common stock of the Surviving
Corporation, and the Surviving Corporation shall continue as a wholly
owned subsidiary of Parent.
Section 2.2 Exchange of Certificates for Shares.
(a) Exchange Procedures. Prior to the Effective Time, Parent shall
designate a bank or trust company reasonably acceptable to the Company to act
as agent for the holders of Company Shares in connection with the Merger (the
"Exchange Agent") to receive the Merger Consideration to which holders of such
shares shall become entitled pursuant to Section 2.1(a). Prior to the Effective
Time, Parent will deposit with the Exchange Agent certificates representing
Parent Common Shares and cash sufficient to make all payments pursuant to
Sections 2.1(a) and 2.2(d) and, when and as needed, Parent shall deposit with
the Exchange Agent cash sufficient to make all payments pursuant to Section
2.2(b). As promptly as practicable after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each holder of record as
of the Effective Time of a certificate which immediately prior to the Effective
Time represented Company Shares (each a "Certificate") (other than holders of a
Certificate in respect of Excluded Company Shares) (i) a letter of transmittal
specifying that delivery of the Certificates shall be effected, and that risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates (or, in lieu of such Certificates, affidavits of loss together
with either a reasonable undertaking to indemnify Parent or the Surviving
Corporation, if Parent believes that the person providing the indemnity is
sufficiently creditworthy, or, if Parent does not so believe, indemnity bonds)
to the Exchange Agent, such letter of transmittal to be in such form and have
such other provisions as Parent and the Surviving Corporation may reasonably
agree, and (ii) instructions for exchanging the Certificates and receiving the
Merger Consideration to which such holder shall be entitled therefor pursuant
to Section 2.1(a). Subject to Section 2.2(g), upon surrender of a Certificate
for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor (i) a certificate representing that number of
whole Parent
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Common Shares that such holder is entitled to receive pursuant to Section
2.1(a) and (ii) a check in the aggregate amount (after giving effect to any
required tax withholdings) of (A) the cash that such holder is entitled to
receive pursuant to Section 2.1(a) plus (B) any cash in lieu of fractional
shares determined in accordance with Section 2.2(d) plus (C) any cash dividends
and any other dividends or other distributions that such holder has the right
to receive pursuant to the provisions of Section 2.2(b). The Certificate so
surrendered shall forthwith be canceled. No interest will be paid or accrued on
any amount payable upon due surrender of any Certificate. In the event of a
transfer of ownership of Company Shares that occurred prior to the Effective
Time, but is not registered in the transfer records of the Company, the Merger
Consideration may be issued and/or paid to such a transferee if the Certificate
formerly representing such Company Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid. If any
certificate for Parent Common Shares is to be issued in a name other than that
in which the Certificate surrendered in exchange therefor is registered, it
shall be a condition of such exchange that the Person requesting such exchange
shall pay any transfer or other taxes required by reason of the issuance of
certificates for Parent Common Shares in a name other than that of the
registered holder of the Certificate surrendered, or shall establish to the
satisfaction of Parent or the Exchange Agent that such tax has been paid or is
not applicable.
(b) Distributions with Respect to Unexchanged Shares. Whenever a dividend
or other distribution is declared by Parent in respect of Parent Common Shares,
the record date for which is at or after the Effective Time, that declaration
shall include dividends or other distributions in respect of all Parent Common
Shares issuable pursuant to this Agreement. No dividends or other distributions
so declared in respect of such Parent Common Shares shall be paid to any holder
of any unsurrendered Certificate until such Certificate is surrendered for
exchange in accordance with this Section 2.2. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
issued or paid, less the amount of any withholding taxes that may be required
thereon, to the holder of the certificates representing whole Parent Common
Shares issued in exchange for such Certificate, without interest, (i) at the
time of such surrender, the dividends or other distributions with a record date
that is at or after the Effective Time and a payment date on or prior to the
date of surrender of such whole Parent Common Shares and not previously paid
and (ii) at the appropriate payment date, the dividends or other distributions
payable with respect to such whole Parent Common Shares with a record date at
or after the Effective Time but with a payment date subsequent to surrender.
For purposes of dividends or other distributions in respect of Parent Common
Shares, all Parent Common Shares to be issued pursuant to the Merger shall be
deemed issued and outstanding as of the Effective Time.
(c) Transfers. After the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the Company Shares that were outstanding
immediately prior to the Effective Time.
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(d) No Fractional Shares. No certificates or scrip or Parent Common Shares
representing fractional Parent Common Shares shall be issued upon the surrender
for exchange of Certificates and such fractional interests will not entitle the
owner thereof to vote or to have any rights of a shareholder of Parent or a
holder of Parent Common Shares. Notwithstanding any other provision of this
Agreement, each holder of Company Shares exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a Parent Common
Share (after taking into account all Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
the product of (i) such fractional part of a Parent Common Share multiplied by
(ii) the closing price of Parent Common Shares as reported on the New York
Stock Exchange Composite Transaction Tape on the Closing Date.
(e) Termination of Exchange Period; Unclaimed Merger Consideration. Any
Parent Common Shares and any portion of the cash, dividends or other
distributions with respect to the Parent Common Shares deposited by Parent with
the Exchange Agent (including the proceeds of any investments thereof) that
remain unclaimed by the shareholders of the Company 180 days after the
Effective Time shall be paid to Parent upon demand. Any shareholders of the
Company who have not theretofore complied with this Article II shall thereafter
be entitled to look only to Parent (subject to abandoned property, escheat and
other similar laws) for payment of their Merger Consideration and any cash,
dividends and other distributions in respect thereof issuable and/or payable
pursuant to Section 2.1, Section 2.2(b) and Section 2.2(d) upon due surrender
of their Certificates (or, in lieu of such Certificates, affidavits of loss
together with either a reasonable undertaking to indemnify Parent or the
Surviving Corporation, if Parent believes that the Person providing the
indemnity is sufficiently creditworthy, or, if Parent does not so believe,
indemnity bonds), in each case, without any interest thereon. Notwithstanding
the foregoing, none of Parent, the Surviving Corporation, the Exchange Agent or
any other Person shall be liable to any former holder of Company Shares for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(f) Lost, Stolen or Destroyed Certificates. 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, and if Parent believes that the Person providing the indemnity is
sufficiently creditworthy, the making of a reasonable undertaking to indemnify
Parent or the Surviving Corporation, or, if Parent does not so believe, the
posting by such Person of a bond in the form customarily required by Parent to
indemnify against any claim that may be made against it with respect to such
Certificate, Parent will issue the Parent Common Shares and the Exchange Agent
will distribute such Merger Consideration, dividends and other distributions in
respect thereof issuable or payable in exchange for such lost, stolen or
destroyed Certificate pursuant to Section 2.1, Section 2.2(b) and Section
2.2(d), in each case, without interest.
(g) Affiliates. Notwithstanding anything in this Agreement to the contrary,
Certificates surrendered for exchange by any Rule 145 Affiliate (as determined
pursuant to Section 6.8) of the Company shall not be exchanged until Parent has
received a written agreement from such Person as provided in Section 6.8.
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Section 2.3 Dissenters' Rights. Company Shares that are outstanding
immediately prior to the Effective Time and that are held by shareholders who
shall have not voted in favor of the Merger and who shall have made written
demand for payment of the fair value for such shares in accordance with Section
1091 of the OGCA (collectively, the "Dissenting Shares") shall not be converted
into or represent the right to receive the Merger Consideration. Such
shareholders shall be entitled to receive payment of the fair value of the
Company Shares held by them in accordance with the OGCA, except that all
Dissenting Shares held by shareholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
Company Shares under the OGCA shall thereupon be deemed to have been converted
into and to be exchangeable, as of the Effective Time, for Merger Consideration
in the manner provided in Section 2.1(a).
Section 2.4 Adjustments to Prevent Dilution. In the event that prior to the
Effective Time, there shall have been declared or effected a reclassification,
stock split (including a reverse split), stock dividend, stock distribution or
similar event made with respect to the Company Shares or the Parent Common
Shares, the Merger Consideration shall be equitably adjusted to reflect such
event.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as publicly disclosed by the Company in the Company Reports (as
defined in Section 3.7) filed with the SEC prior to the date of this Agreement
and except as set forth in the disclosure letter (each section of which
qualifies the correspondingly numbered representation and warranty or covenant
to the extent specified therein, provided that any disclosure set forth with
respect to any particular section shall be deemed to be disclosed in reference
to all other applicable sections of this Agreement if the disclosure in respect
of the particular section is sufficient on its face without further inquiry
reasonably to inform Parent of the information required to be disclosed in
respect of the other sections to avoid a breach under the representation and
warranty or covenant corresponding to such other sections) previously delivered
by the Company to Parent (the "Company Disclosure Letter"), the Company hereby
represents and warrants to Parent as follows:
Section 3.1 Existence; Good Standing; Corporate Authority. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Oklahoma. The Company is duly qualified to do business as
a foreign corporation and is in good standing under the laws of any
jurisdiction in which the character of the properties owned or leased by it
therein or in which the transaction of its business makes such qualification
necessary, except where the failure to be so qualified and in good standing
would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect (as defined in Section 9.10). The Company has
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted. The copies of the
Company's articles of incorporation and bylaws previously made available to
Parent are true and correct and contain all amendments as of the date hereof.
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Section 3.2 Authorization, Validity and Effect of Agreements. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and all other agreements and documents contemplated hereby, to which
it is a party. The consummation by the Company of the transactions contemplated
hereby has been duly authorized by all requisite corporate action, other than,
with respect to the Merger, the approval and adoption of this Agreement by the
Company's shareholders. Assuming the valid authorization, execution and
delivery of this Agreement by Parent and Sub, this Agreement constitutes the
valid and legally binding obligation of the Company, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to creditors' rights generally or
general principles of equity.
Section 3.3 Capitalization. The authorized capital stock of the Company
consists of 100,000,000 Company Shares, and 10,000,000 shares of the Company
preferred stock, $0.01 par value ("Company Preferred Stock"). As of August 31,
2001, there were (i) 43,758,077 Company Shares issued and outstanding
(excluding 359,315 treasury shares), (ii) no shares of Company Preferred Stock
issued and outstanding and (iii) 1,911,552 Company Shares subject to
outstanding employee or director stock options, of which the weighted average
exercise price was approximately $23.30 per share. All issued and outstanding
Company Shares (i) are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights, (ii) were not issued in violation
of the terms of any agreement or other understanding binding upon the Company
and (iii) were issued in compliance with all applicable charter documents of
the Company and all applicable federal and state securities laws, rules and
regulations. Except as set forth in this Section 3.3 and except for any Company
Shares issued pursuant to the plans listed in Section 3.11 of the Company
Disclosure Letter, as of the date of this Agreement there are no outstanding
shares of capital stock and there are no options, warrants, calls,
subscriptions, shareholder rights plan or similar instruments, convertible
securities, or other rights, agreements or commitments which obligate the
Company or any of its Subsidiaries to issue, transfer or sell any shares of
capital stock or other voting securities of the Company or any of its
Subsidiaries. The Company has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the shareholders of the Company on any matter on which the shareholders of the
Company are entitled to vote.
Section 3.4 Subsidiaries. Section 3.4 of the Company Disclosure Letter sets
forth for each Subsidiary of the Company, its name and jurisdiction of
incorporation or organization and indicates whether such Subsidiary is a
Significant Subsidiary, in each case as of the date of this Agreement. For
purposes of this Agreement, "Significant Subsidiary" shall mean significant
subsidiary as defined in Rule 1-02 of Regulation S-X of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Each of the Company's
Subsidiaries is a corporation, limited liability company or partnership duly
organized, validly existing and in good standing (where applicable) under the
laws of its jurisdiction of incorporation or organization, has the corporate or
partnership power and authority to own, operate and lease its properties and to
carry on its business as it is now being conducted, except where the
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failure to be so organized, existing and in good standing or to have such power
and authority would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, and is duly qualified to do
business and is in good standing (where applicable) in each jurisdiction in
which the ownership, operation or lease of its property or the conduct of its
business requires such qualification, except where the failure to be so
qualified or to be in good standing would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. All of the
outstanding shares of capital stock of, or other ownership interests in, each
of the Company's Subsidiaries is duly authorized, validly issued, fully paid
and nonassessable, and is owned, directly or indirectly, by the Company free
and clear of all liens, pledges, security interests, claims, preferential
purchase rights or other rights, interests or encumbrances ("Liens"). Other
than joint ventures, operating agreements and similar arrangements typical in
the Company's industry entered into in the ordinary course of business, neither
the Company nor any of the Company's Subsidiaries directly or indirectly owns
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any other person that would reasonably be
expected to be material to the Company and the Company's Subsidiaries taken as
a whole.
Section 3.5 No Violation. Neither the Company nor any of its Subsidiaries is,
or has received notice that it would be with the passage of time, in violation
of any term, condition or provision of (i) its charter documents or bylaws,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, contract,
agreement, lease, license or other instrument or (iii) any order of any court,
governmental authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which the Company or any of its Subsidiaries
or any of their respective properties or assets is subject, or is delinquent
with respect to any report required to be filed with any governmental entity,
except, in the case of matters described in clause (ii) or (iii), as would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Except where it would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect, the
Company and its Subsidiaries hold all permits, licenses, variances, exemptions,
orders, franchises and approvals of all governmental authorities necessary for
the lawful conduct of their respective businesses (the "Company Permits") and
the Company and its Subsidiaries are in compliance with the terms of the
Company Permits. No investigation by any governmental authority with respect to
the Company or any of its Subsidiaries is pending or, to the knowledge of the
Company, threatened, other than those that would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect.
Section 3.6 No Conflict.
(a) Neither the execution and delivery by the Company of this Agreement nor
the consummation by the Company of the transactions contemplated hereby in
accordance with the terms hereof will: (i) conflict with or result in a breach
of any provisions of the charter documents or bylaws of the Company; (ii)
violate, or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination or in a right
of
A-9
termination or cancellation of, or give rise to a right of purchase under, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the properties of the Company or its Subsidiaries under, or result
in being declared void, voidable, or without further binding effect, or
otherwise result in the loss of a material benefit to the Company or any of its
Subsidiaries under any of the terms, conditions or provisions of, any note,
bond, mortgage, indenture, deed of trust, Company Permit, lease, contract,
agreement, joint venture or other instrument or obligation to which the Company
or any of its Subsidiaries is a party, or by which the Company or any of its
Subsidiaries or any of their properties is bound or affected; or (iii) subject
to the governmental filings and other matters referred to in paragraph (b) of
this Section 3.6, contravene or conflict with or constitute a violation of any
provision of any law, rule, regulation, judgment, order or decree binding upon
or applicable to the Company or any of its Subsidiaries, except, in the case of
matters described in clause (ii) or (iii), as would not reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect.
(b) Neither the execution and delivery by the Company of this Agreement nor
the consummation by the Company of the transactions contemplated hereby in
accordance with the terms hereof will require any consent, approval or
authorization of, or filing or registration with, any governmental or
regulatory authority, other than (i) the filings provided for in Article I and
appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business and (ii) filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Exchange Act, the Securities Act of 1933, as amended (the
"Securities Act") or applicable state securities and "Blue Sky" laws ((i) and
(ii) collectively, the "Regulatory Filings"), except for any consent, approval
or authorization the failure of which to obtain and for any filing or
registration the failure of which to make would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect.
Section 3.7 SEC Documents and Financial Statements. The Company has made
available to Parent, each registration statement, report, proxy statement or
information statement (other than preliminary materials) filed by the Company
with the Securities and Exchange Commission ("SEC") since January 1, 2000, each
in the form (including exhibits and any amendments thereto) filed with the SEC
prior to the date hereof (collectively, the "Company Reports"), and the Company
has filed all forms, reports and documents required to be filed by it with the
SEC pursuant to relevant securities statutes, regulations, policies and rules
since such time. As of their respective dates, the Company Reports (i) were
prepared in accordance with the applicable requirements of the Securities Act,
the Exchange Act, and the rules and regulations thereunder and complied with
the then applicable accounting requirements and (ii) did 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 made therein, in the light
of the circumstances under which they were made, not misleading except for such
statements, if any, as have been modified by subsequent filings with the SEC
prior to the date hereof. Each of the consolidated balance sheets included in
or incorporated by reference into the Company Reports (including the related
notes and schedules) fairly presents in all material respects the consolidated
financial position of the Company and its
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Subsidiaries as of its date and each of the consolidated statements of
earnings, cash flows and stockholders' equity included in or incorporated by
reference into the Company Reports (including any related notes and schedules)
fairly presents in all material respects the results of operations, cash flows
or changes in stockholders' equity, as the case may be, of the Company and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to such exceptions as may be permitted by Form 10-Q under
the Exchange Act), in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
as may be noted therein.
Section 3.8 Litigation. There are no actions, suits or proceedings pending
against the Company or any of its Subsidiaries or, to the Company's knowledge,
threatened against the Company or any of its Subsidiaries, at law or in equity,
or before or by any federal, state or foreign commission, board, bureau, agency
or instrumentality, other than those that would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect.
There are no outstanding judgments, decrees, injunctions, awards or orders
against the Company or any of its Subsidiaries, other than those that would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
Section 3.9 Absence of Certain Changes. Since June 30, 2001, the Company has
conducted its business in all material respects only in the ordinary and usual
course of business, and during such period there have not been (i) events,
conditions, actions, occurrences or omissions that would reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect;
(ii) any change by the Company or any of its Subsidiaries in any of its
accounting methods, principles or practices or any of its tax accounting
methods or elections, except for changes required by law or generally accepted
accounting principles; (iii) any declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of the Company,
or any direct or indirect redemption, purchase or any other acquisition by the
Company of any such stock; (iv) any change in the capital stock or in the
number of shares or classes of the Company's authorized or outstanding capital
stock (other than as a result of issuances under the Employee Benefit Plans or
issued as permitted hereunder); (v) any increase in or establishment of any
bonus, insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option, stock purchase or other employee benefit plan, except in
the ordinary course of business; or (vi) any event, condition, action,
occurrence or omission that is prohibited on or after the date of this
Agreement under Section 5.1(b) of this Agreement (other than clauses (i), (xiv)
or (xx) of Section 5.1(b)), and (vii) neither the Company nor any of its
Subsidiaries has incurred any liabilities or obligations of any nature, whether
accrued, contingent or absolute or otherwise (including without limitation
under royalty arrangements), except for those arising in the ordinary course of
business consistent with past practice and that would not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
Section 3.10 Taxes.
(a) The Company and its Subsidiaries have timely filed (after taking into
account any extensions to file) all federal, state, local, and other tax
returns, estimates and reports
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required to be filed on or before the Effective Time by the Company and each of
its Subsidiaries under applicable laws and all such tax returns and reports
were true, complete and correct, and the Company and its Subsidiaries have paid
all other taxes (including any additions to taxes and penalties and interest
thereon) required to be paid on or before the date hereof, except for such
failures to file or pay or failures to be true and correct as would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. The Company and its Subsidiaries have withheld and
paid over all taxes required to have been withheld and paid over, and complied
with all information reporting and backup withholding requirements, including
the maintenance of required records with respect thereto, in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party, except for such failures to withhold or pay over and such
failures to comply as would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect. There are no
encumbrances on any of the assets, rights or properties of the Company or any
of its Subsidiaries with respect to taxes, other than liens for taxes not yet
due and payable or for taxes that the Company or any of its Subsidiaries is
contesting in good faith through appropriate proceedings, except for such
encumbrances that would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.
(b) No audit of the tax returns of the Company or any of its Subsidiaries is
pending or, to the knowledge of the Company, threatened. No deficiencies or
adjustments have been asserted against the Company or any of its Subsidiaries
as a result of or in connection with examinations by any state, local, federal
or foreign taxing authority which would, individually and in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is subject to any private letter ruling of
the Internal Revenue Service or comparable rulings of other tax authorities
that will be binding on the Company or any of its Subsidiaries with respect to
any period following the Effective Time.
(c) There are no agreements, waivers of statutes of limitations, or other
arrangements providing for extensions of time in respect of the assessment or
collection of any unpaid taxes against the Company or any of its Subsidiaries.
The Company and each of its Subsidiaries have disclosed on their federal income
tax returns all positions taken therein that could, if not so disclosed, give
rise to a substantial understatement penalty within the meaning of Section 6662
of the Code.
(d) Neither the Company nor any of its Subsidiaries is a party to any safe
harbor lease within the meaning of Section 168(f)(8) of the Code, as in effect
prior to amendment by The Tax Equity and Fiscal Responsibility Act of 1982.
None of the property owned by the Company or any of its Subsidiaries is "tax-
exempt use property" within the meaning of Section 168(h) of the Code. Neither
the Company nor any of its Subsidiaries is required to make any adjustment
under Code Section 481(a) by reason of a change in accounting method or
otherwise except possibly by reason of the Merger. Neither the Company nor any
of its Subsidiaries has been a member of an affiliated group of corporations
filing a consolidated federal income tax return (other than a group the common
parent of which was
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the Company) or has any liability for the taxes of another person arising
pursuant to Treasury Regulation Section 1.1502-6 or analogous provision of
state, local or foreign law, or as a transferee or successor, or by contract,
tax sharing agreement, tax indemnification agreement, or otherwise. Neither the
Company nor any of its Subsidiaries has filed a consent under Section 341(f) of
the Code with respect to the Company or any of its Subsidiaries or agreed to
have Section 341(f)(2) of the Code apply to a subsection (f) asset (as defined
in Section 341(f)(4) of the Code) owned by the Company or any of its
Subsidiaries. There is no contract, agreement, plan or arrangement to which the
Company or any of its Subsidiaries is a party as of the date of this Agreement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company that, individually or collectively,
would reasonably be expected to give rise to the payment of any amount that
would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code,
or in respect of which an excise tax would be payable under Section 4999 of the
Code. None of the Company or any of its Subsidiaries has been a "distributing
corporation" or a "controlled corporation" in a distribution to which Section
355 of the Code applies (x) in the two years prior to the date of this
Agreement or (y) in a distribution which could otherwise constitute a "plan" or
"series of related transactions" (within the meaning of Section 355(e) of the
Code) in conjunction with the Merger.
(e) The Company is not a party to, nor does it have any obligation under, any
tax sharing, tax indemnification or tax allocation agreement or arrangement.
(f) The Company has not taken, or agreed to take any action, and has no
knowledge of any condition, that would prevent the Merger from qualifying as a
reorganization under section 368(a) of the Code.
(g) None of the Company or any of its Subsidiaries has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of
the Code at any time during the five year period ending at the Effective Time.
(h) None of the Company's or any of its Subsidiaries' material assets
constitutes either an interest in, or property of, an unincorporated
organization that files a tax return as a partnership for federal income tax
purposes. None of the Company or any of its Subsidiaries owns an interest in
any controlled foreign corporation (as defined in Section 957 of the Code),
passive foreign investment company (as defined in section 1297 of the Code) or
other Person the income of which is required to be included in the income of
the Company or any of its Subsidiaries.
(i) For purposes of this Agreement, "tax" or "taxes" means all federal,
state, county, local, foreign or other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, accumulated earnings, personal
holding, excess profits, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
disability, capital stock, or windfall profits taxes, customs duties or other
taxes, fees, assessments or governmental charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority (domestic or foreign).
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Section 3.11 Employee Benefit Plans.
(a) Other than as set forth in Section 3.11(a) of the Company Disclosure
Letter, there are no Employee Benefit Plans established, maintained or
contributed to by the Company. An "Employee Benefit Plan" means any employee
benefit plan, program, policy, practice, agreement or other arrangement
providing benefits to any current or former employee, officer or director of
the Company or any of its Subsidiaries or any beneficiary or dependent thereof
that is sponsored or maintained by the Company or any of its Subsidiaries or to
which the Company or any of its Subsidiaries contributes or is obligated to
contribute, whether or not written, including without limitation any employee
welfare benefit plan within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), any employee
pension benefit plan within the meaning of Section 3(2) of ERISA (whether or
not such plan is subject to ERISA) and any bonus, incentive, deferred
compensation, vacation, stock purchase, stock option, severance, employment,
change of control or fringe benefit plan, program or policy.
(b) With respect to each Employee Benefit Plan, the Company has made
available to Parent a true, correct and complete copy of: (i) each writing
constituting a part of such Employee Benefit Plan (or to the extent no copy
exists, a materially accurate description); (ii) for the three most recent plan
years, Annual Report (Form 5500 Series), if any; (iii) the current summary plan
description and any material modifications thereto, if required to be furnished
under ERISA; and (iii) the most recent determination letter from the Internal
Revenue Service, if any.
(c) Each Employee Benefit Plan that is intended to be a "qualified plan"
within the meaning of Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service that has not been
revoked, and to the knowledge of the Company, no event has occurred and no
condition exists that could reasonably be expected to result in the revocation
of any such determination letter.
(d) Except as would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect, all contributions
required to be made to any Employee Benefit Plan (or to any person pursuant to
the terms thereof) have been made or the amount of such payment or contribution
obligation has been reflected in the Company Reports filed with the SEC prior
to the date of this Agreement.
(e) Except as would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect, with respect to each
Employee Benefit Plan, the Company and its Subsidiaries have complied, and are
now in compliance, with all provisions of ERISA, the Code and all laws and
regulations applicable to such Employee Benefit Plans and each Employee Benefit
Plan has been established and administered in accordance with its terms.
(f) No Employee Benefit Plan is subject to Title IV of ERISA (including,
without limitation, any multiemployer plan with the meaning of Section
4001(a)(3) of ERISA) and
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no liability (other than for premiums to the PBGC) under Title IV of ERISA has
been or is expected to be incurred by the Company or any of its Subsidiaries.
(g) The Company and its Subsidiaries have no material liability for life,
health or medical benefits to former employees or beneficiaries or dependents
thereof, except for health continuation coverage as required by Section 4980B
of the Code or Part 6 of Title I of ERISA.
(h) Except as expressly provided in this Agreement, the consummation of the
transactions contemplated by this Agreement will not, either alone or in
connection with termination of employment, (i) entitle any current or former
director, employee or officer of the Company or its Subsidiaries to severance
pay or any other material payment, except as expressly provided in this
Agreement, (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or officer or (iii) increase any
benefit payable under any Employee Benefit Plan.
(i) Except as would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect, there are no pending or,
to the knowledge of the Company, threatened claims, actions or suits by or on
behalf of any Employee Benefit Plan or by any employee or beneficiary covered
under any such Employee Benefit Plan, involving any such Employee Benefit Plan
(other than claims in the ordinary course of business) and, to the knowledge of
the Company, no facts or circumstances exist that could reasonably be expected
to give rise to any such claims, actions or suits.
(j) Neither the Company nor any of its Subsidiaries has outstanding loans to
any employees of the Company or its Subsidiaries, other than expense advances
in the ordinary course of business and consistent with past practices.
Section 3.12 Labor and Employment Matters. Neither the Company nor any of its
Subsidiaries: (i) is a party to or otherwise bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization, nor is any such contract or agreement presently being
negotiated, nor, to the knowledge of the Company, is there, nor has there been
in the last five years, a representation campaign respecting any of the
employees of the Company or any of its Subsidiaries, and, to the knowledge of
the Company, there are no campaigns being conducted to solicit cards from
employees of Company or any of its Subsidiaries to authorize representation by
any labor organization; (ii) is a party to, or bound by, any consent decree
with, or citation by, any governmental agency relating to employees or
employment practices which would reasonably be expected to have a Company
Material Adverse Effect; or (iii) is the subject of any proceeding asserting
that it has committed an unfair labor practice or is seeking to compel it to
bargain with any labor union or labor organization nor, as of the date of this
Agreement, is there pending or, to the knowledge of the Company, threatened,
any labor strike, dispute, walkout, work stoppage, slow-down or lockout
involving the Company or any of its Subsidiaries which, with respect to any
event described in this clause (iii), would, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
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Section 3.13 Environmental Matters. Except for such matters that would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect:
(a) To the knowledge of the Company, there is no condition existing on any
real property or other asset owned, leased or operated by the Company or any of
its Subsidiaries or resulting from operations conducted thereon that would
reasonably be expected to give rise to any liability to the Company or any of
its Subsidiaries under Environmental Laws or constitute a violation of any
Environmental Laws, and the Company and each of its Subsidiaries is otherwise
in compliance with all applicable Environmental Laws.
(b) None of the Company or any of its Subsidiaries, no current or former real
property or other asset owned, leased or operated by the Company or any of its
Subsidiaries, nor the operations currently or formerly conducted thereon or in
relation thereto by the Company or any of its Subsidiaries or by any prior
owner, lessee or operator of such real property or other asset, is subject to
any pending or, to the knowledge of the Company, threatened action, suit,
investigation, inquiry or proceeding relating to any Environmental Laws by or
before any court or other governmental authority.
(c) All material permits, notices and authorizations, if any, required to be
obtained or filed in connection with the operation or use of any real property
or other asset owned, leased or operated by the Company or any of its
Subsidiaries, including without limitation past or present treatment, storage,
disposal or release of a Hazardous Substance or solid waste into the
environment, have been duly obtained or filed, and the Company is in compliance
in all material respects with the terms and conditions of all such permits,
notices and authorizations. The Company does not know of any reason that would
preclude it from renewing or obtaining a reissuance of the material permits and
other authorizations required pursuant to applicable Environmental Laws
required to operate or use any of the Company's or its Subsidiaries' material
assets for their current purposes or uses.
(d) Hazardous Substances have not been Released, disposed of or arranged to
be disposed of by the Company or any of its Subsidiaries, in violation of, or
in a manner or to a location that would reasonably be expected to give rise to
liability under, any Environmental Laws.
(e) None of the Company or any of its Subsidiaries has assumed, contractually
or, to the knowledge of the Company, by operation of law, any liabilities or
obligations of third parties under any Environmental Laws, except in connection
with the acquisition of assets or entities associated therewith.
(f) "Environmental Laws" means any federal, state and local energy, public
utility, health, safety and environmental laws, regulations, orders, permits,
licenses, approvals, ordinances, rule of common law, and directives relating to
the environment, preservation or reclamation of natural resources, health and
safety or the use, management, disposal, Release or threatened Release of or
exposure to, Hazardous Substances or noxious odors, including
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without limitation the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), the Occupational Health
and Safety Act, the Toxic Substances Control Act, the Endangered Species Act,
the Oil Pollution Act and any similar foreign, state or local law.
(g) "Hazardous Substance" means (i) any "hazardous substance," as defined by
CERCLA, (ii) any "hazardous waste," as defined by RCRA, or (iii) any pollutant
or contaminant or hazardous, dangerous or toxic chemical or material or any
other substance including, but not limited to asbestos, buried contaminants,
regulated chemicals, flammable explosives, radioactive materials (including
without limitation naturally occurring radioactive materials), polychlorinated
biphenyls, natural gas, natural gas liquids, liquified natural gas,
condensates, petroleum (including without limitation crude oil and petroleum
products), regulated by, or that could result in the imposition of liability
under, any Environmental Law or other applicable law of any applicable
governmental authority relating to or imposing liability or standards of
conduct concerning any hazardous, toxic, or dangerous waste, substance or
material, all as amended or hereafter amended.
(h) "Release" means any spilling, leaking, pumping, pouring, emitting,
purging, emptying, discharging, injecting, escaping, leaching, dumping,
migrating or disposing into the environment (including the abandonment or
discarding of barrels, containers, and other closed receptacles containing any
Hazardous Substance).
Section 3.14 Compliance with Laws. The Company and its Subsidiaries are in
compliance with any applicable law, rule or regulation of any United States
federal, state, local or foreign government or agency thereof except where the
failure to comply would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. No notice, charge, claim,
action or assertion has been received by the Company or any of its Subsidiaries
or, to the Company's knowledge, has been filed, commenced or threatened against
the Company or any of its Subsidiaries alleging any such violation, in each
case that would reasonably be expected to have a Company Material Adverse
Effect. All licenses, permits and approvals required under such laws, rules and
regulations are in full force and effect, except where the failure to be in
full force and effect would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect. Notwithstanding the
foregoing, no representation or warranty in this Section 3.14 is made with
respect to permits issued under or matters relating to Environmental Laws,
which are covered exclusively by the provisions set forth in Section 3.13, or
with respect to permits to conduct exploratory operations that have not been
commenced as of the date of this Agreement.
Section 3.15 Intellectual Property. The Company and its Subsidiaries own or
possess all necessary licenses (including seismic licenses) or other valid
rights to use all patents, patent rights, trademarks, trademark rights and
proprietary information used or held for use in connection with their
respective businesses as currently being conducted, free and clear of Liens,
except where the failure to own or possess such licenses and other rights
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would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect, and to the knowledge of the Company, there are
no assertions or claims challenging the validity of any of the foregoing which
would reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. Except in the ordinary course of business,
neither the Company nor any of its Subsidiaries has granted to any other person
any license to use any of the foregoing. The conduct of the Company's and its
Subsidiaries' respective businesses as currently conducted does not conflict
with any patents, patent rights, licenses (including seismic licenses),
trademarks, trademark rights, trade names, trade name rights or copyrights of
others in a way which would reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect. There is no infringement of
any proprietary right owned by or licensed by or to the Company or any of its
Subsidiaries in a way which would reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect.
Section 3.16 Oil and Gas Reserves. The Company has furnished to Parent the
Company's estimate of Company's and its Subsidiaries' oil and gas reserves as
of January 1, 2001, as reviewed by Ryder Scott Company ("Company Reserve
Report"). Except as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect, the factual, non-
interpretive data on which the Company Reserve Report was based for purposes of
estimating the oil and gas reserves set forth in the Company Reserve Report was
accurate in all material respects.
Section 3.17 Financial and Commodity Hedging. The Company Reports accurately
summarize, in all material respects the outstanding hydrocarbon and financial
hedging positions attributable to the production of the Company and its
Subsidiaries (including fixed price contracts, collars, swaps, caps, hedges and
puts) as of the date reflected therein, and there have been no changes since
the date thereof.
Section 3.18 Indebtedness and Certain Contracts.
(a) Set forth in Section 3.18(b) of the Company Disclosure Letter is the
aggregate amount of outstanding indebtedness for borrowed money of the Company
or its Subsidiaries as of the date of this Agreement under all loan or credit
agreements, notes, bonds, mortgages, indentures and other agreements evidencing
such indebtedness.
(b) Neither the Company nor any of its Subsidiaries is a party to or bound by
any agreement or other arrangement that would, after the Effective Time, to the
knowledge of the Company, materially limit or restrict Parent or any of its
Subsidiaries or any of their respective affiliates or any successor thereto,
from engaging or competing in the oil and gas exploration and production
business in any significant geographic area, except for joint ventures, area of
mutual interest agreements entered into in connection with prospect reviews and
similar arrangements entered into in the ordinary course of business.
(c) Neither the Company nor any of its Subsidiaries is a party to or bound by
(i) any non-competition agreement, confidentiality, joint venture, area of
mutual interest or any other
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agreement or obligation which purports to limit the manner in which, or the
localities in which, the business of the Company and its Subsidiaries, taken as
a whole, or Parent and its Subsidiaries, taken as a whole, is conducted or (ii)
any executory agreement or obligation which pertains to the acquisition or
disposition of any asset, or which provides any third party any lien, claim,
right of first refusal or first offer or preferential right with regard
thereto, except, in the case of either clause (i) or (ii), for such agreements
or obligations that would not reasonably be expected to have, individually or
in the aggregate, a Company Material Adverse Effect.
(d) Neither the Company nor any of its Subsidiaries has received any material
advance, take-or-pay, production or other similar payments that entitle
purchasers of production to receive deliveries of hydrocarbons without paying
therefor, and, on a net, Company-wide basis, the Company is neither materially
underproduced nor overproduced under gas balancing or similar arrangements.
(e) There are no contracts, agreements or binding arrangements between the
Company or any of its Subsidiaries, on the one hand, and S. A. Louis Dreyfus et
Cie or any of its affiliates, on the other hand.
Section 3.19 Title to Properties. Except for goods and other property sold,
used or otherwise disposed of since December 31, 2000 in the ordinary course of
business, the Company has defensible title to all oil and gas properties
forming the basis for the reserves reflected in the Company Reserve Report as
attributable to interests owned by the Company and its Subsidiaries, and to all
other properties, interests in properties and assets, real and personal,
reflected in its Annual Report on Form 10-K for the year ended December 31,
2000 (the "2000 10-K"), free and clear of any Lien, except: (i) Liens reflected
in the 2000 10-K; (ii) Liens for current taxes not yet due and payable; and
(iii) such imperfections of title, easements, Liens, or other matters and
failures to title as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. The leases and other
agreements pursuant to which the Company or any of its Subsidiaries leases or
otherwise acquires or obtains operating rights affecting any real or personal
property are in good standing, valid, and effective except where the failure to
be in good standing, valid and effective would not, individually or the
aggregate, reasonably be expected to have a Company Material Adverse Effect;
and there is not, under any such leases, any existing or prospective default or
event of default or event which with notice or lapse of time, or both, would
constitute a default by the Company or any of its Subsidiaries that would
reasonably be expected to have a Company Material Adverse Effect. All operating
equipment of the Company and its Subsidiaries has in all material respects been
maintained in reasonable operating condition and repair, ordinary wear and tear
excepted, and is in all material respects sufficient to permit the Company and
its Subsidiaries to conduct their operations in the ordinary course of business
in a manner consistent with their past practices, except for any such
deficiency as would not reasonably be expected to have a Company Material
Adverse Effect. No claim, notice or order from any Governmental Authority has
been received by the Company or any Subsidiary due to hydrocarbon production in
excess of allowables or similar violations which could result in curtailment of
production after the
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Closing Date, reformation, amendment, cancellation or other alteration of any
unit or taking (whether permanent, temporary, whole, or partial) of any part of
the assets of the Company or any Subsidiary by reason of eminent domain or
otherwise, except any such violations which would not reasonably be expected,
individually or in the aggregate, to have a Company Material Adverse Effect.
There are no wells on any lease in which the Company currently has or
previously had an interest that have been permanently plugged and abandoned
that were not plugged and abandoned in accordance in all material respects with
applicable laws or contracts, except any such violations which would not
reasonably be expected, individually or in the aggregate, to have a Company
Material Adverse Effect. The Company has the ability and right to obtain access
to, produce, treat, transport, process and otherwise market hydrocarbons from
all of the oil and gas properties for which reserves are shown in the Company
Reserve Report, except any such inability which would not reasonably be
expected, individually or in the aggregate, to have a Company Material Adverse
Effect.
Section 3.20 Insurance. The Company and its Subsidiaries maintain insurance
coverage adequate and customary in the industry for the operation of their
respective businesses.
Section 3.21 No Brokers. Except for Lehman Brothers, Inc. ("Lehman"), whose
fees and expenses will be paid by the Company in accordance with the Company's
agreement with Lehman, a copy of which has been provided to Parent, no agent,
broker, person or firm acting on behalf of the Company or under its authority
is or will be entitled to any advisory, commission or broker's or finder's fee
from any of the parties hereto in connection with any of the transactions
contemplated herein.
Section 3.22 Opinion of Financial Advisors. The board of directors of the
Company has received the opinion of Lehman to the effect that, as of the date
of this Agreement, the Merger Consideration is fair, from a financial point of
view, to the holders of the Company Shares (other than Parent); it being
understood and acknowledged by Parent that such opinion has been rendered for
the benefit of the board of directors of the Company, and is not intended to,
and may not, be relied upon by Parent, its affiliates or their respective
Subsidiaries. The Company has been authorized by Lehman to include such opinion
in its entirety in the Proxy Statement/Prospectus, so long as such inclusion is
in form and substance reasonably satisfactory to Lehman and its counsel.
Section 3.23 Board Recommendation; Vote Required.
(a) The board of directors of the Company has by resolutions duly adopted by
the unanimous vote of its entire board of directors at a meeting of such board
duly called and held on September 9, 2001, determined that the Merger is fair
to and in the best interests of the Company and its shareholders, approved and
declared advisable this Agreement, the Merger and the other transactions
contemplated hereby and recommended that the shareholders of the Company
approve and adopt this Agreement and the Merger.
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(b) The affirmative vote of shareholders of the Company required for approval
and adoption of this Agreement and the Merger is and will be no greater than a
majority of the outstanding Company Shares (the "Company Requisite Vote") and
no other vote of any holder of the Company's securities is required for the
approval and adoption of this Agreement or the Merger.
Section 3.24 Holding Company; Investment Company; Utility. None of the real
property of the Company or any of its Subsidiaries has been or is certified by
the Federal Energy Regulatory Commission ("FERC") under Section 7(c) of the NGA
or is now subject to FERC jurisdiction under the Natural Gas Act nor has it
been or is it now providing service pursuant to Section 311 of the Natural Gas
Policy Act. The Company or its Subsidiaries, as the case may be, has complied
with Texas law relating to its Texas gas gathering system, except to the extent
any failure to comply would not, individually or in the aggregate, be
reasonably expected to have a Company Material Adverse Effect.
Section 3.25 Certain Approvals. The Company has opted out of Section 1090.3
of the OGCA and the Company's board of directors has taken any and all
necessary and appropriate action to render inapplicable to the Merger and the
transactions contemplated by this Agreement and the Principal Shareholders
Agreement the provisions of any other "fair price," "moratorium," control share
acquisition, interested shareholder or other similar antitakeover provision or
regulation and any restrictive provision of any antitakeover provision in the
certificate of incorporation or bylaws of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Except as publicly disclosed by Parent in the Parent Reports (as defined in
Section 4.6) filed with the SEC prior to the date of this Agreement and except
as set forth in the disclosure letter (each section of which qualifies the
correspondingly numbered representation and warranty or covenant to the extent
specified therein, provided that any disclosure set forth with respect to any
particular section shall be deemed to be disclosed in reference to all other
applicable sections of this Agreement if the disclosure in respect of the
particular section is sufficient on its face without further inquiry reasonably
to inform the Company of the information required to be disclosed in respect of
the other sections to avoid a breach under the representation and warranty or
covenant corresponding to such other sections) previously delivered by Parent
to the Company (the "Parent Disclosure Letter"), Parent and Sub hereby
represent and warrant to the Company as follows:
Section 4.1 Existence; Good Standing; Corporate Authority. Parent is a
corporation duly incorporated, validly existing and in good standing under the
laws of the Commonwealth of Virginia. Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
Each of Parent and Sub is duly qualified to do business as a foreign
corporation and is in good standing under the laws of any jurisdiction in which
the character of the properties owned or leased by it therein or in
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which the transaction of its business makes such qualification necessary,
except where the failure to be so qualified and in good standing would not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect (as defined in Section 9.10). Each of Parent and Sub
has all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted. As of the date
hereof, the copies of each of Parent's and Sub's certificate of incorporation
and bylaws previously made available to the Company are true and correct and
contain all amendments.
Section 4.2 Authorization, Validity and Effect of Agreements. Each of Parent
and Sub has the requisite corporate power and authority to execute and deliver
this Agreement and all other agreements and documents contemplated hereby, to
which it is a party. The consummation by each of Parent and Sub of the
transactions contemplated hereby, including the issuance and delivery by Parent
of Parent Common Shares pursuant to the Merger, has been duly authorized by all
requisite corporate action. Assuming the valid authorization, execution and
delivery of this Agreement by the Company, this Agreement constitutes the valid
and legally binding obligation of each of Parent and Sub, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally and general principles of equity.
Section 4.3 Capitalization. The authorized capital stock of Parent consists
of 500,000,000 Parent Common Shares and 20,000,000 preferred shares, no par
value. 665,000 of the preferred shares have been designated as Series A
Mandatorily Convertible Preferred Stock. As of September 5, 2001, (i) there
were 248,362,308 Parent Common Shares issued and outstanding, (ii) there were
665,000 shares of Series A Mandatorily Convertible Preferred Stock issued and
outstanding, all of which were owned by a trust of which Parent is the
beneficial owner, (iii) 20,661,169 Parent Common Shares were subject to
outstanding employee stock options (including 333 options exercised but not yet
settled) and (iv) 8,250,000 Premium Income Equity Security stock purchase units
("PIES") were outstanding which require the holders to purchase up to 8,088,300
Parent Common Shares by November 16, 2004. All issued and outstanding Parent
Common Shares and preferred shares (i) are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights, (ii) were not issued
in violation of the terms of any agreement or other understanding binding upon
Parent and (iii) were issued in compliance with all applicable charter
documents of Parent and all applicable federal and state securities laws, rules
and regulations. The Parent Common Shares to be issued in connection with the
Merger, when issued in accordance with this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights. As
of the date of this Agreement, except as set forth in this Section 4.3 and
except for any Parent Common Shares issued pursuant to employee benefit plans,
upon conversion of the Series A Mandatorily Convertible Preferred Stock and in
connection with the PIES, there are no outstanding shares of capital stock and
there are no options, warrants, calls, subscriptions, convertible securities,
or other rights, agreements or commitments which obligate Parent or any of its
Subsidiaries to issue, transfer or sell any shares of capital stock or other
voting securities of Parent. As of the date of this Agreement, Parent has no
outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the shareholders of
Parent on any matter.
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Section 4.4 No Violation. Neither Parent nor any of its Subsidiaries is, or
has received notice that it would be with the passage of time, in violation of
any term, condition or provision of (i) its charter documents or bylaws, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, contract,
agreement, lease, license or other instrument or (iii) any order of any court,
governmental authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which Parent or any of its Subsidiaries or
any of their respective properties or assets is subject, or is delinquent with
respect to any report required to be filed with any governmental entity,
except, in the case of matters described in clause (ii) or (iii), as would not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. Except as would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect, Parent and
its Subsidiaries hold all permits, licenses, variances, exemptions, orders,
franchises and approvals of all governmental authorities necessary for the
lawful conduct of their respective businesses (the "Parent Permits") and Parent
and its Subsidiaries are in compliance with the terms of the Parent Permits. No
investigation by any governmental authority with respect to Parent or any of
its Subsidiaries is pending or, to the knowledge of Parent, threatened, other
than those that would not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect.
Section 4.5 No Conflict.
(a) Neither the execution and delivery by Parent and Sub of this Agreement
nor the consummation by Parent and Sub of the transactions contemplated hereby
in accordance with the terms hereof will: (i) conflict with or result in a
breach of any provisions of the charter documents or bylaws of Parent or Sub;
(ii) violate, or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination or in a right
of termination or cancellation of, or give rise to a right of purchase under,
or accelerate the performance required by, or result in the creation of any
Lien upon any of the properties of Parent or its Subsidiaries under, or result
in being declared void, voidable, or without further binding effect, or
otherwise result in the loss of a material benefit to Parent or any of its
Subsidiaries under any of the terms, conditions or provisions of, any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit, lease,
contract, agreement, joint venture or other instrument or obligation to which
Parent or any of its Subsidiaries is a party, or by which Parent or any of its
Subsidiaries or any of their properties is bound or affected; or (iii) subject
to the governmental filings and other matters referred to in paragraph (b) of
this Section 4.5, contravene or conflict with or constitute a violation of any
provision of any law, rule, regulation, judgment, order or decree binding upon
or applicable to Parent or any of its Subsidiaries, except, in the case of
matters described in clause (ii) or (iii), as would not reasonably be expected
to have, individually or in the aggregate, a Parent Material Adverse Effect.
(b) Neither the execution and delivery by Parent or Sub of this Agreement nor
the consummation by Parent or Sub of the transactions contemplated hereby in
accordance with the terms hereof will require any consent, approval or
authorization of, or filing or
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registration with, any governmental or regulatory authority, other than
Regulatory Filings, and listing of the Parent Common Shares to be issued in the
Merger on the New York Stock Exchange, except for any consent, approval or
authorization the failure of which to obtain and for any filing or registration
the failure of which to make would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect.
Section 4.6 SEC Documents. Parent has made available to the Company each
registration statement, report, proxy statement or information statement (other
than preliminary materials) filed by Parent with the SEC since January 1, 2000,
each in the form (including exhibits and any amendments thereto) filed with the
SEC prior to the date hereof (collectively, the "Parent Reports"), and Parent
has filed all forms, reports and documents required to be filed by it with the
SEC pursuant to relevant securities statutes, regulations, policies and rules
since such time. As of their respective dates, the Parent Reports (i) were
prepared in accordance with the applicable requirements of the Securities Act,
the Exchange Act, and the rules and regulations thereunder and complied with
the then applicable accounting requirements and (ii) did 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 made therein, in the light
of the circumstances under which they were made, not misleading except for such
statements, if any, as have been modified by subsequent filings with the SEC
prior to the date hereof. Each of the consolidated balance sheets included in
or incorporated by reference into the Parent Reports (including the related
notes and schedules) fairly presents in all material respects the consolidated
financial position of Parent and its Subsidiaries as of its date and each of
the consolidated statements of income, cash flows and stockholders' equity
included in or incorporated by reference into the Parent Reports (including any
related notes and schedules) fairly presents in all material respects the
results of operations, cash flows or changes in stockholders' equity, as the
case may be, of Parent and its Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to such exceptions as may be
permitted by Form 10-Q under the Exchange Act), in each case in accordance with
generally accepted accounting principles consistently applied during the
periods involved, except as may be noted therein.
Section 4.7 Financing. Parent has available to it sources of financing
sufficient to satisfy its obligation to make the payment of the aggregate Cash
Consideration required under this Agreement when such payment is required
pursuant to this Agreement.
Section 4.8 No Brokers. Except for Merrill Lynch & Co. ("Merrill"), whose
fees and expenses will be paid by Parent in accordance with Parent's agreement
with Merrill, no agent, broker, person or firm acting on behalf of Parent or
under its authority is or will be entitled to any advisory, commission or
broker's or finder's fee from any of the parties hereto in connection with any
of the transactions contemplated herein.
Section 4.9 No Vote Required. No vote is required by the holders of any class
or series of Parent's or Sub's (other than Parent) capital stock to approve the
adoption of this Agreement or the Merger or pursuant to the rules and
regulations of the New York Stock Exchange as a result of this Agreement or the
transactions contemplated hereby.
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Section 4.10 Absence of Changes. Since June 30, 2001, there have not been any
events, conditions, actions, occurrences or omissions that would reasonably be
expected to have a Parent Material Adverse Effect.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1 Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that from the date hereof to the Effective Time or
the earlier termination of this Agreement pursuant to Article VIII, except as
set forth in Section 5.1 of the Company Disclosure Letter or as expressly
contemplated by any other provision of this Agreement, unless Parent shall
otherwise agree in writing (such agreement by Parent not to be unreasonably
withheld or delayed):
(a) The businesses of the Company and each of its Subsidiaries shall be
conducted only in the ordinary, regular and usual course, consistent with past
practices, and the Company and each of its Subsidiaries shall use all
reasonable efforts to maintain and preserve intact their respective business
organizations, to maintain significant beneficial business relationships with
suppliers, contractors, distributors, customers, licensors, licensees and
others having business relationships with it, keep available the services of
its current key officers and employees, and use reasonable best efforts to
maintain with financially responsible insurance companies insurance in such
amounts and against such risks and losses as are customary for such party; and
(b) Without limiting the generality of Section 5.1(a), except as set forth in
Section 5.1 of the Company Disclosure Letter, the Company shall not directly or
indirectly, and shall cause its Subsidiaries not to, do any of the following:
(i) acquire, sell, encumber, lease, transfer or dispose of any assets,
rights or securities that are material to the Company or its Subsidiaries
or terminate, cancel, materially modify or enter into any material
commitment, transaction, line of business or other agreement, in each case
out of the ordinary course of business consistent with past practice or
acquire by merging or consolidating with or by purchasing a substantial
equity interest in or a substantial portion of the assets of, or by any
other manner, any business, corporation, partnership, association or other
business organization or division thereof;
(ii) amend or propose to amend its certificate of incorporation or
bylaws or, in the case of its Subsidiaries, their respective constituent
documents;
(iii) split, combine or reclassify any outstanding shares of, or
interests in, its capital stock;
(iv) declare, set aside or pay any dividend or distribution, payable
in cash, stock, property or otherwise, with respect to any of its capital
stock;
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(v) other than pursuant to the terms of Employee Benefit Plans,
redeem, purchase or otherwise acquire, or offer to redeem, purchase or
otherwise acquire, any shares of its capital stock or any options,
warrants or rights to acquire capital stock of the Company;
(vi) except for the Company Shares issuable upon exercise of options
outstanding on the date hereof as disclosed in Section 3.3, issue, sell,
pledge, dispose of or encumber, or authorize, propose or agree to the
issuance, sale, pledge or disposition or encumbrance by the Company or any
of its Subsidiaries of, any shares of, or any options, warrants or rights
of any kind to acquire any shares of, or any securities convertible into
or exchangeable for any shares of, its capital stock of any class, or any
other securities in respect of, in lieu of, or in substitution for any
class of its capital stock outstanding on the date hereof;
(vii) modify the terms of any existing indebtedness for borrowed money
or incur any indebtedness for borrowed money or issue any debt securities,
except indebtedness incurred in the ordinary course of business consistent
with past practice for working capital management purposes pursuant to the
terms of existing lines of credit and the Company's bank credit agreement;
(viii) assume, guarantee, endorse or otherwise as an accommodation
become responsible for, the obligations of any other person, or make any
loans or advances, except to or for the benefit of the Company's
Subsidiaries or except for those not in excess of $5,000,000 in the
aggregate;
(ix) authorize, recommend or propose to shareholders any material
change in its capitalization;
(x) take any action with respect to the grant or increase of severance
or termination pay;
(xi) adopt or establish any new employee benefit plan or, terminate or
amend in any material respect any employee benefit plan or, other than in
the ordinary course of business consistent with past practice, increase
the compensation or fringe benefits of any employee (except as required by
any existing employee benefit plans or employment agreements or applicable
law) or pay any material benefit not required by any existing employee
benefit plan (other than payment of annual bonuses for the year 2001 on or
after February 15, 2002 in the aggregate amount of no more than $3.4
million);
(xii) other than in the ordinary course of business consistent with
past practice, enter into or amend in any material respect (other than as
required by existing employee benefit plans or employment agreements or by
applicable law) any employment, consulting, severance or indemnification
agreement entered into or made by the Company or any of its Subsidiaries
with any of their respective directors, officers, agents, consultants or
employees, or any collective bargaining agreement or other obligation to
any labor organization or employee incurred or entered into by the Company
or any of its Subsidiaries (other than as required by existing employee
benefit plans or employment agreements or by applicable law);
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(xiii) (A) settle or compromise any material claim for taxes, (B)
compromise, settle or otherwise resolve litigation involving a payment of
more than $5,000,000 in any one case by or to the Company or any of its
Subsidiaries or (C) other than in the ordinary course of business, pay or
discharge any claims, liens or liabilities involving more than $5,000,000
individually or $10,000,000 in the aggregate, which are not reserved for
on the balance sheet included in the Company Reports;
(xiv) make or commit to make capital expenditures in excess of
$5,000,000 net to the Company and its Subsidiaries for any individual
authorization for expenditures, or, without having notified Parent, make
or commit to make capital expenditures in excess of $1,000,000 net to the
Company and its Subsidiaries (and less than $5,000,000 net) for any
individual authorization for expenditures, except, in each case, with
respect to emergency operations on any well, pipeline or other facility;
(xv) make any material changes in tax accounting methods except as
required by applicable law or generally accepted accounting principles;
(xvi) write off any accounts or notes receivable in excess of
$5,000,000 except in the ordinary course of business;
(xvii) take any action that would reasonably be expected to prevent
the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code;
(xviii) enter into or amend any agreement with any holder of Company
Shares with respect to holding, voting or disposing of shares;
(xix) by resolution of its board of directors cause the acceleration
of rights, benefits or payments under any Employee Benefit Plans other
than as a result of the transactions contemplated by this Agreement;
(xx) except for gas sales agreements with Parent or any of its
Subsidiaries, enter into any additional fixed price forward sales
contracts or fixed price purchase or sale contracts that would result in
physical delivery of its oil or gas production for the year 2001, 2002 or
2003, as the case may be, or any fixed price financial swaps, collars,
options or other hedging arrangements with respect to (A) its oil
production or (B) more than 10% of its budgeted gas production for the
year 2001, 2002 or 2003, as the case may be, and, in any event, for a term
longer than 12 months;
(xxi) for the five full trading days immediately following the
parties' execution of this Agreement, sell gas-related financial
derivatives in excess of fifty (50) NYMEX gas contracts equivalents per
month for the calendar years 2002 and 2003; or
(xxii) take or agree in writing or otherwise to take any of the
actions precluded by clauses (i) through (xxi) of this Section 5.1.
Section 5.2 Conduct of Business of Parent. Except as contemplated by this
Agreement, during the period from the date hereof to the Effective Time or
earlier termination of this Agreement, neither Parent nor any of its
Subsidiaries (including Sub), without the prior written consent of the Company
(which consent will not unreasonably be withheld or delayed), shall:
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(i) acquire, by merging or consolidating with, or by purchasing an
equity interest in or the assets of, or by any other manner, any business
or corporation, partnership or other business organization or division
thereof, or otherwise acquire any assets of any other entity (other than
the purchase of assets from suppliers, clients or vendors in the ordinary
course of business and consistent with past practice) unless, at the time
it enters into a definitive agreement with respect to such transaction,
Parent has a good faith belief that such transaction would not prevent or
materially delay the consummation of the transactions contemplated by this
Agreement;
(ii) adopt or propose to adopt any amendments to its articles of
incorporation which would have a material adverse impact on the
consummation of the transactions contemplated by this Agreement;
(iii) take any action that would reasonably be expected to prevent the
Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code;
(iv) with respect to Parent only, split, combine or reclassify any
shares of its capital stock, declare, set aside or pay any dividend or
other distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock, make any other actual,
constructive or deemed distribution in respect of its capital stock or
otherwise make any payments to shareholders in their capacity as such,
except for the payment of ordinary cash dividends in respect of the Parent
Common Shares, unless the Exchange Ratio and Per Share Amount (as defined
in Section 6.10) are proportionately increased or decreased, as
applicable, in which case the prior written consent of the Company shall
not be required, but the Company shall be entitled to written notice of
such event;
(v) adopt a plan of complete or partial liquidation or dissolution of
Parent; or
(vi) take or agree in writing or otherwise to take any of the actions
precluded by clauses (i) through (v) of this Sections 5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation by the Company.
(a) The Company agrees that it and its Subsidiaries (i) will not (and it
will not permit their officers, directors, employees, agents or
representatives, including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries to) (A) solicit, initiate or
encourage (including by way of furnishing material non-public information) any
inquiry, proposal or offer, whether or not in writing (including any proposal
or offer to its shareholders), with respect to a third party tender offer,
merger, consolidation, business combination or similar transaction involving
all or more than 10% of the assets of the Company and its Subsidiaries taken
as a whole or 10% or more of any class of capital stock of the Company, or any
acquisition, directly or indirectly, of 10% or more of the capital stock or
assets of the Company and its subsidiaries, taken as a whole, in a single
transaction
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or a series of related transactions, or any combination of the foregoing (any
such proposal, offer or transaction being hereinafter referred to as a "Company
Acquisition Proposal"), (B) participate or engage in any discussions or
negotiations concerning, furnish to any person any information with respect to,
or take any action to facilitate any inquiries or the making of any proposal or
offer that constitutes or may reasonably be expected to lead to, a Company
Acquisition Proposal or (C) approve or recommend any Company Acquisition
Proposal, accept any Company Acquisition Proposal or enter into a letter of
intent, agreement in principle or agreement with respect to any Company
Acquisition Proposal (or resolve to or publicly propose to do any of the
foregoing); and (ii) will immediately cease and cause to be terminated any
existing negotiations with any third parties conducted heretofore with respect
to any of the foregoing; provided that, subject to Section 6.1(b), (A) nothing
contained in clause (i) above shall prohibit the Company or its board of
directors from disclosing to the Company's shareholders a position with respect
to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act, provided that the board of directors of the
Company shall not recommend that the shareholders of the Company tender their
Company Shares in connection with any such tender or exchange offer unless the
board of directors shall have determined in good faith, after consultation with
its financial advisors and outside counsel, that the relevant Company
Acquisition Proposal is a Superior Proposal and (B) prior to the Shareholders'
Meeting, if the Company receives an unsolicited bona fide written Company
Acquisition Proposal from a third party that the board of directors of the
Company determines in good faith (after receiving the advice of a financial
adviser of nationally recognized reputation) is reasonably likely to be a
Superior Proposal (as defined below), the Company and its representatives may
conduct such discussions or provide such information as the board of directors
of the Company shall determine, but only if, prior to such provision of
information or conduct of such discussions (x) such third party shall have
entered into a confidentiality agreement not materially less favorable to the
Company than the existing confidentiality agreement dated June 5, 2001, between
the Parent and the Company (the "Parent/Company Confidentiality Agreement")
(and containing additional provisions that expressly permit the Company to
comply with the provisions of this Section 6.1) and (y) the board of directors
of the Company determines in its good faith judgment, after consultation with
outside counsel, that it is required to do so in order to comply with its
fiduciary duties. For purposes of this Agreement, "Superior Proposal" means any
unsolicited bona fide written Company Acquisition Proposal which (i)
contemplates (A) a merger or other business combination, reorganization, share
exchange, recapitalization, liquidation, dissolution, tender offer, exchange
offer or similar transaction involving the Company as a result of which the
Company's shareholders prior to such transaction in the aggregate cease to own
at least 50% of the voting securities of the ultimate parent entity resulting
from such transaction or (B) a sale, lease, exchange, transfer or other
disposition (including, without limitation, a contribution to a joint venture)
of at least 50% of the value of the assets of the Company and its Subsidiaries,
taken as a whole, and (ii) is on terms which the board of directors of the
Company determines (after consultation with its financial advisor and outside
counsel), taking into account, among other things, all legal, financial,
regulatory and other aspects of the proposal and the person making the
proposal, (A) would, if consummated, result in a transaction that is more
favorable to its shareholders from a financial point of view (in their
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capacities as such) than the transactions contemplated by this Agreement
(including the terms of any proposal by the Parent to modify the terms of the
transactions contemplated by this Agreement) and (B) is reasonably likely to be
financed and otherwise completed without undue delay.
(b) The Company will promptly (but in any event within 24 hours) notify
Parent of any requests referred to in Section 6.1(a) for information or the
receipt of any Company Acquisition Proposal, including the identity of the
person or group engaging in such discussions or negotiations, requesting such
information or making such Company Acquisition Proposal, and the material terms
and conditions of any Company Acquisition Proposal, and shall keep Parent
informed on a timely basis (but in any event within 24 hours) of any material
changes with respect thereto. Prior to taking any action referred to in the
proviso of Section 6.1(a), if the Company intends to participate in any such
discussions or negotiations or provide any such information to any such third
party, the Company shall give prompt prior notice to Parent of each such
action.
(c) Nothing in this Section 6.1 shall permit the Company to enter into any
agreement with respect to a Company Acquisition Proposal during the term of
this Agreement, it being agreed that, during the term of this Agreement, the
Company shall not enter into any agreement with any person that provides for,
or in any way facilitates, a Company Acquisition Proposal, other than a
confidentiality agreement not materially less favorable to the Company than the
Parent/Company Confidentiality Agreement.
Section 6.2 Shareholders' Meeting. The Company, acting through its board of
directors, shall, in accordance with applicable law and the Company's
Certificate of Incorporation and Bylaws, (i) duly call, give notice of, convene
and hold a meeting of its shareholders as soon as practicable following the
date hereof for the purpose of considering and taking action on this Agreement
and the transactions contemplated hereby (the "Shareholders' Meeting") and (ii)
subject to its fiduciary duties under applicable law after consultation with
outside counsel, (A) include in the Proxy Statement/Prospectus (as defined in
Section 6.6) the unanimous recommendation of the board of directors that the
shareholders of the Company vote in favor of the approval and adoption of this
Agreement and the transactions contemplated hereby and (B) use its reasonable
best efforts to obtain the necessary approval and adoption of this Agreement
and the transactions contemplated hereby by its shareholders. Notwithstanding
the Company's failure to include the recommendation contemplated by clause (A)
of the preceding sentence (in the circumstances permitted thereby), unless this
Agreement shall have been terminated pursuant to Article VIII, the Company
shall submit this Agreement to its shareholders at the Shareholders' Meeting
for the purpose of adopting this Agreement and nothing contained herein shall
be deemed to relieve the Company of such obligation.
Section 6.3 Filings; Reasonable Best Efforts.
(a) Subject to the terms and conditions herein provided, the Company and
Parent each agrees to use its reasonable best efforts to take, or cause to be
taken, all action, and to do, or
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cause to be done, all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as promptly as is practicable,
including:
(i) promptly make their respective filings under the HSR Act with
respect to the Merger and thereafter shall promptly make any other
required submissions under the HSR Act and respond to any requests for
additional information, and cause the waiting periods under the HSR Act to
terminate or expire at the earliest possible date after the date of
filing;
(ii) satisfy the conditions to closing in Article VII (including, in
the case of the Company, obtaining the opinion described in Section 7.2(b)
and, in the case of Parent, obtaining the opinion described in Section
7.3(b)) and to cooperate with one another in (A) determining which filings
are required to be made prior to the Effective Time with, and which
consents, approvals, permits or authorizations are required to be obtained
prior to the Effective Time from governmental or regulatory authorities of
the United States, the several states, and foreign jurisdictions in
connection with the execution and delivery of this Agreement and the
consummation of the Merger and the transactions contemplated hereby; and
(B) timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations;
(iii) promptly notify each other of any communication concerning this
Agreement or the Merger to that party from any governmental authority and
permit the other party to review in advance any proposed communication
concerning this Agreement or the Merger to any governmental entity;
(iv) not agree to participate in any meeting or discussion with any
governmental authority in respect of any filings, investigation or other
inquiry concerning this Agreement or the Merger unless it consults with
the other party in advance and, to the extent permitted by such
governmental authority, gives the other party the opportunity to attend
and participate thereat;
(v) furnish the other party with copies of all correspondence, filings
and communications (and memoranda setting forth the substance thereof)
between them and their affiliates and their respective representatives on
the one hand, and any government or regulatory authority or members or
their respective staffs on the other hand, with respect to this Agreement
and the Merger; and
(vi) furnish the other party with such necessary information and
reasonable assistance as such other parties and their respective
affiliates may reasonably request in connection with their preparation of
necessary filings, registrations or submissions of information to any
governmental or regulatory authorities, including without limitation, any
filings necessary or appropriate under the provisions of the HSR Act.
(b) Without limiting Section 6.3(a), Parent and the Company shall:
(i) each use its reasonable best efforts to avoid the entry of, or to
have vacated or terminated, any decree, order or judgment, including
without limitation defending
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through litigation on the merits any claim asserted in any court by any
party, that would restrain, prevent or delay the Closing; and
(ii) each use reasonable best efforts to avoid or eliminate each and
every impediment under any antitrust, competition or trade regulation law
that may be asserted by any governmental entity with respect to the Merger
so as to enable the Closing to occur as soon as reasonably possible
following the termination of all applicable waiting periods under the HSR
Act.
(c) Notwithstanding anything to the contrary in this Agreement, (i) the
Company shall not, without Parent's prior written consent, commit to any
divestitures, licenses, hold separate arrangements or similar matters,
including covenants affecting business operating practices (or allow its
Subsidiaries to commit to any divestitures, licenses, hold separate
arrangements or similar matters), and the Company shall commit to, and shall
use reasonable best efforts to effect (and shall cause its Subsidiaries to
commit to and use reasonable best efforts to effect), any such divestitures,
licenses, hold separate arrangements or similar matters as Parent shall
request, but solely if such divestitures, licenses, hold separate arrangements
or similar matters are contingent on consummation of the Merger and (ii)
neither Parent nor any of its Subsidiaries shall be required (pursuant to
Section 6.3(a)(ii) or otherwise) to agree (with respect to (x) Parent or its
Subsidiaries or (y) the Company or its Subsidiaries) to any divestitures,
licenses, hold separate arrangements or similar matters, including covenants
affecting business operating practices, if such divestitures, licenses,
arrangements or similar matters, individually or in the aggregate, would
reasonably be expected to have a Parent Material Adverse Effect or a Company
Material Adverse Effect.
Section 6.4 Access to Information. From the date hereof through Effective
Time, the Company and Parent shall allow all designated officers, attorneys,
accountants and other representatives of the other party access at all
reasonable times upon reasonable notice to the records and files,
correspondence, audits and properties, as well as to all information relating
to commitments, contracts, titles and financial position, or otherwise
pertaining to the business and affairs of the Company and its Subsidiaries or
Parent and its Subsidiaries, including inspection of such properties; provided
that no investigation pursuant to this Section 6.4 shall affect any
representation or warranty given by any party hereunder, and provided further
that notwithstanding the provision of information or investigation by any
party, no party shall be deemed to make any representation or warranty except
as expressly set forth in this Agreement. Notwithstanding the foregoing,
neither party shall be required to provide any information which it reasonably
believes it may not provide to the other party by reason of applicable law,
rules or regulations, which that party reasonably believes constitutes
information protected by attorney/client privilege, or which it is required to
keep confidential by reason of contract or agreement with third parties. The
parties hereto will make reasonable and appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply. The Company and Parent agree that they will not, and will cause
their representatives not to, use any information obtained pursuant to this
Section 6.4 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement.
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Section 6.5 Notification of Certain Matters. Each of the Company and Parent
agrees to give prompt notice to the other of, and to use its respective
reasonable best efforts to prevent or promptly remedy, to the extent within
their control, (i) the occurrence or failure to occur, or the impending or
threatened occurrence or failure to occur, of any event which occurrence or
failure to occur would reasonably be expected to cause any of its
representations or warranties in this Agreement to be untrue or inaccurate in
any material respect at the Effective Time and (ii) any material failure on its
part to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided that the delivery of any
notice pursuant to this Section 6.5 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 6.6 Registration Statement; Proxy Statement.
(a) Each of Parent and the Company shall cooperate and promptly prepare and
Parent shall file with the SEC as soon as practicable a Registration Statement
on Form S-4 under the Securities Act (the "Registration Statement"), with
respect to the Parent Common Shares issuable in the Merger. A portion of the
Registration Statement shall also serve as the proxy statement (the "Proxy
Statement/Prospectus") with respect to the Shareholders' Meeting. The
respective parties will cause the Proxy Statement/Prospectus and the
Registration Statement to comply as to form in all material respects with the
applicable provisions of the Securities Act, the Exchange Act and the rules and
regulations thereunder. Each of Parent and the Company shall use its reasonable
best efforts to have the Registration Statement declared effective by the SEC
as promptly as practicable. Each of Parent and the Company shall use its
reasonable best efforts to obtain, prior to the effective date of the
Registration Statement, all necessary state securities law or "Blue Sky"
permits or approvals required to carry out the transactions contemplated by
this Agreement. Parent will advise the Company, promptly after it receives
notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of the Parent Common Shares
issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Registration
Statement or comments thereon and responses thereto or requests by the SEC for
additional information. The Company will advise Parent, promptly after it
receives notice thereof, of any request by the SEC for amendment of the Proxy
Statement/Prospectus or comments thereon and responses thereto or requests by
the SEC for additional information.
(b) The Company will use its reasonable best efforts to cause the Proxy
Statement/Prospectus to be mailed to its shareholders as promptly as
practicable after the Registration Statement is declared effective by the SEC.
(c) Each of Parent and the Company agrees that the information provided by it
for inclusion in the Proxy Statement/Prospectus and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
respective meetings of shareholders of Parent and of the Company, or, in the
case of information provided by it for inclusion in the Registration Statement
or any amendment or supplement thereto, at the time it is filed or
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becomes effective, (i) will comply as to form in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the SEC thereunder and (ii) will not include an 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.
Section 6.7 Listing Application. Parent shall use its reasonable best efforts
to cause the Parent Common Shares to be issued in the Merger and the Parent
Common Shares to be issued upon exercise of Substituted Options and Assumed
Options (as such terms are defined in Section 6.10(f)) to be approved for
listing, subject to official notice of issuance, on the New York Stock Exchange
prior to the Effective Time.
Section 6.8 Agreements of Affiliates. Not less than thirty (30) days before
the Effective Time, the Company shall cause to be prepared and delivered to
Parent a list identifying all persons who the Company believes may be deemed,
at the time of the Shareholders' Meeting, to be "affiliates" of the Company,
for purposes of Rule 145 under the Securities Act (the "Rule 145 Affiliates").
Parent shall be entitled to place restrictive legends on any Parent Common
Shares received by such Rule 145 Affiliates relating to transfer restrictions
imposed by Rule 145 under the Securities Act. The Company shall use its
reasonable best efforts to cause each person who is identified as a Rule 145
Affiliate in such list to deliver to Parent, at or prior to the Effective Time,
a written agreement, in the form attached hereto as Exhibit A.
Section 6.9 Indemnification and Insurance.
(a) From and after the Effective Time, Parent shall cause the Surviving
Corporation to indemnify, defend and hold harmless to the fullest extent
permitted under applicable law each person who is, or has been at any time
prior to the Effective Time, an officer or director of the Company (or any
Subsidiary or division thereof) and each person who served at the request of
the Company as a director, officer, trustee or fiduciary of another
corporation, partnership, joint venture, trust, pension or other employee
benefit plan or enterprise (individually, an "Indemnified Party" and,
collectively, the "Indemnified Parties") against all losses, claims, damages,
liabilities, costs or expenses (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation arising out of or pertaining to acts or
omissions, or alleged acts or omissions, by them in their capacities as such,
whether commenced, asserted or claimed before or after the Effective Time. In
the event of any such claim, action, suit, proceeding or investigation (an
"Action"), (i) Parent shall cause the Surviving Corporation to pay, as
incurred, the fees and expenses of counsel selected by the Indemnified Party,
which counsel shall be reasonably acceptable to Parent, in advance of the final
disposition of any such Action to the fullest extent permitted by applicable
law, and, if required, upon receipt of any undertaking required by applicable
law, and (ii) Parent will, and will cause the Surviving Corporation to,
cooperate in the defense of any such matter; provided that neither Parent nor
the Surviving Corporation shall be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld or
delayed), and provided
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further that neither Parent nor the Surviving Corporation shall be obligated
pursuant to this Section 6.9(a) to pay the fees and disbursements of more than
one counsel for all Indemnified Parties in any single Action, unless, in the
good faith judgment of any of the Indemnified Parties, there is or may be a
conflict of interests between two or more of such Indemnified Parties, in which
case there may be separate counsel for each similarly situated group.
(b) The parties agree that the rights to indemnification, including
provisions relating to advances of expenses incurred in defense of any action
or suit, in the certificate of incorporation, bylaws and any indemnification
agreement of the Company and its Subsidiaries with respect to matters occurring
through the Effective Time, shall survive the Merger and shall continue in full
force and effect for a period of six years from the Effective Time; provided
that all rights to indemnification in respect of any Action pending or asserted
or claim made within such period shall continue until the disposition of such
Action or resolution of such claim.
(c) For a period of six years after the Effective Time, the Surviving
Corporation shall maintain officers' and directors' liability insurance
covering the Indemnified Parties who are or at any time prior to the Effective
Time were covered by the Company's existing officers' and directors' liability
insurance ("D&O Insurance") policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance with
respect to acts or omissions, or alleged acts or omissions, prior to the
Effective Time (whether claims, actions or other proceedings relating thereto
are commenced, asserted or claimed before or after the Effective Time);
provided that after the Effective Time, the Surviving Corporation shall not be
required to pay annual premiums in excess of 200% of the last annual premium
paid by the Company prior to the date hereof (the amount of which premiums are
set forth in the Company Disclosure Letter) (the "Maximum Premium"), but in
such case shall purchase as much coverage as reasonably practicable for such
amount. Parent shall have the right to cause coverage to be extended under the
Company's D&O Insurance by obtaining "tail" coverage for such six-year period
on terms and conditions no less advantageous than the Company's existing D&O
Insurance, and such "tail" policy shall satisfy the provisions of this Section
6.9(c).
(d) The rights of each Indemnified Party hereunder shall be in addition to
any other rights such Indemnified Party may have under the certificate of
incorporation or bylaws of the Company or any of its Subsidiaries, under the
OGCA, under existing indemnification agreements, or otherwise, all of which
will be assumed by the Surviving Corporation and remain in effect for a period
of at least six years following the Effective Time.
(e) In the event Parent or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity in such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then and in either such case, proper provision shall be made so that the
successors and assigns of Parent, as the case may be, shall assume the
obligations set forth in this Section 6.9.
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(f) The provisions of this Section 6.9 shall survive the consummation of the
Merger and expressly are intended to benefit each of the Indemnified Parties.
Section 6.10 Employee Benefits.
(a) From and after the Effective Time, the Surviving Corporation shall assume
and honor, all Employee Benefit Plans including all employment agreements with
officers of the Company in accordance with their terms as in effect immediately
before the consummation of the Merger, subject to any amendment or termination
thereof that may be permitted by such terms; provided that the foregoing shall
not be construed as prohibiting Parent or the Surviving Corporation from
terminating the employment of any employee of the Surviving Corporation after
the Effective Time. It is acknowledged and agreed that the approval of the
Merger by the Company Requisite Vote will constitute a "change of control" for
purposes of all those Employee Benefit Plans containing "change of control"
provisions including existing change of control agreements between the Company
and certain of its officers ("CIC Agreements"). Notwithstanding any provisions
in the CIC Agreements to the contrary, the amounts payable thereunder shall be
paid on the Closing Date.
(b) For 12 months following the Effective Time, the Surviving Corporation
shall continue to provide to those individuals who are employed by the Company
as of the Effective Time and who remain employed following the Effective Time
by the Surviving Corporation or any Subsidiary of the Surviving Corporation
("Affected Employees"), compensation and employee benefits which, in the
aggregate, are no less favorable than the compensation and benefits provided by
the Company to such employees immediately prior to consummation of the Merger;
provided that (i) as of January 1, 2002, Affected Employees shall become
eligible to participate in the employee benefit plans, programs, policies and
arrangements of Parent or any Subsidiary of Parent (the "Parent Plans") on the
same basis as similarly situated employees of the Parent, and (ii) the Parent
Plans shall be deemed to satisfy this Section 6.10(b). Additionally, any
employee of Company who is not covered by a CIC Agreement whose employment is
terminated by the Surviving Corporation on or after the Effective Time other
than for cause will be eligible for the severance benefits under the Parent
Severance Program effective January 27, 2000 which provides for, among other
things, two months advance notice prior to termination, severance payments of
one month's salary for each year of service or partial year of more than six
months with the Company and the Surviving Corporation (including credited
service with the Company as provided in Section 6.10(c) below), up to six
months of paid COBRA coverage, outplacement services and minimum and maximum
severance payment periods of 2 and 18 months, respectively.
(c) The Surviving Corporation shall give Affected Employees full credit for
their continuous service with the Company and its Subsidiaries (including
deemed service credited by such entities) for purposes of eligibility to
participate and vesting (but not benefit accruals under any defined benefit
pension plan) under all employee benefit plans, programs, policies or
arrangements which are maintained by Parent or any Subsidiary of Parent or the
Surviving Corporation for such Affected Employees to the same extent recognized
by the Company immediately prior to the Effective Time under similar Employee
Benefit Plans.
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(d) Parent and the Surviving Corporation shall (i) waive all limitations as
to preexisting conditions, exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Affected Employees
under any welfare benefit plans that such employees may be eligible to
participate in after the Effective Time, other than limitations or waiting
periods that are already in effect with respect to such employees under the
Employee Benefit Plans and that have not been satisfied as of the Effective
Time and (ii) provide each Affected Employee with credit for any co-payments
and deductibles paid prior to the Effective Time (in the calendar year of the
Effective Time) in satisfying any applicable deductible or out-of-pocket
requirements for the year in which the Effective Time occurs under any welfare
plans that such employees are eligible to participate in after the Effective
Time.
(e) The Surviving Corporation shall sponsor the Company's 401(k) Plan as of
the Effective Time. The Surviving Corporation either shall continue to sponsor
such 401(k) Plan or shall merge such Plan into the 401(k) Plan of Parent with
the result that the participants in the Company's 401(k) Plan shall be entitled
to repay any outstanding participant loans pursuant to the terms of the
Company's 401(k) Plan and to avoid any deemed distribution.
(f) With respect to each outstanding option to acquire Company Shares (the
"Company Options") under the Company's Stock Option Plan, (the "Stock Option
Plan") :
(i) Prior to the Effective Time, the Company will offer to all
employees and directors of the Company holding Company Options the
opportunity to elect to amend their Company Options so that they may be
converted into Substituted Options (as defined below). Prior to approval
of the Merger by shareholders of the Company, the Company shall cause the
Committee to exercise its authority under the Stock Option Plan to make a
determination that optionees will not be permitted to surrender for
cancellation their outstanding Company Options for a cash payment
following a Change in Control (as defined in the Stock Option Plan).
(ii) Parent shall take all necessary action to provide that, at the
Effective Time, for each Company employee and director who holds a Company
Option and who elects to receive a Substituted Option, each then
outstanding Company Option will automatically be converted into an option
of equivalent value in Parent Common Shares (the "Substituted Option") as
follows. Each Company Option will be converted into a Substituted Option
to purchase a number of Parent Common Shares equal to the product of (A)
the number of shares of Company Shares that could have been purchased
under such Company Option immediately prior to the Effective Time
multiplied by (B) the quotient of (1) the Per Share Amount (as defined
below) divided by (2) the Average Price (as defined below) (rounded to the
nearest whole number of Parent Common Shares). The exercise price per
share of the Substituted Option shall be equal to the quotient of (C) the
per-share option exercise price specified in the Company Option divided by
(D) the quotient of (1) the Per Share Amount divided by (2) the Average
Price (rounded up to the nearest whole cent). The "Per Share Amount" shall
mean the sum of the (E) the Cash Consideration and (F) the product of the
Exchange Ratio and the Average Price. The Average Price shall mean the
average
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(rounded to the nearest 1/10,000) of the volume weighted averages (rounded
to the nearest 1/10,000) of the trading prices of Parent Common Shares on
the New York Stock Exchange, as reported by Bloomberg Financial markets
(or such other source as the parties shall agree in writing), for the ten
consecutive Trading Days ending on the third Trading Day immediately
before the Effective Time. Trading Day shall mean any day on which
securities are traded on the New York Stock Exchange.
(iii) Parent shall take all necessary action to provide that, at the
Effective Time, for each Company employee and director holding a Company
Option who does not elect to accept a Substituted Option, each then
outstanding Company Option will automatically be converted into an option
("Assumed Option") to acquire the Merger Consideration (including the cash
payment to be made pursuant to Section 2.2(d) in lieu of a fraction of a
Parent Common Share), and the per share exercise price shall be
appropriately adjusted, as if such Company Option had been exercised
immediately prior to the Effective Time.
(iv) Except as provided above, the terms and conditions of the
Substituted Options and the Assumed Options shall be the same as the terms
of the Company Options and the existing individual agreements with the
holders thereof.
(g) If the Effective Time occurs prior to the payment of 2001 annual bonuses
to employees as provided in Section 5.1(b)(xi), the Surviving Corporation shall
pay such bonuses as set forth on a schedule delivered by Company to Parent
prior to Closing. The aggregate amount of 2001 annual bonuses set forth on such
schedule shall not exceed $3.4 million multiplied by (A) the quotient of the
number of days of calendar 2001 elapsed prior to the Effective Time divided by
(B) 365. Bonuses set forth on the schedule shall be paid by the Surviving
Corporation to employees who are parties to CIC Agreements (as defined in
Section 6.10(a) hereof) on the Closing Date. All other employees listed on the
schedule who do not prior thereto voluntarily terminate employment with the
Surviving Corporation or who are not terminated by the Surviving Corporation
for cause shall be paid their 2001 annual bonuses on or before February 15,
2002.
Section 6.11 Reorganization. From and after the date hereof and until the
Effective Time, none of Parent, the Company or any of their respective
Subsidiaries shall knowingly (i) take any action, or fail to take any
reasonable action, as a result of which the Merger would fail to qualify as a
reorganization within the meaning of section 368(a) of the Code or (ii) enter
into any contract, agreement, commitment or arrangement to take or fail to take
any such action. Following the Effective Time, Parent shall not knowingly take
any action or knowingly cause any action to be taken which would cause the
Merger to fail to qualify as a reorganization within the meaning of Section
368(a) of the Code.
Section 6.12 Public Statements. The parties will consult with each other and
will mutually agree upon any press releases or public announcements pertaining
to this Agreement or the transactions contemplated hereby and shall not issue
any such press releases or make any such public announcements prior to such
consultation and agreement, except as may be required by applicable law or by
obligations pursuant to any listing agreement with any national securities
exchange.
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Section 6.13 Fees and Expenses. Except as set forth in Section 8.5, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether
or not the Merger is consummated.
Section 6.14 Company Name and Trademarks. As soon as practicable after the
Effective Time, the Surviving Corporation shall cease using the Company's name
and logo in any manner. At the Effective Time, the Company shall assign its
rights to such name to S. A. Louis Dreyfus et Cie or one or more of its
affiliates subject to the terms of a licensing agreement permitting the
Surviving Corporation to use the name and trademark for a limited transitional
period not to exceed one year.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) The Company Requisite Vote shall have been obtained.
(b) The waiting period applicable to the consummation of the Merger shall
have expired or been terminated under the HSR Act.
(c) None of the parties hereto shall be subject to any decree, order or
injunction of a court of competent jurisdiction, U.S. or foreign, which
prohibits the consummation of the Merger; and no statute, rule or regulation
shall have been enacted by any governmental authority of competent jurisdiction
which prohibits or makes unlawful the consummation of the Merger.
(d) The Registration Statement shall have become effective and no stop order
with respect thereto shall be in effect and no proceedings for that purpose
shall have been commenced or threatened by the SEC.
(e) The Parent Common Shares to be issued pursuant to the Merger shall have
been authorized for listing on the New York Stock Exchange, subject to official
notice of issuance.
Section 7.2 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment or waiver by the Company at or prior to the Closing Date of the
following conditions:
(a) (i) Parent shall have performed in all material respects its covenants
and agreements contained in this Agreement required to be performed on or prior
to the Closing Date and (ii) the representations and warranties of Parent and
Sub contained in this Agreement and in any document delivered in connection
herewith (A) to the extent qualified
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by Parent Material Adverse Effect or any other materiality qualification shall
be true and correct and (B) to the extent not qualified by Parent Material
Adverse Effect or any other materiality qualification shall be true and correct
in all material respects, in each case as of the date of this Agreement and as
of the Closing Date (except for representations and warranties made as of a
specified date, which need be true and correct only as of the specified date);
provided that the condition set forth in clause (ii) shall be deemed to have
been satisfied unless such breaches of representations and warranties (without
regard to Parent Material Adverse Effect or any other materiality qualification
or threshold), individually or in the aggregate, would reasonably be expected
to have a Parent Material Adverse Effect; and the Company shall have received a
certificate of Parent, executed on its behalf by its President or a Senior Vice
President of Parent, dated the Closing Date, certifying to such effect.
(b) The Company shall have received the opinion of Crowe & Dunlevy, counsel
to the Company, in form and substance reasonably satisfactory to the Company,
on the basis of certain facts, representations and assumptions set forth in
such opinion, dated the Closing Date, a copy of which shall be furnished to
Parent, to the effect that (i) the Merger will qualify for United States
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code and Parent, Newco and the Company will be "parties" to a
reorganization within the meaning of Section 368(b) of the Code, (ii) no gain
or loss will be recognized by the Company in connection with the Merger and
(iii) a shareholder of the Company that is a United States Person (within the
meaning of Section 7701(a)(30) of the Code) and that receives both (A) Parent
Common Shares and (B) cash in the Merger in exchange for Company Shares will
recognize realized gain only to the extent of the lesser of such realized gain
or the cash received in the exchange (but will not recognize any loss). In
rendering such opinion, such counsel shall be entitled to receive and rely upon
representations of officers of the Company, Newco and Parent as to such matters
as such counsel may reasonably request.
Section 7.3 Conditions to Obligation of Parent to Effect the Merger. The
obligations of Parent and Sub to effect the Merger shall be subject to the
fulfillment or waiver by Parent at or prior to the Closing Date of the
following conditions:
(a) (i) The Company shall have performed in all material respects its
covenants and agreements contained in this Agreement required to be performed
on or prior to the Closing Date and (ii) the representations and warranties of
the Company contained in this Agreement and in any document delivered in
connection herewith (A) to the extent qualified by Company Material Adverse
Effect or any other materiality qualification shall be true and correct and (B)
to the extent not qualified by Company Material Adverse Effect or any other
materiality qualification shall be true and correct in all material respects,
in each case as of the date of this Agreement and as of the Closing Date
(except for representations and warranties made as of a specified date, which
need be true and correct only as of the specified date); provided that the
condition set forth in clause (ii) shall be deemed to have been satisfied
unless such breaches of representations and warranties (without regard to
Company Material Adverse Effect or any other materiality qualification or
threshold),
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individually or in the aggregate, would reasonably be expected to have a
Company Material Adverse Effect; and Parent shall have received a certificate
of the Company, executed on its behalf by its President or a Vice President of
the Company, dated the Closing Date, certifying to such effect.
(b) Parent shall have received the opinion of McGuireWoods LLP, counsel to
Parent, in form and substance reasonably satisfactory to Parent, on the basis
of certain facts, representations and assumptions set forth in such opinion,
dated the Closing Date, a copy of which will be furnished to the Company, to
the effect that (i) the Merger will qualify for United States federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code and Parent, Newco and the Company will be "parties" to a reorganization
within the meaning of Section 368(b) of the Code and (ii) no gain or loss will
be recognized in connection with the Merger by any corporation which is a party
to the reorganization. In rendering such opinion, such counsel shall be
entitled to receive and rely upon representations of officers of the Company,
Newco and Parent as to such matters as such counsel may reasonably request.
ARTICLE VIII
TERMINATION
Section 8.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Effective Time by the mutual written consent of the
Company and Parent.
Section 8.2 Termination by Parent or the Company. This Agreement may be
terminated by action of the board of directors of the Company (upon payment of
the Termination Amount (as defined below), if payable pursuant to Section
8.5(a)) or by action of the board of directors of Parent, if:
(i) the Merger shall not have been consummated by March 31, 2002;
provided that the right to terminate this Agreement pursuant to this
clause (i) shall not be available to any party whose failure to perform or
observe in any material respect any of its obligations under this
Agreement in any manner shall have been the cause of, or resulted in, the
failure of the Merger to occur on or before such date; provided further
that such time period shall be tolled for any period during which any
party shall be subject to a non-final order, decree, ruling or action
restraining, enjoining or otherwise prohibiting the consummation of the
Merger; or
(ii) if the Company Requisite Vote shall not have been obtained at the
Shareholders' Meeting (including adjournment and postponement thereof); or
(iii) a United States federal or state court of competent jurisdiction
or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and non-appealable; provided that the party
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seeking to terminate this Agreement pursuant to this clause (iii) shall
have complied with Section 6.3 and with respect to other matters not
covered by Section 6.3 shall have used its reasonable best efforts to
remove such injunction, order or decree.
Section 8.3 Termination by the Company. This Agreement may be terminated
prior to the Effective Time, by action of the board of directors of the Company
after consultation with its legal advisors, if:
(i) prior to the Shareholders' Meeting, the Company receives a
Superior Proposal as described in Section 6.1(a) and resolves to accept
such Superior Proposal, but only if the Company has acted in all material
respects in accordance with, and has otherwise complied in all material
respects with the terms of, Section 6.1, including the notice provisions
therein; provided that the Company has paid or concurrently pays Parent
the sums required by Section 8.5(a) hereof; or
(ii) (A) there has been a breach by Parent or Sub of any
representation, warranty, covenant or agreement set forth in this
Agreement or if any representation or warranty of Parent or Sub shall have
become untrue, in either case such that the conditions set forth in
Section 7.2(a) will not be satisfied at the Closing Date and (B) such
breach is not curable, or, if curable, is not cured within 30 days after
written notice of such breach is given to Parent by the Company; provided
that the right to terminate this Agreement pursuant to this clause (ii)
shall not be available to the Company if it, at such time, is in material
breach of any representation, warranty, covenant or agreement set forth in
this Agreement such that the conditions set forth in Section 7.3(a) will
not be satisfied at the Closing Date.
Section 8.4. Termination by Parent. This Agreement may be
terminated at any time prior to the Effective Time, by action of the
board of directors of Parent after consultation with its legal
advisors, if:
(i) the board of directors of the Company shall have withdrawn,
modified or changed, in a manner adverse to Parent, the board's
approval or recommendation of the Merger or recommended approval of
a Company Acquisition Proposal, or resolved to do any of the
foregoing;
(ii) the Company shall have breached Section 6.1 in any material
respect, and Parent shall have been adversely affected thereby; or
(iii) (A) there has been a breach by the Company of any
representation, warranty, covenant or agreement set forth in this
Agreement or if any representation or warranty of the Company shall
have become untrue, in either case such that the conditions set
forth in Section 7.3(a) will not be satisfied at the Closing Date
and (B) such breach is not curable, or, if curable, is not cured
within 30 days after written notice of such breach is given by
Parent to the Company; provided that the right to terminate this
Agreement pursuant to this clause (iii) shall not be available to
Parent if it, at such time, is in material breach of any
representation, warranty, covenant or agreement set forth in this
Agreement such that the conditions set forth in Section 7.2(a) will
not be satisfied at the Closing Date.
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Section 8.5. Effect of Termination.
(a) If this Agreement is terminated (i) by the Company or Parent
pursuant to clause (i) or (ii) of Section 8.2 or clause (iii) of
section 8.4 and (A) (1) in the case of a termination pursuant to
clause (i) of Section 8.2 or clause (iii) of Section 8.4, such
termination results from the breach by the Company in a material
respect of any of its material agreements or covenants set forth in
this Agreement and at the time of such breach, any person shall have
made a Company Acquisition Proposal that had become public and then
remained pending or shall have publicly announced and not withdrawn an
intention (whether or not conditional) to make a Company Acquisition
Proposal, or (2) in the case of a termination pursuant to clause (ii)
of Section 8.2, at the time of the Shareholders' Meeting, any person
shall have made a Company Acquisition Proposal that had become public
and then remained pending or shall have publicly announced and not
withdrawn an intention (whether or not conditional) to make a Company
Acquisition Proposal, (B) Parent was not in material breach of this
Agreement, (C) the condition set forth in Section 7.1(a) was not
satisfied at the time of such termination, (D) the board of directors
at no time withdrew, modified or changed, in any manner adverse to
Parent, the board's approval or recommendation of the Merger or
recommended approval of a Company Acquisition Proposal, or resolved to
do any of the foregoing and (E) within 12 months after such
termination the Company shall consummate or enter into a definitive
agreement which is ultimately consummated with the proponent of such
Company Acquisition Proposal or with another party pursuant to a
proposal which is superior to such proposal, (ii) by the Company
pursuant to clause (i) of Section 8.3 or (iii) by Parent pursuant to
clause (i) or (ii) of Section 8.4; then, the Company shall pay Parent
$70 million (the "Termination Amount") upon termination of this
Agreement. All payments shall be made in cash by wire transfer to an
account designated by Parent on (1) in the case of clause 8.5(a)(ii)
the date of termination of this Agreement, (2) in the case of clause
8.5(a)(iii), the date which is the third business day following the
date of termination of this Agreement if this Agreement is terminated
by Parent, and (3) in the case of clause 8.5(a)(i), the date on which
the Company Acquisition Proposal referred to in clause (E) thereof is
consummated. The Company acknowledges that the agreements contained in
this Section 8.5(a) are an integral part of the transactions
contemplated by this Agreement and constitute liquidated damages and
not a penalty, and that, without these agreements, Parent would not
enter into this Agreement; accordingly, if the Company fails promptly
to pay any amount due pursuant to this Section 8.5(a), and, in order
to obtain such payment, Parent commences a suit which results in a
judgment against the Company for the payment set forth in this Section
8.5(a), the Company shall pay to Parent its costs and expenses
(including attorneys' fees) in connection with such suit, together
with interest on such amount from the date payment was required to be
made until the date such payment is actually made at the annual prime
lending rate of Citigroup, N.A. in effect from time to time from the
date such payment was required to be made, plus one percent (1%).
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(b) In the event of termination of this Agreement and the
abandonment of the Merger pursuant to this Article VIII, all
obligations of the parties hereto shall terminate, except the
obligations of the parties pursuant to this Section 8.5 and Sections
3.21, 4.8, 6.13 and the provisions of the Parent/Company
Confidentiality Agreement and except for the provisions of Article IX,
provided that nothing herein shall relieve any party from any
liability for any breach by such party of any of its covenants or
agreements set forth in this Agreement and all rights and remedies of
such non-breaching party under this Agreement in the case of such a
breach, at law or in equity, shall be preserved.
Section 8.6 Extension; Waiver. At any time prior to the Effective Time, each
party may by action taken by its board of directors, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of such
party.
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ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Nonsurvival of Representations, Warranties and Agreements. None
of the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger;
provided that the agreements contained in Article II and in Sections 6.8, 6.9,
6.10, 6.11, 6.13 and 6.14 and this Article IX and the agreements delivered
pursuant to this Agreement shall survive the Merger, unless otherwise provided
herein.
Section 9.2 Notices. All notices required to be given hereunder shall be in
writing and shall be deemed to have been given if (i) delivered personally or
by documented courier or delivery service, (ii) transmitted by facsimile during
normal business hours or (iii) mailed by registered or certified mail (return
receipt requested and postage prepaid) to the following listed persons at the
addresses and facsimile numbers specified below, or to such other persons,
addresses or facsimile numbers as a party entitled to notice shall give, in the
manner hereinabove described, to the others entitled to notice:
(a) if to Parent or Sub:
Dominion Resources, Inc.
120 Tredegar Street
Richmond, Virginia 23219
Attention: James F. Stutts
Vice President and General Counsel
Facsimile No.: 804-819-2233
with a copy to:
McGuireWoods LLP
One James Center
Richmond, Virginia 23219
Facsimile: 804-775-1061
Attention: Leslie A. Grandis
(b) if to the Company:
Louis Dreyfus Natural Gas Corp.
14000 Quail Springs Parkway, Suite 600
Oklahoma City, Oklahoma 73114
Facsimile: 405-748-2789
Attention: Mark E. Monroe
with a copy to:
Crowe & Dunlevy
1800 Mid-America Tower
Oklahoma City, Oklahoma 73102
Facsimile: 405-272-5238
Attention: Michael M. Stewart
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If given personally or by documented courier or delivery service, or
transmitted by facsimile, a notice shall be deemed to have been given when it
is received. If given by mail, it shall be deemed to have been given on the
third business day following the day on which it was posted.
Section 9.3 Assignment; Binding Effect; Benefit. Except as provided in
Section 1.1 hereof, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the
other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. Except as provided in Section 6.9,
notwithstanding anything contained in this Agreement to the contrary, nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
Section 9.4 Entire Agreement. This Agreement, the Gas Sale Agreement between
Louis Dreyfus Natural Gas Corp. and Dominion Exploration and Production, Inc.
dated as of the date of this Agreement, the Parent/Company Confidentiality
Agreement (other than the third paragraph thereof, which are hereby terminated
and of no further force or effect), the exhibits to this Agreement, the Company
Disclosure Letter and the Parent Disclosure Letter constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
Section 9.5 Amendments. This Agreement may be amended by the parties hereto,
by action taken or authorized by their boards of directors, at any time before
or after approval of matters presented in connection with the Merger by the
shareholders of the Company, but after any such shareholder approval, no
amendment shall be made which by law requires the further approval of
shareholders of the Company without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 9.6 Governing Law. Except to the extent that the OGCA or the DGCL
governs this Agreement, this agreement shall be governed by and construed in
accordance with the laws of the State of New York regardless of laws that might
otherwise govern under applicable principles of conflicts of laws.
Section 9.7 WAIVER OF JURY TRIAL. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
A-46
Section 9.8 Counterparts; Facsimile Transmission of Signatures. This
Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, and delivered by means of facsimile
transmission or otherwise, each of which when so executed and delivered shall
be deemed to be an original and all of which when taken together shall
constitute but one and the same agreement. If any party hereto elects to
execute and deliver a counterpart signature page by means of facsimile
transmission, it shall deliver an original of such counterpart to each of the
other parties hereto within ten days of the date hereof, but in no event will
the failure to do so affect in any way the validity of the facsimile signature
or its delivery.
Section 9.9 Headings. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretative effect whatsoever.
Section 9.10 Interpretation. In this Agreement:
(a) Unless the context otherwise requires, words describing the singular
number shall include the plural and vice versa, and words denoting any gender
shall include all genders and words denoting natural persons shall include
corporations and partnerships and vice versa.
(b) The words "include", "includes" and "including" are not limiting.
(c) The phrase "to the knowledge of" and similar phrases relating to
knowledge of the Company or Parent, as the case may be, shall mean the actual
knowledge of its executive officers.
(d) "Material Adverse Effect" with respect to the Company or Parent shall
mean a material adverse effect on or change in (i) the business, assets and
liabilities (taken together) or financial condition of a party and its
Subsidiaries on a consolidated basis or (ii) the ability of the party to
consummate the transactions contemplated by this Agreement or fulfill the
conditions to closing set forth in Article VII; provided that (x) any adverse
effect or change that is caused by or results from conditions affecting the
United States economy generally or the economy of any nation or region in which
the Company or Parent, as the case may be, or any of their Subsidiaries
conducts business on a consolidated basis, (y) any adverse effect or change
that is caused by or results from conditions generally affecting the industries
(including the natural gas industry) in which the Company or Parent, as the
case may be, conducts its business, including, without limitation, the price of
natural gas and (z) any adverse effect or change that is caused by or results
from the announcement or pendency of this Agreement, the Merger or the
transactions contemplated hereby, shall not be taken into account in
determining whether there has been a "Material Adverse Effect" with respect to
the Company or Parent, as the case may be.
(e) "Person" or "person" means an individual, a corporation, a limited
liability company, a partnership, an association, a trust or other entity or
organization.
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(f) "Subsidiary" when used with respect to any person means any person,
whether incorporated or unincorporated, of which such person directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of
the board of directors or others performing similar functions with respect to
such corporation or other organization (or 50% or more of its equity
interests), or any organization of which such party is a general partner.
Section 9.11 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be construed
as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
Section 9.12 Incorporation of Exhibits. The Company Disclosure Letter, the
Parent Disclosure Letter and all exhibits attached hereto and referred to
herein are hereby incorporated herein and made a part hereof for all purposes
as if fully set forth herein.
Section 9.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
Section 9.14 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court with
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
Section 9.15 Obligation of Sub. Whenever this Agreement requires Sub (or its
successors) to take any action prior to the Effective Time, such requirement
shall be deemed to include an undertaking on the part of Parent to cause Sub to
take such action and a guarantee of the performance thereof.
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EXHIBIT A
TO AGREEMENT AND PLAN OF MERGER (AS AMENDED AND RESTATED)
, 200
Dominion Resources, Inc
120 Tredegar Street
Richmond, Virginia 23219
Dear Ms. Patricia A. Wilkerson:
I have been advised that as of the date hereof, I may be deemed to be an
"affiliate" of Louis Dreyfus Natural Gas Corp., an Oklahoma corporation (the
"Company"), as such term is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of September 9, 2001, as it may be
amended, supplemented or modified from time to time (the "Merger Agreement"),
among the Company, Dominion Resources, Inc., a Virginia corporation ("Parent"),
and Consolidated Natural Gas Company ("Sub"), a Delaware corporation, the
Company will be merged into Sub (the "Merger"). Capitalized terms used herein
but not defined herein shall have the meanings ascribed to such terms in the
Merger Agreement.
In consideration of the agreements contained herein, Parent's reliance on
this letter in connection with the consummation of the Merger and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, I hereby represent, warrant and agree that I will not make
any sale, transfer or other disposition of any Parent Common Shares received by
me pursuant to the Merger in violation of the Securities Act or the Rules and
Regulations thereunder. I have been advised that the issuance of the Parent
Common Shares pursuant to the Merger will have been registered with the
Commission under the Securities Act on a Registration Statement on Form S-4. I
have also been advised, however, that since I may be deemed to be an affiliate
of the Company at the time the Merger was submitted for a vote of the
shareholders of the Company, the Parent Common Shares received by me may be
disposed by me only (i) pursuant to an effective registration under the
Securities Act, (ii) in conformity with the volume and other limitations of
Rule 145 promulgated by the Commission under the Securities Act or (iii) in
reliance upon an exemption from registration that is available under the
Securities Act.
I also understand that instructions will be given to Parent's transfer agent
with respect to the Parent Common Shares to be received by me pursuant to the
Merger and that there will be placed on the certificates representing such
Parent Common Shares, or any substitutes therefor, a legend stating in
substance as follows:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, APPLIES AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IN
COMPLIANCE WITH THE REQUIREMENTS OF RULE 145 OR PURSUANT TO A REGISTRATION
STATEMENT UNDER THAT ACT OR AN EXEMPTION FROM SUCH REGISTRATION."
It is understood and agreed that the legend set forth above shall be removed
upon surrender of certificates bearing such legend by delivery of substitute
certificates without such legend after one year has elapsed from the
consummation date of the Merger or prior thereto, if I shall have delivered to
Parent an opinion of counsel, in form and substance reasonably satisfactory to
Parent, to the effect that (i) the sale or disposition of the shares
represented by the surrendered certificates may be effected without
registration of the offering, sale and delivery of such shares under the
Securities Act, and (ii) the shares to be so transferred may be publicly
offered, sold and delivered by the transferee thereof without compliance with
the registration provisions of the Securities Act.
I further understand and agree that Parent is under no obligation to register
the sale, transfer or other disposition of the Parent Common Shares by me or on
my behalf under the Securities Act.
Execution of this letter should not be considered an admission on our part
that I am an "affiliate" of the Company as described in the first paragraph of
this letter, or as a waiver of any rights I may have to object to any claim
that I am such an affiliate on or after the date of this letter.
This letter agreement constitutes the complete understanding between Parent
and me concerning the subject matter hereof. Any notice required to be sent to
either party hereunder shall be sent by registered or certified mail, return
receipt requested, using the addresses set forth herein or such other address
as shall be furnished in writing by the parties. This letter agreement shall be
governed by and construed and interpreted in accordance with the laws of the
State of New York.
A-50
If you are in agreement with the foregoing, please so indicate by signing
below and returning a copy of this letter to the undersigned, at which time
this letter shall become a binding agreement between us.
Very truly yours,
Accepted this day of
.............................
DOMINION RESOURCES, INC.
By:..........................
Name:........................
Title:.......................
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ANNEX B
PRINCIPAL SHAREHOLDERS AGREEMENT
This PRINCIPAL SHAREHOLDERS AGREEMENT (this "Agreement") dated as of
September 9, 2001, is made by and among Dominion Resources, Inc., a Virginia
corporation ("Parent"), and Louis Dreyfus Commercial Activities Inc., Louis
Dreyfus Natural Gas Holdings Corp. ("NGHC") and L.D. Fashions Holdings Corp.
(each a "Shareholder" and collectively, the "Shareholders"), shareholders of
Louis Dreyfus Natural Gas Corp., an Oklahoma corporation (the "Company").
RECITALS
A. Simultaneously herewith Parent is entering into an Agreement and Plan of
Merger among Parent, Consolidated Natural Gas Company, a Delaware corporation
and a wholly owned subsidiary of Parent ("Sub"), and the Company dated as of
September 9, 2001 (the "Merger Agreement").
B. The Merger Agreement provides for (i) the merger (the "Merger") of the
Company with and into Sub. Pursuant to the Merger, the holders of the
outstanding capital stock of the Company will receive the applicable
consideration set forth in the Merger Agreement. Upon consummation of the
Merger, the company will be a wholly owned subsidiary of Parent.
C. Each Shareholder owns of record and beneficially the number of shares of
common stock, $0.01 par value, of the Company (the "Company Shares") set
opposite its name on Annex A hereto.
D. As a condition to its willingness to enter into the Merger Agreement,
Parent has required that each Shareholder agree, and each Shareholder has
agreed, among other things, to execute and deliver this Agreement with respect
to the Company Shares now owned or in the future acquired by each such
Shareholder (all such shares, including those now owned and those acquired in
the future being referred to herein as the "Shares"), on the terms and
conditions provided for herein.
E. Capitalized terms used but not defined herein shall have the meanings set
forth in the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements herein contained, the parties hereto agree as
follows:
Section 1. Agreement to Vote the Shares. Each Shareholder, in its capacity
as such, hereby agrees that during the period commencing on the date hereof and
continuing until the termination of this Agreement in accordance with its terms
(the "Voting Period"), at any meeting (or any adjournment or postponement
thereof) of the holders of any class or classes of the capital stock of the
Company, called with respect to any of the following or in connection with the
written consent of the holders of any class or classes of the capital stock
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of the Company with respect to any of the following, it shall vote (or cause to
be voted) its Shares (x) in favor of the approval of the terms of the Merger
Agreement and each of the other transactions contemplated by the Merger
Agreement (and any actions required in furtherance thereof), (y) against any
action, proposal, transaction or agreement that to the knowledge of such
Shareholder would constitute a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
or any of its subsidiaries under the Merger Agreement or of such Shareholder
under this Agreement, and (z) except as otherwise agreed to in writing in
advance by Parent, against the following actions or proposals (other than the
transactions contemplated by the Merger Agreement): (i) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or any of its subsidiaries and any Company
Acquisition Proposal; (ii) a sale, lease or transfer of a significant part of
the assets of the Company or any of its subsidiaries, or a reorganization,
recapitalization, dissolution or liquidation of the Company or any of its
subsidiaries (each of the actions in clauses (i) or (ii), a "Business
Combination"); and (iii) (A) any change in the persons who constitute the board
of directors of the Company that is not approved in advance by at least a
majority of the persons who were directors of the Company as of the date of
this Agreement (or their successors who were so approved); (B) any change in
the present capitalization of the Company or any amendment of the Company's
articles or incorporation or bylaws; (C) any other material change in the
Company's corporate structure or business; or (D) any other action or proposal
involving the Company or any of its subsidiaries that is intended, or to the
knowledge of such Shareholder would reasonably be expected, to prevent, impede,
or materially interfere with, delay or postpone the transactions contemplated
by the Merger Agreement. Any such vote shall be cast or consent shall be given
in accordance with such procedures relating thereto as shall ensure that it is
duly counted for purposes of determining that a quorum is present and for
purposes of recording the results of such vote or consent. Each Shareholder
agrees not to enter into any agreement, letter of intent, agreement in
principle or understanding with any person that violates or conflicts with or
could reasonably be expected to violate or conflict with the provisions and
agreements contained in this Agreement or the Merger Agreement.
Section 2. Grant of Irrevocable Proxy. Each Shareholder, in its capacity as
such, hereby irrevocably appoints Parent or any designee of Parent the lawful
agent, attorney and proxy of each such Shareholder, during the Voting Period
(which proxy shall be automatically revoked without any further action on the
part of such Shareholder at the end of the Voting Period) at any meeting of the
shareholders of the Company, called with respect to any of the following or in
connection with any written consent of the shareholders of the Company with
respect to any of the following, to vote (or cause to be voted) the Shares held
of record or beneficially by such Shareholder (a) in favor of the execution and
delivery by the Company of the Merger Agreement and the approval of the terms
thereof and each of the other actions contemplated by the Merger Agreement,
this Agreement and any actions required in furtherance hereof and thereof; (b)
against any action or agreement that to the knowledge of such Shareholder would
constitute a breach in any material respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement or this Agreement; and (c) against the actions or proposals
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(other than the transactions contemplated by the Merger Agreement) described in
clause (z) of Section 1. Each Shareholder intends this proxy to be irrevocable
and coupled with an interest and will take such further action or execute such
other instruments as may be necessary to effectuate the intent of this proxy
and hereby revokes any proxy previously granted by it with respect to its
Shares. Each Shareholder shall not during the term of this Agreement purport to
vote (or execute a consent with respect to) its Shares in connection with any
of the matters specified in clauses (a), (b) or (c) of this Section 2 (the
"Specified Matters") (other than through this irrevocable proxy) or grant any
other proxy or power of attorney with respect to any of its Shares in respect
of the Specified Matters, deposit any of its Shares into a voting trust or
enter into any agreement (other than this Agreement), arrangement or
understanding with any person, directly or indirectly, to vote, grant any proxy
or give instructions with respect to the voting of any of its Shares in
connection with any of the Specified Matters.
Section 3. Representations and Warranties of Parent. Parent hereby represents
and warrants to each Shareholder as follows:
(a) Due Authorization; Binding Agreement. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of Parent, and
no other corporate proceedings on the part of Parent are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Parent and
constitutes a valid and binding agreement of Parent enforceable against Parent
in accordance with its terms, except that such enforceability (i) may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
or relating to enforcement of creditors' rights generally and (ii) is subject
to general principles of equity.
(b) No Conflicts. Except for (i) filings under the HSR Act, if applicable,
(ii) the applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (iii) the applicable requirements of state securities,
takeover or Blue Sky laws and (iv) such notifications, filings, authorizing
actions, orders and approvals as may be required under other laws, (A) no
filing with, and no permit, authorization, consent or approval of, any state,
federal or foreign public body or authority is necessary for the execution of
this Agreement by Parent and the consummation by each of the transactions
contemplated hereby and (B) neither the execution and delivery of this
Agreement by Parent nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the provisions hereof shall (1)
conflict with or result in any breach of any provision of its certificate of
incorporation or by-laws (or similar documents), (2) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract, agreement
or other instrument or obligation to which it is a party or by which it or any
of its properties or assets may be bound or (3) violate any order, writ,
B-3
injunction, decree, statute, rule or regulation applicable to it or any of its
properties or assets, except in the case of (2) or (3) for violations, breaches
or defaults which would not, individually or in the aggregate, reasonably be
expected to materially impair the ability of Parent to perform its obligations
hereunder.
(c) Good Standing. Parent is a corporation duly organized, validly existing
and in good standing under the laws of Commonwealth of Virginia and has all
requisite corporate power and authority to execute and deliver this Agreement.
Section 4. Representations and Warranties of the Shareholders. Except in the
case of NGHC with respect to the terms of the Grant of Security Interests,
dated as of September 8, 1999, from NGHC to the judgment creditor named therein
referred to in Amendment No. 6 to Schedule 13D dated July 5, 2000 filed by the
Shareholders with the Securities and Exchange Commission and the documents
related thereto (the "Judgment Documents"), each Shareholder hereby severally
and not jointly represents and warrants to Parent as follows:
(a) Ownership of Shares. Such Shareholder is the owner of the number of
Shares set forth opposite its name on Annex A hereto and has the power to vote
and dispose of such Shares.
(b) Due Authorization; Binding Agreement. The execution and delivery of
this Agreement by such Shareholder and the consummation of the transactions
contemplated hereby have been duly authorized by the board of directors of such
shareholder and no other corporate proceedings on the part of any such
Shareholder is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by such Shareholder and constitutes a valid and binding
agreement of each such Shareholder enforceable against each such Shareholder in
accordance with its terms, except that such enforceability (i) may be limited
by bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) is subject to
general principles of equity.
(c) No Conflicts. Except for (i) filings under the HSR Act, if applicable,
(ii) the applicable requirements of the Exchange Act and the Securities Act,
(iii) the applicable requirements of state securities, takeover or Blue Sky
laws, (iv) such notifications, filings, authorizing actions, orders and
approvals as may be required under other laws, (A) no filing by any Shareholder
with, and no permit, authorization, consent or approval of, any state, federal
or foreign public body or authority is necessary for the execution of this
Agreement by any Shareholder and the consummation by any such Shareholder of
the transactions contemplated hereby and (B) neither the execution and delivery
of this Agreement by any Shareholder nor the consummation by any Shareholder of
the transactions contemplated hereby nor compliance by any Shareholder with any
of the provisions hereof shall (1) conflict with or result in any breach of any
provision of the certificate of incorporation, by-laws, trust or charitable
instruments (or similar documents) of any such Shareholder, (2) result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material
B-4
modification or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation to which any such Shareholder is a party or by which
it or any of its properties or assets may be bound or (3) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to any such
Shareholder or any of its properties or assets, except in the case of (2) or
(3) for violations, breaches or defaults which individually or in the aggregate
would not reasonably be expected to materially adversely affect the ability of
any such Shareholder to perform its obligations hereunder.
Section 5. Certain Covenants of the Shareholders. Each Shareholder, severally
and not jointly, hereby covenants and agrees as follows:
(a) No Solicitation. During the term of this Agreement, each Shareholder
will not and will not authorize and will use its reasonable best efforts to
cause its officers, directors, employees, representatives and agents in their
respective capacities as shareholders of the Company not to, directly or
indirectly, solicit, facilitate, participate in or initiate any inquiries or
the making of any proposal by any person or entity (other than Parent) which
constitutes, or may reasonably be expected to lead to any sale of the Shares or
any Company Acquisition Proposal, except to the extent that such action is
taken by such Shareholder or such other persons in connection with or relating
to actions permitted to be taken by the Company in compliance with Section 6.1
of the Merger Agreement. If any Shareholder, or any officer, director,
employee, representative or agent of such Shareholder, receives an inquiry or
proposal with respect to the sale of Shares, then such Shareholder shall
promptly inform Parent of the terms and conditions, if any, of such inquiry or
proposal and the identity of the person making it. Each Shareholder shall, and
shall cause its respective officers, directors, employees, representatives and
agents to, immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing.
(b) Restriction on Transfer, Proxies and Non-Interference. Each Shareholder
hereby agrees, from the date hereof through the earlier of (x) the Closing Date
or (y) termination of this Agreement pursuant to Section 13(f) hereof, and
except as contemplated hereby and except for pledges in existence as of the
date hereof, not to (i) sell, transfer, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of its Shares (except for a transfer to
an affiliate of such Shareholder who agrees to be bound by the terms of this
Agreement, a "Permitted Transferee") or (ii) grant any proxies in connection
with Specified Matters, deposit its Shares into a voting trust or enter into a
voting agreement with respect to its Shares or (iii) take any action that would
make any representation or warranty of such Shareholder contained herein untrue
or incorrect or have the effect of preventing, impeding, interfering with or
adversely affecting the performance by such Shareholder of its obligations
under this Agreement.
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Section 6. Legend. Each Shareholder shall promptly cause the following legend
to be conspicuously noted on each certificate representing its Shares:
"The shares represented by this certificate are subject to a
Principal Shareholders Agreement dated as of September 9, 2001. The
Principal Shareholders Agreement restricts the transferability of the
shares represented by this certificate and includes a voting agreement
and an irrevocable proxy to vote the shares represented by this
certificate."
Section 7 Further Assurances. From time to time, at the other party's request
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to effectuate the transactions contemplated by this Agreement.
Section 8. Fiduciary Duties. Nothing in this Agreement shall prevent any
officer, director, employee, representative or agent of any Shareholder from
taking any action which is required in such person's good faith judgment to
fulfill his or her fiduciary duties as a director of the Company in his or her
capacity as such.
Section 9. Lockup. Each Shareholder agrees it will not, prior to the date
which is ninety (90) days after the Closing Date (as defined in the Merger
Agreement) (the "Lockup Date") offer to sell, grant any option for the sale of,
or otherwise dispose of any of the common shares of Parent, no par value,
received by such Shareholder in the Merger ("Parent Common Shares") other than
to a Permitted Transferee. From and after the Lockup Date through the date
which is one year after the Lockup Date, the Shareholders agree that without
the prior written consent of Parent (which shall not be unreasonably withheld
or delayed), they collectively will not, directly or indirectly sell, offer to
sell, grant any option for the sale of, or otherwise dispose of in excess of
10% of the aggregate number of Parent Common Shares received by the
Shareholders in the Merger during any calendar month, except to a Permitted
Transferee.
Section 10. Rule 145; Parent Common Shares Legends. Parent shall be entitled
to place restrictive legends relating to the transfer restrictions imposed by
Rule 145 under the Securities Act and this Agreement on the certificates
representing the Parent Common Shares received by the Shareholders, and Parent
will provide each Shareholder with certificates without such legends on request
in connection with transfers in compliance with Rule 145 or when such transfer
restrictions cease to be applicable to such Shareholder.
Section 11. Judgment Documents. Nothing contained in this Agreement is
intended to constitute an agreement to violate the Judgment Documents. NGHC
agrees to use reasonable best efforts to substitute as promptly as is
practicable other collateral for the Shares securing its obligations under the
Judgment Documents and to obtain the release of the Shares thereunder.
Section 12. Trading Restrictions. The Shareholders agree that for the five
full trading days immediately following the parties' execution of this
Agreement, neither the
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Shareholders nor any person affiliated with the Shareholders will sell physical
gas contracts or gas-related financial derivatives in excess of fifty (50)
NYMEX gas contracts equivalents per month for the calendar years 2002 and 2003.
Section 13. Miscellaneous.
(a) Entire Agreement; Assignment. This Agreement, together with the Merger
Agreement dated the date hereof, (i) constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes all other
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof and (ii) shall not be assigned by
operation of law or otherwise, provided that Parent may assign its rights and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Parent, but no such assignment shall relieve Parent of its obligations
hereunder if such assignee does not perform such obligations.
(b) Amendments. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by each Shareholder and Parent.
(c) Publication. Each Shareholder hereby consents to disclosure in the
Proxy Statement/Prospectus (including all documents and schedules filed with
the SEC) and press releases with respect to the Merger in accordance with the
Merger Agreement, the identity of such Shareholder and ownership of its Shares
and the nature of its commitments, arrangements and understandings pursuant to
this Agreement. Parent agrees to give each Shareholder a reasonable opportunity
to review the disclosures referenced in the immediately preceding sentence.
(d) Notices. All notices required to be given hereunder shall be in
writing and shall be deemed to have been given if (i) delivered personally or
by documented courier or delivery service, (ii) transmitted by facsimile during
normal business hours or (iii) mailed by registered or certified mail (return
receipt requested and postage prepaid) to the following listed persons at the
addresses and facsimile numbers specified below, or to such other persons,
addresses or facsimile numbers as a party entitled to notice shall give, in the
manner hereinabove described, to the others entitled to notice:
If to any Shareholder, to the persons listed opposite the name of such
Shareholder on Annex A hereto.
If to Parent, to:
Dominion Resources, Inc.
120 Tredegar Street
Richmond, Virginia 23219
Attention: James F. Stutts
Vice President and General Counsel
Facsimile No.: 804-819-2233
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with a copy to:
McGuireWoods LLP
One James Center
901 E. Cary Street
Richmond, Virginia 23219
Attention: Leslie A. Grandis
Facsimile No.: 804-775-1061
If given personally or by documented courier or delivery service, or
transmitted by facsimile, a notice shall be deemed to have been given when it
is received. If given by mail, it shall be deemed to have been given on the
third business day following the day on which it was posted.
(d) Governing Law. Except to the extent that the OGCA applies with respect
to issues of corporate mechanics because the Company is an Oklahoma
corporation, this Agreement shall be governed in all respects by the laws of
the State of New York without regard to any laws or regulations relating to
choice of laws (whether of the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of New York.
(e) Cooperation as to Regulatory Matters. If so requested by Parent,
promptly after the date hereof, each Shareholder will use its reasonable
commercial efforts to make all filings that are required to be made by such
Shareholder under the HSR Act or other regulatory approvals required in
connection with the transactions contemplated hereby.
(f) Termination. This Agreement shall terminate on the earlier of (i) the
Effective Time or (ii) the termination of the Merger Agreement in accordance
with its terms; provided that Sections 1 and 2 of this Agreement shall
terminate, and the Voting Period shall be deemed to have ended, as to any
Shares held by any Shareholder in excess of the number of Shares set forth
after such Shareholder's name under the heading "Minimum Shares" on Annex A in
the event the board of directors of the Company in the exercise of its
fiduciary duties withdraws, modifies or changes in any manner adverse to Parent
its recommendation of the Merger and, provided further, that if this Agreement
shall terminate as a result of the occurrence of the Effective Time, the
agreements set forth in Section 9 shall survive the Effective Time for the time
periods provided in Section 9 and the agreements set forth in Sections 10 and
11 shall survive the Effective Time.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore, each of
the parties hereto agrees that in the event of any such breach the aggrieved
party shall be entitled to the remedy of specific performance of such covenants
and agreements and injunctive and other equitable relief in addition to any
other remedy to which it may be entitled, at law or in equity.
B-8
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other right,
power or remedy by such party.
(i) Waivers. Except as provided in this Agreement, no action taken pursuant
to this Agreement, including, without limitation, any investigation by or on
behalf of any party, shall be deemed to constitute a waiver by the party taking
such action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
(j) Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, and
delivered by means of facsimile transmission or otherwise, each of which when
so executed and delivered shall be deemed to be an original and all of which
when taken together shall constitute but one and the same agreement. If any
party hereto elects to execute and deliver a counterpart signature page by
means of facsimile transmission, it shall deliver an original of such
counterpart to each of the other parties hereto within ten days of the date
hereof, but in no event will the failure to do so affect in any way the
validity of the facsimile signature or its delivery.
(k) Headings. Headings of the Sections of this Agreement are for the
convenience of the parties only, and shall be given no substantive or
interpretative effect whatsoever.
(l) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
B-9
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of each
of the parties hereto, all as of the date first above written.
DOMINION RESOURCES, INC.
By: /s/ Thos E. Capps
____________________________________
Name: Thos. E. Capps
Title: Chairman, President and Chief
Executive Officer
LOUIS DREYFUS COMMERCIAL ACTIVITIES
INC.
By: /s/ Ernest F. Steiner
____________________________________
Name: Ernest F. Steiner
Title:
LOUIS DREYFUS NATURAL GAS HOLDINGS
CORP.
By: /s/ Robert L. Bryant
____________________________________
Name: Robert L. Bryant
Title: President
L.D. FASHIONS HOLDINGS CORP.
By: /s/ Robert L. Bryant
____________________________________
Name: Robert L. Bryant
Title: President
B-10
ANNEX A TO PRINCIPAL SHAREHOLDERS AGREEMENT
Total Number
Name of Shareholder of Shares Minimum Shares Notice Information
------------------- ------------ -------------- ------------------
Louis Dreyfus 750,000 500,000 10 Westport Road
Commercial Wilton, CT 06897-0810
Activities Inc. Attn: Andrew J. Connelly
Fax: (203) 761-8321
Louis Dreyfus Natural 11,000,000 7,300,000 Baynard Building
Gas Holdings Corp. Suite 210E
3411 Silverside Road
Wilmington, DE 19810-4808
Attn: Robert L Bryant
Fax: (302) 477-1561
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attn: Robert E. Spatt, Esq.
Fax: (212) 455-2502
L.D. Fashions 7,400,000 4,900,000 Baynard Building
Holdings Corp. Suite 210E
3411 Silverside Road
Wilmington, DE 19810-4808
Attn: Robert L Bryant
Fax: (302) 477-1561
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attn: Robert E. Spatt, Esq.
Fax: (212) 455-2502
B-11
ANNEX C
September 9, 2001
Board of Directors
Louis Dreyfus Natural Gas Corp.
14000 Quail Springs Parkway
Suite 600
Oklahoma City, OK 73134
Members of the Board:
We understand that Louis Dreyfus Natural Gas Corp. (the "Company") is
considering entering into a transaction (the "Proposed Transaction") with
Dominion Resources, Inc. ("Dominion"), pursuant to which (i) the Company will
merge with and into a wholly-owned subsidiary of Dominion ("Merger Sub"), with
Merger Sub continuing as the surviving corporation, and (ii) upon the
effectiveness of the merger, each share of the Company's common stock will be
converted into the right to receive $20.00 in cash and 0.3226 shares of
Dominion common stock. The terms and conditions of the Proposed Transaction are
set forth in more detail in the Agreement and Plan of Merger between the
Company, Dominion and Merger Sub (the "Agreement") and the Principal
Shareholders Agreement between certain of the Company's significant
shareholders and Dominion (the "Principal Shareholders Agreement"). We further
understand that in addition to the Proposed Transaction, the Company will enter
into a gas sale agreement with Dominion pursuant to which the Company will sell
48 billion cubic feet of 2002 production at prevailing prices in the natural
gas futures market to Dominion (the "Gas Sale Agreement").
We have been requested by the Board of Directors of the Company to render our
opinion with respect to the fairness, from a financial point of view, to the
Company's stockholders of the consideration to be offered to such stockholders
in the Proposed Transaction. We have not been requested to opine as to, and our
opinion does not in any manner address, the Company's underlying business
decision (i) to proceed with or effect the Proposed Transaction or (ii) to
enter into the Gas Sale Agreement.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement, the
Principal Shareholders Agreement and the specific terms of the Proposed
Transaction, (2) publicly available information concerning the Company and
Dominion that we believe to be relevant to our analysis, including Annual
Reports on Form 10-K for the fiscal year ended December 31, 2000 and Quarterly
Reports on Form 10-Q for the periods ended March 31 and June 30, 2001, (3)
financial and operating information with respect to the business, operations
and prospects of the Company furnished to us by the Company, (4) financial and
operating information with respect to the business, operations and prospects of
Dominion furnished to us by Dominion, (5) certain estimates prepared by the
Company of the Company's proved and non-proved reserves and future production,
revenue, operating costs and capital investment (the "Company Estimates"), (6)
certain estimates of the Company's proved reserves audited by Ryder Scott
Company, the Company's third party reserve engineers ("Ryder Scott Estimates"),
(7) a trading history of the common stock of the Company and Dominion from
September 5, 2000 to the present and a comparison of those trading histories
C-1
with each other and with those of other companies that we deemed relevant, (8)
a comparison of the historical financial results and present financial
condition of the Company and Dominion with each other and with those of other
companies that we deemed relevant, (9) a comparison of the financial terms of
the Proposed Transaction with the financial terms of certain other transactions
that we deemed relevant, (10) earnings estimates for the Company and Dominion
published by research analysts, (11) the potential pro forma effects of the
Proposed Transaction on the future financial performance of Dominion, including
the cost savings, operating synergies and strategic benefits expected to result
from a combination of the businesses of the Company and Dominion, and (12)
discussions with third parties by the Company and Lehman Brothers regarding
such third parties' interest in a purchase of all or a part of the Company's
business. In addition, we have had discussions with the managements of the
Company and Dominion concerning their respective businesses, operations,
assets, financial condition, prospects, reserves, production profiles and
exploration programs and have undertaken such other studies, analyses and
investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of the managements of the Company and
Dominion that they are not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the financial
projections for the Company and the Company Estimates, upon advice of the
Company, we have assumed that such projections and estimates have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the Company's management as to the future
performance of the Company and that the Company will perform substantially in
accordance with such projections and estimates. With respect to the financial
projections of Dominion, upon advice of Dominion and the Company we have
assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of Dominion's
management as to the future financial performance of Dominion and that Dominion
will perform substantially in accordance with such projections. In arriving at
our opinion, we have not conducted a physical inspection of the properties and
facilities of the Company or Dominion and have not made or obtained any
evaluations or appraisals of the assets or liabilities of the Company or
Dominion, other than the Ryder Scott Estimates. Upon advice of the Company and
its legal and accounting advisors, we have assumed the stockholders of the
Company will recognize gain only to the extent of the lesser of such gain or
the cash received (but will not recognize loss). Our opinion necessarily is
based upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
In arriving at our opinion, you have not authorized us to formally solicit,
and we have not so solicited, any indications of interest from any third party
with respect to the purchase of all or a part of the Company's business. In
addition, we have not been requested to and do not express any opinion as to
the prices at which shares of Dominion's common stock may trade following the
announcement or consummation of the Proposed Transaction.
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Based upon and subject to the foregoing, we are of the opinion as of the date
hereof that, from a financial point of view, the consideration to be offered to
the Company's stockholders in the Proposed Transaction is fair to such
stockholders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is
contingent upon the consummation of the Proposed Transaction. In addition, the
Company has agreed to indemnify us for certain liabilities that may arise out
of the rendering of this opinion. We also have performed various investment
banking services for the Company and Dominion in the past and have received
customary fees for such services. In the ordinary course of our business, we
actively trade in the securities of the Company and Dominion for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as
to whether to accept the consideration to be offered to the stockholders in
connection with the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS INC.
C-3
ANNEX D
SECTION 1091 OF THE OKLAHOMA GENERAL CORPORATION ACT
A. Any shareholder of a corporation of this state who holds shares of stock
on the date of the making of a demand pursuant to the provisions of subsection
D of this section with respect to the shares, who continuously holds the shares
through the effective date of the merger or consolidation, who has otherwise
complied with the provisions of subsection D of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to the provisions of Section 1073 of this title shall be
entitled to an appraisal by the district court of the fair value of the shares
of stock under the circumstances described in subsections B and C of this
section. As used in this section, the word "shareholder" means a holder of
record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a nonstock corporation; and "depository receipt" means an instrument
issued by a depository representing an interest in one or more shares, or
fractions thereof, solely of stock of a corporation, which stock is deposited
with the depository. The provisions of this subsection shall be effective only
with respect to mergers or consolidations consummated pursuant to an agreement
of merger or consolidation entered into after November 1, 1988,
B.1. Except as otherwise provided for in this subsection, appraisal rights
shall be available for the shares of any class or series of stock of a
constituent corporation in a merger or consolidation, or of the acquired
corporation in a share acquisition, to be affected pursuant to the provisions
of Section 1081, other than a merger effected pursuant to subsection G of
Section 1081, and Sections 1082, 1086, 1087, 1090.1 or 1090.2 of this title.
2.a. No appraisal rights under this section shall be available for the shares
of any class or series of stock which stock, or depository receipts in respect
thereof, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting of shareholders to act upon the
agreement of merger or consolidation, were either:
(1) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc.;
or
(2) held of record by more than two thousand holders.
No appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not
require for its approval the vote of the shareholders of the
surviving corporation as provided in subsection G of Section 1081 of
this title.
b. In addition, no appraisal rights shall be available for any shares of
stock, or depository receipts in respect thereof, of the constituent
corporation surviving a merger
D-1
if the merger did not require for its approval the vote of the
shareholders of the surviving corporation as provided for in subsection F
of Section 1081 of this title.
3. Notwithstanding the provisions of paragraph 2 of this subsection,
appraisal rights provided for in this section shall be available for the shares
of any class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or consolidation
pursuant to the provisions of Sections 1081, 1082, 1086, 1087, 1090.1 or 1090.2
of this title to accept for the stock anything except:
a. shares of stock of the corporation surviving or resulting from the
merger or consolidation or depository receipts thereof, or
b. shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than two thousand
holders, or
c. cash in lieu of fractional shares or fractional depository receipts
described in subparagraphs a and b of this paragraph, or
d. any combination of the shares of stock, depository receipts, and cash
in lieu of the fractional shares or depository receipts described in
subparagraphs a, b, and c of this paragraph.
4. In the event all of the stock of a subsidiary Oklahoma corporation party
to a merger effected pursuant to the provisions of Section 1083 of this title
is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary Oklahoma
corporation.
C. Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections D and E of this section, shall apply as nearly as is practicable.
D. Appraisal rights shall be perfected as follows:
1. If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
shareholders, the corporation, not less than twenty (20) days prior to the
meeting, shall notify each of its shareholders entitled to appraisal rights
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in the notice a copy of this
section. Each shareholder electing to demand the appraisal of the shares of the
shareholder shall deliver to
D-2
the corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of the shares of the shareholder. The demand
will be sufficient if it reasonably informs the corporation of the identity of
the shareholder and that the shareholder intends thereby to demand the
appraisal of the shares of the shareholder. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A shareholder electing to
take such action must do so by a separate written demand as herein provided.
Within ten (10) days after the effective date of the merger or consolidation,
the surviving or resulting corporation shall notify each shareholder of each
constituent corporation who has complied with the provisions of this subsection
and has not voted in favor of or consented to the merger or consolidation as of
the date that the merger or consolidation has become effective; or
2. If the merger or consolidation is approved pursuant to the provisions of
Section 1073 or 1083 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten (10) days
thereafter, shall notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are available
for any or all of the shares of the class or series of stock of the constituent
corporation, and shall include in such notice a copy of this section; provided,
if the notice is given on or after the effective date of the merger or
consolidation, the notice shall be given by the surviving or resulting
corporation to all the holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. The notice may, and, if
given on or after the effective date of the merger or consolidation, shall,
also notify the shareholders of the effective date of the merger or
consolidation. Any shareholder entitled to appraisal rights may, within twenty
(20) days after the date of mailing of the notice, demand in writing from the
surviving or resulting corporation the appraisal of the holder's shares. The
demand will be sufficient if it reasonably informs the corporation of the
identity of the shareholder and that the shareholder intends to demand the
appraisal of the holder's shares. If the notice does not notify shareholders of
the effective date of the merger or consolidation either:
a. each constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of the constituent corporation
that are entitled to appraisal rights of the effective date of the merger
or consolidation, or
b. the surviving or resulting corporation shall send a second notice to
all holders on or within ten (10) days after the effective date of the
merger or consolidation; provided, however, that if the second notice is
sent more than twenty (20) days following the mailing of the first notice,
the second notice need only be sent to each shareholder who is entitled to
appraisal rights and who has demanded appraisal of the holder's shares in
accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that the notice has been given shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
For purposes of determining the shareholders entitled to receive either
notice, each constituent corporation may fix, in advance, a record date
that shall be not more than ten (10) days prior to the date the notice is
given; provided, if the notice is given
D-3
on or after the effective date of the merger or consolidation, the record
date shall be the effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the notice is
given.
E. Within one hundred twenty (120) days after the effective date of the
merger or consolidation, the surviving or resulting corporation or any
shareholder who has complied with the provisions of subsections A and D of this
section and who is otherwise entitled to appraisal rights, may file a petition
in district court demanding a determination of the value of the stock of all
such shareholders; provided, however, at any time within sixty (60) days after
the effective date of the merger or consolidation, any shareholder shall have
the right to withdraw the demand of the shareholder for appraisal and to accept
the terms offered upon the merger or consolidation. Within one hundred twenty
(120) days after the effective date of the merger or consolidation, any
shareholder who has complied with the requirements of subsections A and D of
this section, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor of
the merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of the shares. The
written statement shall be mailed to the shareholder within ten (10) days after
the shareholder's written request for a statement is received by the surviving
or resulting corporation or within ten (10) days after expiration of the period
for delivery of demands for appraisal pursuant to the provisions of subsection
D of this section, whichever is later.
F. Upon the filing of any such petition by a shareholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which,
within twenty (20) days after service, shall file, in the office of the court
clerk of the district court in which the petition was filed, a duly verified
list containing the names and addresses of all shareholders who have demanded
payment for their shares and with whom agreements regarding the value of their
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the petition
shall be accompanied by such duly verified list. The court clerk, if so ordered
by the court, shall give notice of the time and place fixed for the hearing on
the petition by registered or certified mail to the surviving or resulting
corporation and to the shareholders shown on the list at the addresses therein
stated. Notice shall also be given by one or more publications at least one (1)
week before the day of the hearing, in a newspaper of general circulation
published in the City of Oklahoma City, Oklahoma, or other publication as the
court deems advisable. The forms of the notices by mail and by publication
shall be approved by the court, and the costs thereof shall be borne by the
surviving or resulting corporation.
G. At the hearing on the petition, the court shall determine the shareholders
who have complied with the provisions of this section and who have become
entitled to appraisal rights. The court may require the shareholders who have
demanded an appraisal of their shares and who hold stock represented by
certificates to submit their certificates of stock to the court clerk for
notation thereon of the pendency of the appraisal proceedings; and if any
D-4
shareholder fails to comply with this direction, the court may dismiss the
proceedings as to that shareholder.
H. After determining the shareholders entitled to an appraisal, the court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining the fair value,
the court shall take into account all relevant factors. In determining the fair
rate of interest, the court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have to pay
to borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any shareholder entitled to
participate in the appraisal proceeding, the court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon
the appraisal prior to the final determination of the shareholder entitled to
an appraisal. Any shareholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to the provisions of subsection F
of this section and who has submitted the certificates of stock of the
shareholder to the court clerk, if required, may participate fully in all
proceedings until it is finally determined that the shareholder is not entitled
to appraisal rights pursuant to the provisions of this section.
I. The court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the shareholders entitled hereto. Interest may be simple or compound, as the
court may direct. Payment shall be made to each shareholder, in the case of
holders of uncertificated stock immediately, and in the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing the stock. The court's decree may be enforced as
other decrees in the district court may be enforced, whether the surviving or
resulting corporation be a corporation of this state or of any other state.
J. The costs of the proceeding may be determined by the court and taxed upon
the parties as the court deems equitable in the circumstances. Upon application
of a shareholder, the court may order all or a portion of the expenses incurred
by any shareholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all of the shares entitled
to an appraisal.
K. From and after the effective date of the merger or consolidation, no
shareholder who has demanded appraisal rights as provided for in subsection D
of this section shall be entitled to vote the stock for any purpose or to
receive payment of dividends or other distributions on the stock, except
dividends or other distributions payable to shareholders of record at a date
which is prior to the effective date of the merger or consolidation; provided,
however, that if no petition for an appraisal shall be filed within the time
provided for in subsection E of this section, or if the shareholder shall
deliver to the surviving or resulting corporation a written withdrawal of the
shareholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within sixty (60) days after the effective
D-5
date of the merger or consolidation as provided for in subsection E of this
section or thereafter with the written approval of the corporation, then the
right of the shareholder to an appraisal shall cease; provided further, no
appraisal proceeding in the district court shall be dismissed as to any
shareholder without the approval of the court, and approval may be conditioned
upon terms as the court deems just.
L. The shares of the surviving or resulting corporation into which the shares
of any objecting shareholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-6