-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fun8M1alfto78ST3wZAjuSoY95WfAZg6IImexmkLFryffGqY0HI5FsAvDdPkK8NF 1jHVGHnOK+NEdlLVhjQOhw== 0000896058-94-000040.txt : 19940405 0000896058-94-000040.hdr.sgml : 19940405 ACCESSION NUMBER: 0000896058-94-000040 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19940404 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN INDIANA GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000092195 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 350672570 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1 SEC ACT: 35 SEC FILE NUMBER: 070-08407 FILM NUMBER: 94520205 BUSINESS ADDRESS: STREET 1: 20 NW FOURTH ST CITY: EVANSVILLE STATE: IN ZIP: 47741-0001 BUSINESS PHONE: 8124655300 U-1 1 FORM U-1 SOUTHEN INDIANA GAS AND ELECTRIC COMPANY File No. 70- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM U-1 APPLICATION/DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 SOUTHERN INDIANA GAS AND ELECTRIC COMPANY 20 N.W. Fourth Street Evansville, Indiana 47741-0001 ---------------------------------------------------------------------------- (Name of company filing this statement and address of principal executive office) SOUTHERN INDIANA GAS AND ELECTRIC COMPANY ---------------------------------------------------------------------------- (Name of top registered (exempt) holding company parent of applicant or declarant) A.E. GOEBEL 20 N.W. Fourth Street Evansville, Indiana 47741-0001 ---------------------------------------------------------------------------- (Name and address of agent for service) Copies to: John W. Byington, Jr., Esq. Winthrop, Stimson, Putnam & Roberts One Battery Park Plaza New York, New York 10004-1490 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM U-1 APPLICATION/DECLARATION WITH RESPECT TO ACQUISITION OF INTERESTS IN NON-AFFILIATED UTILITY COMPANY UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 INTRODUCTION Southern Indiana Gas and Electric Company, an Indiana corporation ("SIGECO"), the Applicant herein, hereby seeks the approval of the Securities and Exchange Commission (the "Commission") under Sections 9(a)(2) and 10 of the Public Utility Holding Company Act of 1935 (the "Act") for its proposed acquisition of all of the issued and outstanding shares of common stock, par value $10 per share ("Lincoln Common Stock"), of Lincoln Natural Gas Company, Inc. ("Lincoln"), an Indiana public utility corporation engaged in the gas utility business. A wholly-owned subsidiary of SIGECO, Spencer Energy Corp., an Indiana corporation ("Spencer"), will be merged (the "Merger") with and into Lincoln pursuant to an Agreement and Plan of Merger, dated December 23, 1993, among SIGECO, Spencer and Lincoln (the "Agreement"), with Spencer ceasing to exist and Lincoln continuing as the surviving corporation in a transaction qualifying as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended. In the Merger, the holders of Lincoln Common Stock issued and outstanding immediately prior to the Merger would be entitled to receive shares of common stock, without par value, of SIGECO ("SIGECO Common Stock") having a market value of approximately $1,350,000 in accordance with the formula contained in the Agreement, and each share of common stock, no par value ("Spencer Common Stock"), of Spencer issued and outstanding immediately prior to the Merger would be converted into one share of Lincoln Common Stock. The number of shares of SIGECO Common Stock to be exchanged in the transactions will be determined by their average closing market price over a five-day period before the relevant closing date. The transaction is intended to result in the liquidation of Spencer and the survival of Lincoln as a wholly-owned subsidiary of SIGECO. The decision to merge Spencer into Lincoln was made for tax and regulatory reasons. Initially, Lincoln will be maintained as a separate company, but, if appropriate, SIGECO may eventually merge Lincoln into itself. Item 1. DESCRIPTION OF PROPOSED TRANSACTION A. Description of Parties to the Transaction 1. Southern Indiana Gas and Electric Company SIGECO is a publicly held operating public utility incorporated June 10, 1912, under the laws of the State of Indiana, with its principal office located in Evansville, Indiana. SIGECO is engaged in the generation, transmission, distribution and sale of electricity and the purchase of natural gas and its transportation, distribution and sale in a service area which covers ten counties in southwestern Indiana. Its principal executive offices are located at 20 N.W. Fourth Street, Evansville, Indiana 47741-0001. -2- Electric service is supplied directly to Evansville and 74 other cities, towns and communities, and adjacent rural areas. Wholesale electric service is supplied to an additional nine communities. At December 31, 1993, SIGECO served 118,163 electric customers. At December 31, 1993, the SIGECO supplied gas service to 100,398 customers in Evansville and 63 other nearby communities and their environs. In 1993, SIGECO purchased approximately 29% of its natural gas requirements from Texas Gas Transmission Corporation ("TGTC") and Texas Eastern Corporation ("TECO"), its traditional or contract suppliers, and approximately 71% of such requirements from 22 spot market gas suppliers. As of November 1, 1993, TGTC and TECO ceased to be suppliers of natural gas to SIGECO, and SIGECO assumed full responsibility for the purchase of all its natural gas supplies. During 1993, eighteen of SIGECO's major gas customers took advantage of SIGECO's gas transportation program to procure a portion of their gas supply needs from suppliers other than SIGECO. The only property SIGECO owns outside of Indiana is approximately eight miles of 138,000 volt electric transmission line which is located in Kentucky and which interconnects with Louisville Gas and Electric Company's transmission system at Cloverport, Kentucky. The original cost of that property is less than $425,000. SIGECO does not distribute any electric energy in Kentucky. -3- SIGECO also engages in certain other nonutility businesses through its wholly-owned subsidiary, Southern Indiana Properties, Inc. For the twelve months ended December 31, 1993, approximately 79% of SIGECO's total utility operating revenues were derived from its electric operations and approximately 21% from its gas operations. Operating as a public utility under the laws of Indiana, SIGECO is subject to regulation by the Indiana Utility Regulatory Commission (the "IURC") as to its gas and electric rates, services, accounts, depreciation, issuance of securities, acquisitions and sale of utility properties or securities, and in other respects as provided by the laws of Indiana. In addition, SIGECO's wholesale rates and operations are subject to regulation by the Federal Energy Regulatory Commission ("FERC") under the Federal Power Act. The jurisdiction of the FERC does not extend to the issuance of securities by SIGECO since it is a public utility organized and operating in the State of Indiana, under the laws of which its security issuances are regulated by the IURC. SIGECO is a holding company as defined under Section 2(a)(7)(A) of the Act by virtue of SIGECO's ownership of 33% of the capital stock of Community Natural Gas Company, Inc. ("Community"), an Indiana corporation, which is a gas utility company serving customers in southwestern Indiana. SIGECO is exempt under Sections 3(a)(1) and 3(a)(2) of the Act and Rule 2 thereunder from all of the provisions of the Act, except Section -4- 9(a)(2). As more fully discussed in Item 3 below, Section 9(a)(2) provides that unless the acquisition has been approved by the Commission, it shall be unlawful for any person to acquire any security of a public utility company if the acquiring person is, or by virtue of such acquisition will become, an affiliate of such public utility and any other public utility company. 2. Spencer Energy Corp. Spencer, an Indiana corporation, is a wholly-owned subsidiary of SIGECO incorporated for the sole purpose of effecting SIGECO's acquisition of the Lincoln Common Stock and consummating the transactions described herein and is not engaged in any business. Its principal executive offices are located at the offices of SIGECO, 20 N.W. Fourth Street, Evansville, Indiana 47741-0001. 3. Lincoln Natural Gas Company, Inc. Lincoln is a closely held Indiana public utility corporation which owns and operates a gas distribution system in the City of Rockport, Spencer County, Indiana, and surrounding territory. Lincoln serves approximately 1,330 customers in Spencer County in southwestern Indiana and owns, operates, maintains and manages plant, property, equipment and facilities used and useful for the transmission, transportation, distribution and sale of natural gas to the public. Lincoln's gas rates and charges, terms of service, accounting matters, issuance of securities and other operational matters are subject to regulation by the IURC. -5- Lincoln purchases natural gas from American Natural Resources Pipeline Company, a natural gas company, which transports such gas through Indiana by means of an interstate pipeline facility, and from Robinson Engineering, a natural gas company which provides local production gas to Lincoln at its purchase station and spot market gas from various sources. Lincoln's gas service territory is adjacent to SIGECO's gas service territory. Lincoln's principal executive offices are located at 317 Main Street, Rockport, Indiana 47635. B. Description of the Proposed Transaction As previously stated, SIGECO and Lincoln have entered into the Agreement filed herewith as Exhibit B, whereby Spencer will merge with and into Lincoln so that Spencer will cease to exist. In the Merger, the holders of Lincoln Common Stock issued and outstanding immediately prior to the Merger (other than Dissenting Holders, if any, as defined in the Agreement) will be entitled to receive shares of SIGECO Common Stock having an aggregate market value of approximately $1,350,000 in accordance with the formula contained in the Agreement, and each share of Spencer Common Stock issued and outstanding to SIGECO immediately prior to the Merger will be converted into one share of Lincoln Common Stock. Any shares of Lincoln Common Stock held in treasury by Lincoln at the effective time of the Merger will be canceled. At the effective time of the Merger, therefore, SIGECO will own all of the Lincoln Common Stock and Lincoln will survive as a wholly-owned subsidiary of SIGECO. Consummation of the -6- transactions contemplated by the Agreement is subject to, among other conditions, the approval of the Commission. After the consummation of the Merger, Lincoln will continue to operate as a gas utility company as a separate subsidiary of SIGECO. The "effective time" of the Merger will be the date of filing of the Certificate of Merger with the Indiana Secretary of State pursuant to the Indiana Business Corporation Law. SIGECO expects to consummate the Merger as soon as possible after all regulatory approvals and other conditions precedent contained in the Agreement have been fulfilled or waived. SIGECO and Lincoln have filed a joint petition to the IURC requesting authority for the acquisition and merger. A copy of the IURC Order will be filed as Exhibit D-2 when issued. The Agreement will be approved by a vote of the holders of Lincoln Common Stock. Lincoln has 23 shareholders and is not a public company. To date, there are no dissenters to the transaction. The names of all persons holding 1% or more of Lincoln Common Stock are set forth in Exhibit B-6. C. Reasons for the Transaction The Boards of Directors and managements of SIGECO and Lincoln believe that the added capabilities that will result from the proposed transaction will afford additional benefits and economies which would otherwise not be possible. These benefits will be derived from improved long-term planning, the use by Lincoln of certain management services and technical expertise -7- of SIGECO which would otherwise have to be obtained from third parties, and increased coordination and utilization of facilities. The result will be greater efficiency and better service for Lincoln's customers over the long term while SIGECO and its customers are also expected to benefit from the spread of fixed gas utility costs over a larger customer base and greater utility efficiencies created by a larger but still very manageable gas operation. The transaction is expected to present opportunities for economies of scale by, among other operating benefits, centralized meter repair, reduced gas cost by larger volume gas purchases, greater efficiency and economy in management, administration, insurance, training, engineering, purchasing, human relations and computerization. Following the effective time of the Merger, Lincoln will be operated as a separate subsidiary of SIGECO. Lincoln is a well-managed and efficient company, respected in its local community. It experiences competitive disadvantages, however, due to its comparatively small size, which can be alleviated by integration and coordination with the SIGECO system. For example, it is SIGECO's intention that the size and financial strength of SIGECO and its access to capital from a variety of sources at competitive rates will be used to benefit Lincoln when Lincoln needs debt financing for improvements and extension of facilities over the long term. In addition, the transaction will provide Lincoln greater gas supply opportunities and security by providing access to SIGECO's expertise in supply planning and acquisition, transportation and storage functions. SIGECO -8- believes that the benefits and opportunites discussed above will be realized whether or not Lincoln is subsequently merged into SIGECO. The Merger is intended to qualify as a tax-free reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended. SIGECO believes that retaining Lincoln as a separate subsidiary will facilitate utility operations, assure the tax-free nature of the transaction, and still achieve the essential economies obtainable from an outright merger of Lincoln into SIGECO. No associate company or affiliate of SIGECO or any affiliate of any such associate company has any material interest in the proposed transaction. Item 2. FEES, COMMISSIONS AND EXPENSES (a) SIGECO anticipates that it will retain the services of law, accounting and engineering firms, and possibly other consultants, in connection with the proposed acquisition of Lincoln Common Stock, but it cannot yet estimate the amount of the fees that will be involved. At such time as it becomes possible to make a statement of such fees, this statement will be submitted by amendment to this Application. Pursuant to the Agreement, SIGECO and Lincoln have each agreed that each party will pay all costs and expenses incurred by it in connection with the proposed transaction whether or not consummated. (b) Not applicable. -9- Item 3. APPLICABLE STATUTORY PROVISIONS It is believed that Sections 9(a) and 10 of the Act are applicable to the proposed transactions. To the extent that the proposed transactions are considered by the Commission to require authorization, approval or exemption under any section of the Act or provision of the rules or regulations thereunder other than those specifically referred to herein, request for such authorization, approval or exemption is hereby made. SIGECO is a holding company but is predominantly an operating public utility. SIGECO and its utility subsidiaries are intrastate in character and carry on their business in Indiana, the state of their incorporation. Therefore, under Sections 3(a)(1) and 3(a)(2) of the Act and Rule 2 thereunder, SIGECO is exempt from all the provisions of the Act, except for Section 9(a)(2) which requires Commission approval of SIGECO's proposed acquisition of Lincoln Common Stock under the standards set forth pursuant to Section 10(b), (c) and (f) of the Act. A. Section 10(b) Analysis Under Section 10(b), the Commission shall approve the acquisition of Lincoln by SIGECO unless it finds that: (1) such acquisition will tend towards interlocking relations or the concentration of control of public-utility companies, of a kind or to an extent detrimental to the public interest or the interest of investors or consumers; (2) in case of the acquisition of securities or utility assets, the consideration, including all fees, commissions, and other remuneration, to whomsoever paid, to be given, directly or indirectly, in connection with such acquisition is not reasonable or does not bear a fair relation to the sums invested in or the earning capacity of -10- the utility assets to be acquired or the utility assets underlying the securities to be acquired; or (3) such acquisition will unduly complicate the capital structure of the holding-company system of the applicant or will be detrimental to the public interest or the interest of investors or consumers or the proper functioning of such holding-company system. 1. Section 10(b)(1) The pro forma financial statements attached hereto demonstrate that the acquisition of Lincoln will increase SIGECO's total operating revenues by less than .3%, gas operating revenues by less than 1.5% and total assets by less than 0.1%. By virtue of the size of Lincoln and the small nature of this transaction, interlocking relations or a concentration of control of public utility companies of a kind detrimental to the public interest or the interest of investors or consumers is unlikely to occur. In addition, the proposed transaction will not tend towards the concentration of control of public utilities to an extent detrimental to the public interest or the interest of investors or consumers since SIGECO and Lincoln operate exclusively in Indiana and will be regulated by the IURC. Given that other large gas distribution companies exist in Indiana, including Indiana Gas Company, Inc. which supplies gas to over 422,000 customers, Citizens Gas & Coke Utility which supplies gas to over 235,000 customers and Northern Indiana Public Service Company which supplies gas to over 680,000 customers, the acquisition by SIGECO of Lincoln and Lincoln's 1,330 customers is not a transaction for which an adverse finding under Section 10(b)(1) should be made by the Commission. This is -11- especially true in light of the fact that SIGECO serves over 100,000 gas customers, and the addition of Lincoln's 1,330 customers is less than a 1.3% increase in SIGECO's total gas customer base. Due to the existence of other gas distribution companies in Indiana, the relatively small nature of the transaction in terms of consumers involved and continuing state regulation of the provision of gas services to customers in Indiana, the acquisition of Lincoln by SIGECO will not hinder or foreclose competition in Indiana to the detriment of consumers, nor will it result in a concentration of control of public utility companies that is detrimental to the public interest or the interest of investors or consumers. 2. Section 10(b)(2) Section 10(b)(2), as applied to this transaction, provides that the Commission shall approve the transaction unless it finds that the consideration paid by SIGECO to the shareholders of Lincoln is not reasonable or does not bear a fair relation to the earning capacity of the utility assets underlying the Lincoln Common Stock. The consideration in the acquisition of the Lincoln Common Stock, consisting of shares of SIGECO Common Stock, is approximately $1,350,000. The purchase price to be paid by SIGECO was the result of arm's length negotiations between the senior management of SIGECO and Lincoln, and SIGECO believes that it is reasonable and bears a fair relation to the assets and earnings of Lincoln. The Board of Directors of SIGECO and -12- Lincoln approved the transaction in meetings on December 21, 1993 and December, 13, 1993, respectively. The Agreement will be presented to the Lincoln shareholders for their approval at a shareholders meeting prior to June 30, 1994. The consideration to be paid by SIGECO reflects SIGECO's objective to offer a sum reasonable in relation to the expected value to SIGECO's shareholders arising from the transaction, but yet a sum sufficient to secure the approval of the shareholders of Lincoln. In offering this consideration, SIGECO assumes that it will achieve the economic benefits of the transaction discussed under Item 1 above sufficient to justify the consideration. It has been common practice in previous transactions reviewed by the Commission under Section 10(b)(2) to examine the consideration to be paid in light of its relation to net income, book value and cash flow of the company being acquired. Based on a price of $143 per share of Lincoln Common Stock ($1,350,000/9,417 shares), the multiple of price to book value of Lincoln at December 31, 1993 ($52.90 per share) is 2.71 times. Since Lincoln posted a net operating loss and negative cash flow for the twelve months ended December 31, 1993 (see the financial statements attached hereto), resulting multiples of price to net income and cash flow are negative. It should be pointed out, however, that on March 9, 1994 Lincoln was granted a rate increase by the IURC, effective as of that date, which increased rates 10.39% across-the-board and is expected to result in a concomitant improvement in its earnings. In negotiating and -13- determining a fair price for Lincoln, SIGECO took into account the then pending rate case and its potential effect on Lincoln's net income. Assuming Lincoln net income of approximately $70,000 per year after the rate increase is effective, the price to be paid would amount to a multiple of approximately 20 times such pro forma net income. In addition, subsequent savings from the acquisition will only serve to further reduce such multiple on a pro forma basis. Although SIGECO has not independently verified such information, it is SIGECO's understanding that multiples of price paid to net income and book value in other acquisitions in the gas utility industry approved by the Commission since 1987 fall in the range of 15.6 to 37.7 times and 1.8 to 3.0 times, respectively. SIGECO believes that a price to book value multiple of 2.71 times and a price to pro forma net income multiple (taking into account the recent rate increase for Lincoln as discussed above) of approximately 20 times puts the proposed acquisition of Lincoln squarely within the range of multiples seen in those other acquisitions, further indicating, therefore, the fairness and reasonableness of the consideration to be paid by SIGECO for Lincoln. Also significant is that Lincoln shareholders, as a result of the proposed transaction, will receive shares of SIGECO Common Stock which are listed on the New York Stock Exchange, thus providing the Lincoln shareholders with a public market for their securities that they do not have as Lincoln shareholders. -14- Finally, the consideration is justified by SIGECO because it provides SIGECO the opportunity to provide gas service in an area where it already provides retail electric service and it provides SIGECO the franchise rights to a service area which SIGECO believes has excellent prospects for industrial development and economic expansion. Based on the foregoing analyses and observations, SIGECO believes that the consideration (including all fees paid in connection with the transaction) to be paid for the Lincoln Common Stock is reasonable and bears a fair relation to the earnings capacity of the utility assets underlying the Lincoln Common Stock. Accordingly, the consideration to be paid by SIGECO meets the standards of Section 10(b)(2). 3. Section 10(b)(3) The acquisition by SIGECO of the Lincoln Common Stock will neither unduly complicate the capital structure of the SIGECO holding company system nor be detrimental to the public interest or the interest of investors or consumers or the proper functioning of the SIGECO holding company system. The only structural changes will be the addition of Lincoln as a subsidiary of SIGECO and the increased number of shareholders of SIGECO resulting from the exchange of SIGECO common stock for each share of Lincoln Common Stock. As a result of such exchange, SIGECO will issue approximately 45,000 treasury shares. This will increase SIGECO's total common shareholders' equity by only 0.3% (see the pro forma financial statements attached -15- hereto). The debt to equity ratio of SIGECO also will not change significantly as a result of the transaction. As of December 31, 1993, SIGECO's ratio of long-term debt to total capitalization was approximately 50.13%, as compared to 50.08% on a pro forma basis (see the pro forma financial statements attached hereto). These slight changes will result in no detriment to the public interest or the interest of investors or consumers or the proper functioning of the SIGECO holding company system. An additional element under Section 10(b)(3) of the Act is whether, as a combined electric and gas utility, the expansion of SIGECO's gas operations as a result of the acquisition would be detrimental to the public interest or the interest of investors or consumers. The Commission has directly addressed this issue in Dominion Resources, Inc., Release No. 35- 24618 (April 5, 1988), 40 S.E.C. Docket 847. In Dominion Resources, the Commission took the position that where there is "affirmative state regulation over the activities of a combination company otherwise entitled to an exemption under Section 3(a) from the provisions of the Act, we need not find . . . that permitting retention of the combined operations would be detrimental to the public interest or the interest of investors or consumers." Id. at 849. The SIGECO system is, and the combined SIGECO/Lincoln system that would result from the acquisition would be, subject to extensive regulation by the IRUC. Indiana law allows the IURC to oversee day-to-day operations of Indiana utilities and to review intrasystem transactions and affiliations to insure that they are operated in a manner that is beneficial to ratepayers. -16- Accordingly, the expansion of the SIGECO gas operations would not be detrimental to the public interest or the interest of investors or consumers. Therefore, the standards under Section 10(b)(3) are satisfied. B. Section 10(c) Analysis Section 10(c) of the Act provides that the Commission shall not approve the acquisition of securities if such acquisition would result in certain conditions: Notwithstanding the provisions of subsection (b), the Commission shall not approve: (1) an acquisition of securities or utility assets, or of any other interest, which is unlawful under the provisions of Section 8 or is detrimental to the carrying out of the provisions of Section 11; or (2) the acquisition of securities or utility assets of a public utility or holding company unless the Commission finds that such acquisition will serve the public interest by tending towards the economical and the efficient development of an integrated public utility system . . . . 1. Section 10(c)(1) Consistent with the standards set forth in Section 10(c)(1) of the Act, the proposed acquisition of securities will not be unlawful under the provisions of Section 8 of the Act (inasmuch as Section 8 applies only to registered holding companies and, in any event the acquisition is subject to the prior approval of the IURC), or detrimental to the carrying out of the provisions of Section 11 of the Act, which also applies, by its terms, only to registered holding companies. -17- Section 11(a) of the Act requires the Commission to examine the corporate structure of registered holding companies to ensure, inter alia, that unnecessary complexities are eliminated and voting powers are fairly and equitably distributed. The proposed acquisition of securities meets the standards of Section 11(a) of the Act. As discussed with respect to the requirements of Section 10(b)(3) of the Act, supra, the proposed transaction, having the effect of adding a gas distribution operating company to the SIGECO system, will result in a very simple structure and, as such, will be consistent with the provisions of Section 11. Further, SIGECO will acquire all of the outstanding Lincoln Common Stock so that there will be no minority interest in Lincoln. 2. Section 10(c)(2) Section 10(c)(2) of the Act provides that the Commission shall not approve the acquisition of securities of a public utility unless the Commission finds that "such acquisition will serve the public interest by tending towards the economical and the efficient development of an integrated public-utility system . . . ." The acquisition is beneficial to all the parties involved, as well as to investors and the public. a. Economics and Efficiencies The acquisition will tend toward certain economies and efficiencies, affording Lincoln access to developing gas-related technologies and purchasing opportunities that, without the -18- acquisition, Lincoln would not have the financial ability to access. Moreover, while Lincoln's increased strength as a result of the acquisition will allow Lincoln to enhance its implementation of conservation programs and to more readily comply with new and existing environmental standards, the acquisition will similarly allow Lincoln to expand its operations and allow SIGECO to expand its investment in the retail gas business. Although Lincoln will be a separate wholly-owned subsidiary of SIGECO, the companies will be operated as an integrated public-utility system. After the acquisition, SIGECO will make gas-supply purchases for both companies. Other aspects of the Lincoln system will be operated by SIGECO pursuant to service agreements (i.e., legal, financial, accounting, engineering, maintenance and other services). The above-described benefits are those that will immediately inure to the companies as a result of the acquisition. The benefits associated with the integrated system that will be created by the acquisition, however, go further. The ability of Lincoln to access the SIGECO system should result in what are not quantifiable cost savings. A substantial part of these cost savings will inure to the benefit of ratepayers of both companies. Moreover, the addition of the Lincoln service territory to the SIGECO system may increase the value of SIGECO Common Stock and thus benefit SIGECO's shareholders. In light of these cost savings and various efficiencies, the requirements of the economical and efficient -19- development of an integrated utility system of Section 10(c)(2) of the Act will clearly be met. b. Integration As applied to gas utility companies, the term "integrated public utility system" is defined in Section 2(a)(29)(b) of the Act as: a system consisting of one or more gas utility companies which are so located and related that substantial economies may be effectuated by being operated as a single coordinated system confined in its operations to a single area or region, in one or more States, not so large as to impair (considering the state of the art and the area or region affected) the advantages of localized management, efficient operation, and the effectiveness of regulation: Provided, that gas utility companies deriving natural gas from a common source of supply may be deemed to be included in a single area or region. On the basis of this statutory definition, the Commission has established certain standards that must be met before the Commission will find that an integrated public-utility system will result from a proposed acquisition of securities: (1) the companies are so located and related that substantial economies may be effected by being operated as a single coordinated system; (2) the operations of the system are confined to a in single area or region; and (3) the system must not be so large as to impair the advantages of localized management, efficient operation, and the effectiveness of regulation. Single Coordinated System. SIGECO and Lincoln can easily be operated as a single coordinated system with operations confined to a single area and region since the gas service areas of the two utilities are adjacent. (See Map showing respective service areas of SIGECO and Lincoln, attached hereto as -20- Exhibit E.) In addition, as the discussion under Section 10(c)(2) above explains, substantial economies may be effected as a result of the acquisition. Single Area or Region. As the Map in Exhibit E clearly shows, the "single coordinated system" of SIGECO and Lincoln would be confined in its operations to a single area or region in southwestern Indiana. Lack of Impairment. Finally, the effectiveness of regulation will not be diminished; SIGECO and Lincoln will each remain subject to regulation and oversight by the IURC. Further, SIGECO will continue to qualify as an exempt utility under Section 3(a)(2) of the Act subsequent to the acquisition. In addition, since headquarters will remain in Indiana, the advantages of localized management will not be compromised. C. Conclusion In sum, no basis exists for the Commission to find that the standards of Section 10(b) preclude approval of the acquisition. The acquisition will neither unduly complicate the capital structure of the SIGECO system nor be detrimental to the public interest, the interest of investors or consumers or the proper functioning of the SIGECO system. No complexities proscribed by Section 10(b)(3) will result. Further, standards under Section 10(c)(2) and Section 10(b)(3) are satisfied, and the requirements of Rule 51 have been satisfied. Based on the foregoing, SIGECO respectfully requests that the Commission issue an order approving the acquisition by -21- SIGECO of all of the Lincoln Common Stock and the acquisition itself pursuant to the Agreement, all as described herein. Item 4. REGULATORY APPROVAL (a) The Commission and the IURC have jurisdiction over the transaction proposed in this Application. SIGECO is subject to the jurisdiction of the IURC, as is Lincoln. (b) SIGECO and Lincoln have filed a joint petition with the IURC for authority to consummate the transaction. Item 5. PROCEDURE (a) SIGECO requests the Commission to take action on this Application by May 19, 1994 or as soon thereafter as is practicable. (b) SIGECO requests that Commission action on this Application be taken without a recommended decision by a hearing officer or any other responsible officer of the Commission, and that there be no waiting period between the issuance of the Commission's order and the date upon which its is to become effective. It is requested that the Commission's order with respect to this Application become effective immediately upon being entered. The Commission's Division of Corporate Regulation may assist in the preparation of the Commission's decision with respect to this Application unless such Office opposes this Application. -22- Item 6. EXHIBITS AND FINANCIAL STATEMENTS The following exhibits and financial statements are filed as a part of this Application: (a) Exhibits A-1* Amended Articles of Incorporation of SIGECO, as amended March 26, 1985. (Physically filed and designated in Form 10-K for the fiscal year 1985, File No. 1-3553, as Exhibit 3-A.) Articles of Amendment of the Amended Articles of Incorporation of SIGECO, dated March 24, 1987. (Physically filed and designated in Form 10-K for the fiscal year 1987, File No. 1-3553, as Exhibit 3-A.) Articles of Amendment of the Amended Articles of Incorporation of SIGECO, dated November 27, 1992. (Physically filed and designated in Form 10-K for the fiscal year 1992, File No. 1-3553, as Exhibit 3-A.) A-2 Articles of Incorporation of Spencer, as filed with the Secretary of State, State of Indiana. A-3 Articles of Incorporation of Lincoln, as filed with the Secretary of State, State of Indiana. B-1 Letter of Intent dated November 19, 1993. B-2 Agreement and Plan of Merger, dated as of December 23, 1993. B-3 Right of First Refusal Agreement, dated December 23, 1993. B-4 Indemnity Agreement, dated as of December 23, 1993. B-5 Letter Agreement, dated as of December 23, 1993, regarding certain employee matters. B-6 Names and shareholdings of stockholders of Lincoln holding 1% or more of Lincoln Common Stock. D-1 Joint Petition of SIGECO and Lincoln to the Indiana Utility Regulatory Commission. D-2 Order of Indiana Utility Regulatory Commission. (To be filed by amendment.) -23- E Map showing geographical relationship of properties of SIGECO and Lincoln. (Filed in paper form under Form SE pursuant to Instruction E to Form U-1 Instructions to Exhibits.) F Opinion of counsel to SIGECO. (To be filed by amendment.) H Proposed Notice of Application. * Incorporated by reference. (b) Financial Statements 1. Southern Indiana Gas and Electric Company Pro Forma Combined Condensed Balance Sheet of as of December 31, 1993 and Pro Forma Combined Condensed Statement of Income as of December 31, 1993, with summary of pro forma adjustments. 2. Lincoln Natural Gas Company, Inc. financial statements for the year ended December 31, 1993. 3. Lincoln Natural Gas Company, Inc. financial statements for the years ended December 31, 1992 and 1991. Item 8. INFORMATION AS TO ENVIRONMENTAL EFFECTS (a) The proposed transaction covered by this Application will not have any impact on the quality of the environment because such transaction contemplates only the acquisition of Lincoln Common Stock. (b) To the best of SIGECO's knowledge, no federal agency has prepared or is preparing an environmental impact statement with regard to the proposed transaction covered by this Application. -24- SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned, as Applicant, has duly caused this statement to be signed on its behalf by the undersigned thereunto duly authorized. Date: March 30, 1994 SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /s/ A.E. GOEBEL ------------------------------------- A.E. Goebel Senior Vice President, Chief Financial Officer, Secretary and Treasurer -25- EX-3 2 EXHIBIT A-2 SOUTHERN INDIANA GAS AND ELECTRIC CO. Exhibit A-2 ----------- ARTICLES OF INCORPORATION State Form 4159 (R6/3-88) ARTICLES OF INCORPORATION OF Spencer Energy Corp. The undersigned desiring to form a corporation (hereinafter referred to as "Corporation") pursuant to the provisions of: Indiana Business Corporation Law As amended, executes the following Articles of Incorporation: ARTICLE I NAME Name of Corporation Spencer Energy Corp. ARTICLE II REGISTERED OFFICE AND AGENT (The street address of the corporation's initial registered office in Indiana and the name of its initial registered agent at that office is:) Name of Agent A. E. Goebel Street Address of Registered Office Zip Code 20-24 N.W. Fourth Street, Evansville, IN 47708 ARTICLE III AUTHORIZED SHARES Number of shares: one thousand (1000) ARTICLE IV INCORPORATORS (The name(s) and address(es) of the incorporator(s) of the corporation:) NUMBER AND STREET OR NAME BUILDING CITY STATE ZIP CODE A. E. Goebel 20-24 N.W. Fourth St. Evansville IN 47708 In Witness Whereof, the undersigned being all the incorporators of said corporation execute these Articles of Incorporation and verify, subject to penalties of perjury, that the statements contained herein are true, this 24th day of November 1993. Signature Printed Name /s/A. E. Goebel A. E. Goebel This instrument was prepared by (Name) Robert M. Becker, Attorney-At-Law Address (Street, Number, City and State) Zip Code Post Office Box 657, Evansville, IN 47704 -2- EX-3 3 EXHIBIT A-3 SOUTHERN INDIANA GAS AND ELECTRIC CO. EXHIBIT A-3 COMPOSITE COPY OF ARTICLES OF INCORPORATION OF LINCOLN NATURAL GAS COMPANY, INC. The undersigned incorporators, desiring to form a corporation (hereinafter referred to as the "Corporation") pursuant to the provisions of The Indiana General Corporation Act, as amended (hereinafter referred to as the "Act"), execute the following Articles of Incorporation. ARTICLE I Name The name of the Corporation is Lincoln Natural Gas Company, Inc. ARTICLE II Purposes The purposes for which the Corporation is formed are: The purchase, distribution and sale of natural gas and/or liquified petroleum gases and transportation of non-Company owned gas in Spencer County, Indiana and adjacent and contiguous territory. ARTICLE III Term of Existence The period during which the Corporation shall continue is perpetual. ARTICLE IV Principal Office and Resident Agent The post-office address of the principal office of the Corporation is Rockport, Indiana and the name and post-office address of its Resident Agent in charge of such office is James O. Martin, Rockport, Indiana. ARTICLE V Amount of Capital Stock The total number of shares into which the authorized capital stock of the Corporation is divided is ten thousand shares consisting of _____ shares with the par value of $10.00 per share, and _____ shares without par value. ARTICLE VI Terms of Capital Stock All shares of stock in the corporation shall be common stock and shall be of one class. ARTICLE VII Voting Rights of Capital Stock All shares to have equal voting rights. ARTICLE VIII Paid-in Capital The amount of paid-in capital, with which the Corporation is beginning business, is $1,000.00 ARTICLE IX Data Respecting Directors Section 1. Number. The number of Directors shall be seven (7). Section 2. Qualifications. Directors shall be shareholders of the Corporation. A majority of the Directors at any time shall be citizens of the United States. - 2 - ARTICLE X Further Data Respecting Directors Section 1. Names and Post-Office Addresses. The names and post- office addresses of the first Board of Directors of the Corporation are as follows: Number and Street Name or Building City Zone State ---- ---------------- ---- ---- ----- James O. Martin Washington St. Road Rockport Indiana Martel Saltsman 117 Eighth Street Owensboro Kentucky Ralph Bigger 2125 Westview Owensboro Kentucky Theresa L. Martin Washington St. Road Rockport Indiana A.B. Swinney Tipton Indiana Section 2. Citizenship. All of such Directors are citizens of the United States. ARTICLE XI Data Respecting Incorporators Section 1. Names and Post-Office Addresses. The names and post-office addresses of the incorporators of the Corporation are as follows: Number and Street Name or Building City Zone State ---- ------------------ ---- ---- ----- James O. Martin Washington St. Road Rockport Indiana Martel Saltsman 117 Eighth Street Owensboro Kentucky Theresa L. Martin Washington St. Road Rockport Indiana Section 2. Age and Citizenship. All of such incorporators are of lawful age; and all of such incorporators are citizens of the United States. - 3 - Section 3. Compliance with Provisions of Sections 15 and 16 of the Act. The undersigned incorporators hereby certify that the person or persons intending to form the Corporation first caused lists for subscriptions to the shares of the capital stock of the Corporation to be opened at such time and place as he or they determined; when such subscriptions had been obtained in an amount not less than $1,000, such person or persons, or a majority of them, called a meeting of such subscribers for the purpose of designating the incorporators and of electing the first Board of Directors; the incorporators so designated are those named in Section 1 of this Article; and the Directors so elected are those named in Section 1 of Article X. ARTICLE XII Provisions for Regulation of Business and Conduct of Affairs of Corporation The corporate business shall be conducted in conformity with such By-Laws as shall from time to time be adopted by said corporation and the laws of the State of Indiana governing the same. IN WITNESS WHEREOF, the undersigned, being all of the incorporators designated in Article XI, execute these Articles of Incorporation and certify to the truth of the facts herein stated, this 31st day of August, 1955. /s/ JAMES O. MARTIN ----------------------------------- (Written Signature) JAMES O. MARTIN ----------------------------------- (Printed Signature) /s/ MARTEL SALTSMAN ----------------------------------- (Written Signature) MARTEL SALTSMAN ----------------------------------- (Printed Signature) /s/ THERESA L. MARTIN ----------------------------------- (Written Signature) THERESA L. MARTIN ----------------------------------- (Printed Signature) - 4 - STATE OF INDIANA ) : ss.: COUNTY OF SPENCER) I, the undersigned, a Notary Public duly commissioned to take acknowledgments and administer oaths in the State of Indiana, certify that James O. Martin, Martel Saltsman and Theresa L. Martin, being three of the incorporators referred to in Article XI of the foregoing Articles of Incorporation, personally appeared before me; acknowledged the execution thereof; and swore to the truth of the facts therein stated. WITNESS my hand and Notarial Seal this 31st day of August, 1955. /s/ GLADYS MARTIN ----------------------------------- (Written Signature) GLADYS MARTIN ----------------------------------- (Printed Signature) Notary Public My commission expires January 1, 1958 _____________________________________ EX-2 4 EXHIBIT B-1 SOUTHERN INDIANA GAS AND ELECTRIC CO. EXHIBIT B-1 [Letterhead of SOUTHERN INDIANA GAS AND ELECTRIC COMPANY] November 16, 1993 CONFIDENTIAL - BY HAND - ---------------------- Mr. James O. Martin Lincoln Natural Gas Company, Inc. 312 Main Street Rockport, IN 47635 Re: Proposal of Southern Indiana Gas and Electric Company to Acquire Lincoln Natural Gas Company, Inc. -------------------------------------------------------- Dear Mr. Martin: This letter sets forth a proposal by Southern Indiana Gas and Electric Company ("Sigeco") for acquisition of Lincoln Natural Gas Company, Inc. ("Lincoln"). Sigeco has been very interested in Lincoln as a strategic addition to Sigeco's business for some time, as indicated in prior communications with you. As yet, we have not had an opportunity to conduct an acquisition investigation or appraisal of Lincoln in formulating this proposal, however we have carefully reviewed available public information. Sigeco believes it is in a unique position to provide maximum value for the shareholders of Lincoln. Our proposal will expire, if not accepted, by the close of business on November 23, 1993. Subject to the foregoing, the terms and conditions of Sigeco's proposal are as follows: 1. The consideration to be paid by Sigeco for Lincoln would consist of common stock of Sigeco with a value equal to $1000 times the number of customers served by Lincoln at the date of closing of the transaction (i.e. - one thousand dollars per active, current and good standing customer). For this purpose, Sigeco common stock will be valued at the average closing price of its common stock as traded on the New York Stock Exchange for the last five trading days preceding the closing date of the transaction. Based upon information contained in public documents filed by Lincoln, the cash equivalent offered for Lincoln by Sigeco would presently be approximately $1,277,000.00. 2. The acquisition of Lincoln would be intended to qualify as a tax-free reorganization under Section 368 of the Internal Revenue Code to the extent the consideration is paid in shares of Sigeco common stock. The acquisition is presently planned as a merger of a subsidiary of Sigeco into Lincoln. 3. Consistent with the intention that the acquisition would qualify as a pooling-of-interest for accounting purposes, all of the consideration paid for Lincoln would be in common stock of Sigeco except for fractional shares. 4. The information in this letter shall be kept confidential. No press releases shall be issued, nor shall the existence of or terms of this letter be disclosed to third parties, other than the representatives of the parties, without the mutual consent of Lincoln and Sigeco. Lincoln and Sigeco will agree upon the timing and nature of the announcement of the transaction to employees of Lincoln and Sigeco. 5. Lincoln agrees, effective with the date of acceptance of this letter, not to solicit offers or negotiate, or to permit its representatives to solicit offers or negotiate, from or with any other person or entity for the sale of all or any portion of the equity in or the assets and business of Lincoln (other than with respect to sales in the ordinary course of business and disposition of non-material assets) so long as Sigeco and Lincoln are engaged in discussing or negotiating terms of the proposed transaction. 6. The principal shareholders of Lincoln would agree to grant Sigeco the right of first refusal prior to any sale or offer to sell any of such shares to a third party. 7. The definitive agreements to be entered into will include customary representations and warranties, which will survive the closing, with respect to Lincoln and its respective businesses, properties, business prospects, assets, liabilities and financial condition. Representations and warranties will be included with respect to financial statements, regulatory compliance, the absence of undisclosed or contingent financial and operating liabilities, the good operating condition and proper maintenance of utility plant and equipment, the absence of unusual labor or personnel problems and the absence of environmental problems, as well as such other representations and warranties as may be necessary or proper as a result of Sigeco's review of the business and assets of Lincoln as contemplated by Paragraph 11. 8. The principal shareholders of Lincoln would agree to indemnify Sigeco from any and all costs, liabilities and damages resulting from: - 2 - (a) breach of the representations and warranties set forth in the definitive agreements; (b) liability under any pension or benefit plans of Lincoln; and (c) liability for violations of law, including environmental laws. 9. The transaction would be conditioned, among other things, upon satisfaction of certain conditions at or prior to the closing, including: (a) approval of the transaction by the boards of directors of Sigeco and Lincoln within 60 days after acceptance of this proposal and by the shareholders of Lincoln; (b) completion by Sigeco's representatives of a full financial, environmental and operations review and appraisal, including a review by Sigeco's independent public accountants of Lincoln and confirmation to Sigeco's satisfaction that the representations and warranties made by Lincoln are true in all material respects; (c) negotiation, execution and delivery of the definitive agreements and other necessary documents; (d) obtaining all consents required, if any, for the continued validity of all contracts, franchises, deeds, easements, intangibles and other rights and entitlements necessary for the continued operation of Lincoln's businesses, after closing of the transaction, on the same basis as presently operated; (e) making all required applications and filings with governmental agencies and obtaining all necessary governmental approvals and consents, including the approval of the Indiana Utility Regulatory Commission ("IURC") and the Securities and Exchange Commission ("SEC"); (f) no material adverse change in the financial condition, assets, liabilities (contingent or otherwise), results of operations, business or business prospects of Lincoln since the date of the most recent (unaudited) financial statements delivered to Sigeco prior to execution of the definitive agreements and no - 3 - material change in the manner of conducting the business of Lincoln from the manner in which such business is presently conducted; (g) the filing with the SEC and effectiveness of a Registration Statement covering the shares of Sigeco stock to be issued in the transaction and approval of the common stock, if so requested, for listing on the New York Stock Exchange, together with all other required regulatory approvals, orders and authority necessary to accomplish and complete the transaction as contemplated by this proposal. 10. The proposal takes into account Lincoln's present cash and retained earnings, and Lincoln agrees not to take any action that will dilute or diminish its current financial position including, but not limited to, the declaration of dividends, liquidation of assets, payment of increased compensation, bonuses or pensions, agreement to make or contract for future payments, issuance of additional stock, warrants or options, or any other disbursement of cash on hand or retained earnings. 11. Upon acceptance of Sigeco's proposal by execution of this letter, it is agreed that Sigeco and its representatives may conduct an investigation of Lincoln to evaluate the basis for the acquisition referred to herein. Such investigation by Sigeco will include review of all the books, records and business affairs related to Lincoln at Sigeco's expense; a review of Lincoln by Sigeco's independent accountants at Sigeco's expense; and such appraisals, at Sigeco's expense, as Sigeco may wish to make. 12. Information concerning Lincoln or its affiliates disclosed to Sigeco, its affiliates or representatives and information concerning Sigeco or its affiliates disclosed to Lincoln, or its affiliates or representatives, which has not been publicly disclosed shall be kept strictly confidential and shall not be disclosed or used by the recipients whether or not the closing occurs. Once the transaction is completed and publicly disclosed, then information may be released pursuant to Sigeco authorization. In the event that a definitive agreement is not signed by January 31, 1994, all documents, if any, of a confidential nature, and copies thereof delivered by Lincoln to Sigeco, its affiliates or representatives or delivered by Sigeco to Lincoln, its affiliates or representatives, shall be immediately returned, unless the said deadline is extended by mutual agreement. 13. Each of the parties hereby agrees that, whether or not the proposed transaction outlined herein is ever consummated, it will pay its own (and its representatives') respective fees - 4 - and expenses incurred in connection with the negotiation, preparation, execution and delivery of this letter and of the definitive agreements and any other agreements or documents contemplated thereby. 14. Upon acceptance of this proposal, the parties will all fully cooperate with each other and take all steps necessary or appropriate to consummate the transaction contemplated hereby, pursuant to approval of the IURC and any other regulatory agencies, as expeditiously and economically as possible. By executing this letter, the parties confirm their intentions specified herein with respect to the proposed transaction. In the event the parties fail to execute and deliver a definitive agreement by January 31, 1994, unless extended by mutual agreement of the parties, then this letter of intention shall terminate automatically (except for the provisions of Paragraphs 4, 12 and 13 as aforesaid) without liability on the part of any party and without further action by the parties. If Sigeco's proposal is acceptable to you, kindly so indicate on behalf of Lincoln by executing the enclosed copy of this letter in the space provided below and returning it to the undersigned. The execution of this letter on behalf of Lincoln has been approved by a majority of the directors of Lincoln acting individually but not at a formal meeting. Yours very truly, SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /s/ Ronald G. Reherman ------------------------------ Ronald G. Reherman Chairman, President and CEO Agreed and Accepted this 17th day of November, 1993, on behalf of: LINCOLN NATURAL GAS COMPANY, INC. By: /s/ James O. Martin --------------------------- James O. Martin - 5 - EX-2 5 EXHIBIT B-2 SOUTHERN INDIANA GAS AND ELECTRIC CO. EXHIBIT B-2 ================================================================= AGREEMENT AND PLAN OF MERGER among SOUTHERN INDIANA GAS & ELECTRIC COMPANY SPENCER ENERGY CORP., and LINCOLN NATURAL GAS COMPANY, INC. Dated as of December 23, 1993 ================================================================= TABLE OF CONTENTS ARTICLE I THE MERGER Page ---- 1.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . 2 1.3 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . 2 1.4 Directors and Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES 2.1 Manner of Converting Shares . . . . . . . . . . . . . . . . . . . . 3 (a) Capital Stock of Spencer . . . . . . . . . . . . . . . . . . . 3 (b) Capital Stock of Lincoln . . . . . . . . . . . . . . . . . . . 3 (c) Cancellation of Treasury Stock . . . . . . . . . . . . . . . . 3 (d) Adjustment Upon Changes in Capitalization . . . . . . . . . . . 4 (e) Shares of Dissenting Holders . . . . . . . . . . . . . . . . . 4 2.2 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . 4 (a) Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . 4 (b) Distributions with Respect to Unexchanged Shares . . . . . . . . . . . . . . . . . . . . . . 5 (c) No Further Ownership Rights in Lincoln Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 5 (d) No Fractional Shares . . . . . . . . . . . . . . . . . . . . . 5 (e) No Liability for Escheat . . . . . . . . . . . . . . . . . . . 5 ARTICLE III REPRESENTATIONS AND WARRANTIES OF LINCOLN 3.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . 6 3.2 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.3 Subsidiaries and Equity Investments . . . . . . . . . . . . . . . . 7 3.4 Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . 7 3.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.6 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . 8 3.7 Lincoln IURC Documents . . . . . . . . . . . . . . . . . . . . . . 8 3.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 9 -i- 3.9 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . 9 3.10 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.13 Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . 10 3.14 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.15 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . 13 3.16 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . 14 3.17 Real Property and Leases . . . . . . . . . . . . . . . . . . . . 14 3.18 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . 15 3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.20 Suppliers and Customers . . . . . . . . . . . . . . . . . . . . . 19 3.21 Absence of Questionable Payments . . . . . . . . . . . . . . . . 19 3.22 Absence of Certain Changes or Events . . . . . . . . . . . . . . 20 3.23 Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.24 Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.25 Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . 20 3.26 Ownership of Parent Stock . . . . . . . . . . . . . . . . . . . . 20 [3.27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.28 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.29 Lincoln's Best Knowledge . . . . . . . . . . . . . . . . . . . . 21 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND Spencer 4.1 Organization, Standing and Power . . . . . . . . . . . . . . . . 21 4.2 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . 21 4.3 Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . 22 4.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . 22 4.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . 22 4.6 Parent SEC Documents . . . . . . . . . . . . . . . . . . . . . . 22 4.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . 23 4.8 Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . 24 4.9 Ownership of Lincoln Stock . . . . . . . . . . . . . . . . . . . 24 4.10 Interim Operations of Spencer . . . . . . . . . . . . . . . . . . 24 ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS 5.1 Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.2 Dividends; Changes in Stock . . . . . . . . . . . . . . . . . . . 24 5.3 No Issuance of Securities . . . . . . . . . . . . . . . . . . . . 24 5.4 Constituent Documents . . . . . . . . . . . . . . . . . . . . . . 25 5.5 No Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.6 No Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.7 No Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.8 No Solicitations . . . . . . . . . . . . . . . . . . . . . . . . 25 5.9 No Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.10 Advice of Changes; Filings with Governmental Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 5.11 Employee Benefit Covenant . . . . . . . . . . . . . . . . . . . . 26 -ii- 5.12 Tax Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE VI ADDITIONAL AGREEMENTS 6.1 Access to Information; Confidentiality . . . . . . . . . . . . . 27 6.2 Preparation of the Information Statement . . . . . . . . . . . . 27 6.3 Preparation of Registration Statement . . . . . . . . . . . . . . 27 6.4 Information Supplied . . . . . . . . . . . . . . . . . . . . . . 28 6.5 Blue-Sky Filings . . . . . . . . . . . . . . . . . . . . . . . . 28 6.6 Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . 29 6.7 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . 29 6.8 Legal Conditions to Merger . . . . . . . . . . . . . . . . . . . 29 6.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 6.10 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . 30 6.11 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.12 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.13 Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . 30 6.14 Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE VII CONDITIONS PRECEDENT 7.1 Conditions to Each Party's Obligation To Effect the Merger . . . . . . . . . . . . . . . . . . . . . . . 31 (a) Shareholder Approval . . . . . . . . . . . . . . . . . . . . 31 (b) Regulatory Approvals . . . . . . . . . . . . . . . . . . . . 31 (c) No Injunctions or Restraints . . . . . . . . . . . . . . . . 31 (d) Pooling of Interests . . . . . . . . . . . . . . . . . . . . 31 (e) Tax Free Reorganization. . . . . . . . . . . . . . . . . . . 32 7.2 Conditions to Obligations of Parent and Spencer . . . . . . . . . 32 (a) Representations and Warranties . . . . . . . . . . . . . . . 32 (b) Performance of Obligations of Lincoln . . . . . . . . . . . . 32 (c) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . 32 (d) Board Approval . . . . . . . . . . . . . . . . . . . . . . . 33 (e) Consents Under Agreements . . . . . . . . . . . . . . . . . . 33 (f) Material Adverse Change . . . . . . . . . . . . . . . . . . . 33 (g) Satisfactory Investigation . . . . . . . . . . . . . . . . . 33 (h) Environmental Investigation . . . . . . . . . . . . . . . . . 33 (i) Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7.3 Conditions to Obligations of Lincoln . . . . . . . . . . . . . . . 34 (a) Representations and Warranties . . . . . . . . . . . . . . . 34 (b) Performance of Obligations of Parent and Spencer . . . . . . 34 (c) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . 34 (d) Board Approval . . . . . . . . . . . . . . . . . . . . . . . 34 (e) Material Adverse Change . . . . . . . . . . . . . . . . . . . 34 ARTICLE VIII TERMINATION AND AMENDMENT 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . 35 8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 8.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . 36 -iii- ARTICLE IX GENERAL PROVISIONS 9.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 36 9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 9.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 37 9.4 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . 37 9.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 37 9.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 38 9.7 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . 38 9.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.10 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.11 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 -iv- AGREEMENT AND PLAN OF MERGER dated as of December 23, 1993 (together with the Schedules and Exhibits attached hereto, referred to as the "Agreement"), among SOUTHERN INDIANA GAS & ELECTRIC COMPANY, an Indiana corporation with its principal executive offices at 20 N.W. Fourth Street, Evansville, Indiana ("Parent"), SPENCER ENERGY CORP., a single purpose Indiana corporation and a wholly owned subsidiary of Parent ("Spencer"), and LINCOLN NATURAL GAS COMPANY, INC., an Indiana corporation with its principal executive offices at 317 Main Street, Rockport, Indiana ("Lincoln"). WHEREAS, the respective Boards of Directors of Parent, Spencer and Lincoln deem it advisable and in the best interests of their respective shareholders to consummate the business combination transaction provided for herein in which Spencer would merge with and into Lincoln (Spencer and Lincoln sometimes referred to herein as the "Constituent Corporations") with Lincoln continuing as the surviving corporation (the resultant corporation, as so merged, sometimes referred to herein as the "Surviving Corporation"), and Lincoln would become a wholly owned subsidiary of Parent (the "Merger"), whereby each issued and outstanding share of common stock, par value $10 per share, of Lincoln ("Lincoln Common Stock"), will be converted into a right to receive common stock, without par value, of Parent ("Parent Common Stock") and any associated right (a "Parent Right") that may be issued pursuant to the Rights Agreement dated as of October 1, 1986, between Parent and Continental Stock Transfer & Trust Company, as rights agent. All references in this Agreement to the Parent Common Stock to be received pursuant to the Merger shall be deemed to include the Parent Rights; WHEREAS, for Federal income tax purposes, it is intended that the Merger qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); WHEREAS, for accounting purposes, it is intended that the Merger be accounted for as a "pooling-of-interests" within the meaning of Opinion 16 of the Accounting Principles Board; and WHEREAS, Parent, Spencer and Lincoln desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe various conditions to the Merger; NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants and agreements set forth in this Agreement, the parties agree as follows: ARTICLE I THE MERGER 1.1 Closing. The closing of the Merger (the "Closing") will take place at 10:00 a.m., on a date to be specified by the parties, which shall be no later than the second business day after satisfaction of the latest to occur of the conditions set forth in Sections 7.1(a), 7.1(b), 7.2(b) (other than the delivery of the officer's certificate referred to therein) and 7.3(b) (other than the delivery of the officer's certificate referred to therein) provided, that the other closing conditions set forth in Article VII have been met or waived as provided in Article VII at or prior to the Closing (the "Closing Date"), at the offices of Bamberger, Foreman, Oswald and Hahn, Seventh Floor - Hulman Building, Evansville, Indiana, unless another date or place is agreed to in writing by the parties hereto. 1.2 Effective Time of the Merger. Subject to the provisions of this Agreement, articles of merger shall be duly prepared, executed and acknowledged by an appropriate officer of each of the Constituent Corporations (the "Articles of Merger") and thereafter delivered on the Closing Date to the Secretary of State of the State of Indiana for filing, as provided in the Indiana Business Corporation Law (the "Indiana BCL"), as soon as practicable on or after the Closing Date. The Merger shall become effective upon the filing of the Articles of Merger with the Secretary of State of the State of Indiana or at such time thereafter as is provided in the Articles of Merger (the "Effective Time"). 1.3 Effects of the Merger. At the Effective Time, (i) the separate existence of Spencer shall cease and Spencer shall be merged with and into Lincoln with Lincoln continuing as the Surviving Corporation, (ii) the Amended Articles of Incorporation of Lincoln shall be amended so that Article V of such Amended Articles of Incorporation reads in its entirety as follows: "The total number of shares of all classes of stock which the corporation shall have authority to issue is 1000 shares, all of which shall consist of Common Stock, no par value.", and that Article IX of such Amended Articles of Incorporation reads in its entirety as follows: "The number of directors shall be Seven (7)" (the qualifications on directors being thereby removed) and, as so amended, such Amended Articles of Incorporation shall be the Amended Articles of Incorporation of the Surviving Corporation, (iii) the By-laws of Lincoln as in effect -2- immediately prior to the Effective Time shall be the By-laws of the Surviving Corporation and (iv) the Merger shall have all the effects provided by applicable law, including Section 23-1-40-6 of the Indiana BCL. 1.4 Directors and Officers of the Surviving Corporation. The directors and officers identified on Schedule 1.4, from and after the Effective Time, shall be the directors and officers, respectively, of the Surviving Corporation until their successors shall have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Amended Articles of Incorporation and By-laws. ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES 2.1 Manner of Converting Shares. As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of capital stock of the Constituent Corporations or the Parent: (a) Capital Stock of Spencer. The shares of common stock of Spencer, no par value ("Spencer Common Stock"), which are issued and outstanding immediately prior to the Effective Time, shall be converted into and become shares of Lincoln Common Stock at a rate of one (1) share of Lincoln Common Stock for each share of Spencer Common Stock. (b) Capital Stock of Lincoln. Subject to Section 2.1(c), (d) and (e) each share of Lincoln Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive, pro rata, fully paid and nonassessable shares of Parent Common Stock in accordance with the formula set forth herein. All issued and outstanding Lincoln Common Stock shall be converted into the right to receive such number of shares of Parent Common Stock as are equal to (x) 1,000 multiplied by the number of customers served by Lincoln which are active, current, and in good standing as of the 15th calendar day immediately preceding the Closing Date; divided by (y) the per share average closing price of Parent Common Stock on the New York Stock Exchange ("NYSE") for the last five trading days preceding the day before the Closing Date. As of the Effective Time, all shares of Lincoln Common Stock, other than the Lincoln Common Stock referred to in Section 2.1(a), shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect to such certificates except the right to receive shares of Parent Common Stock to be issued in consideration therefor -3- upon the surrender of such certificate in accordance with Section 2.2, without interest. (c) Cancellation of Stock Owned by Lincoln. Any shares of Lincoln Common Stock that are owned, directly or indirectly, immediately prior to the Effective Time by Lincoln shall be canceled and retired and shall cease to exist and no Parent Common Stock or other consideration shall be issued or delivered in exchange therefor, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto. (d) Adjustment Upon Changes in Capitalization. In the event of any change in Parent Common Stock by reason of stock dividends, splitups, mergers (other than the Merger), recapitalizations, combinations, exchange of shares or the like, the type and number of shares or securities to be issued upon conversion of the Lincoln Common Stock as provided in Section 2.1(b), shall be adjusted appropriately. (e) Shares of Dissenting Holders. Any issued and outstanding shares of Lincoln Common Stock held by a person who objects to the Merger and complies with all provisions of the Indiana BCL concerning the right of such person to dissent from the Merger and demand appraisal of such shares ("Dissenting Holder") shall not be converted into a right to receive Parent Common Stock as set forth in Section 2.1(b) but shall from and after the Effective Time represent only the right to receive such consideration as may be determined to be due to such Dissenting Holder pursuant to the Indiana BCL; provided, however, that shares of Lincoln Common Stock outstanding immediately prior to the Effective Time and held by a Dissenting Holder who shall, after the Effective Time, withdraw the demand for appraisal, or lose the right of appraisal pursuant to the Indiana BCL, of such shares shall be deemed to be converted, as of the Effective Time, into the right to receive the shares of Parent Common Stock specified in Section 2.1(b), without interest. 2.2 Exchange of Certificates. (a) Exchange Procedures. As soon as reasonably practicable after the Effective Time, Parent shall mail to each Shareholder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Lincoln Common Stock (the "Lincoln Certificates") whose shares were converted into the right to receive shares of Parent Common Stock pursuant to Section 2.1, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Lincoln Certificates shall pass, only upon delivery of the Lincoln Certificates to Parent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Lincoln Certificates in exchange for certificates representing shares of Parent Common Stock. Upon surrender of a -4- Lincoln Certificate for cancellation to Parent, or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly executed, the holder of such Lincoln Certificate shall be entitled to receive in exchange therefor a certificate representing that number of whole shares of Parent Common Stock (including the right to receive dividends or distributions thereon and cash in lieu of fractional shares) which such holder has the right to receive pursuant to the provisions of this Article II and a check representing any cash payable in lieu of fractional shares of Parent Common Stock. The Lincoln Certificates so surrendered shall forthwith be canceled. Until surrendered as contemplated by this Section 2.2, each Lincoln Certificate shall be deemed at any time after the Effective Time to represent only the right to receive, upon such surrender a certificate representing shares of Parent Common Stock, dividends or distributions and cash in lieu of any fractional shares of Parent Common Stock as contemplated by this Section 2.2. (b) Distributions with Respect to Unexchanged Shares. No dividends or other distributions declared or made after the Effective Time with respect to Parent Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Lincoln Certificate with respect to the shares of Parent Common Stock represented thereby and no cash payment in lieu of fractional shares shall be paid to any such holder until the holder of record of such Lincoln Certificate shall surrender such Lincoln Certificate. Subject to the effect of applicable laws, following surrender of any such Lincoln Certificate there shall be paid to the record holder of the certificates representing whole shares of Parent Common stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of a fractional share of Parent Common Stock to which such holder is entitled and the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Parent Common Stock. (c) No Further Ownership Rights in Lincoln Common Stock. All shares of Parent Common Stock issued in the Merger upon conversion of shares of Lincoln Common Stock in accordance with the terms hereof (including any dividends or distributions and cash paid in lieu of fractional shares shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Lincoln Common Stock. There shall be no further registration of transfers on the stock transfer books of Lincoln of the shares of Lincoln Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time (but subject to Section 2.1(c)), Lincoln Certificates are -5- presented to Parent for any reason, they shall be canceled and exchanged as provided in this Article II. (d) No Fractional Shares. As provided above, no certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Lincoln Certificates, and such fractional share interests will not entitle the owner thereof to vote or to any rights of a shareholder of Parent. The value of any fractional shares of Parent computed above shall be paid by check. (e) No Liability for Escheat. Neither Parent, Spencer nor Lincoln shall be liable to any holder of shares of Lincoln Common Stock or Parent Common Stock, as the case may be, for such shares (or dividends or distributions with respect thereto) or cash in lieu of fractional shares delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. ARTICLE III REPRESENTATIONS AND WARRANTIES OF LINCOLN Lincoln represents and warrants to Parent and Spencer as follows: 3.1 Organization, Standing and Power. Lincoln is a corporation duly organized and validly existing under the laws of the state of Indiana and has all requisite power and authority, and has been duly authorized by all necessary approvals and orders of the Indiana Utility Regulatory Commission (the "IURC") to own, lease and operate its properties and to carry on its business as now being conducted, and is duly qualified and in good standing to transact business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary other than in such jurisdictions where the failure so to qualify would not have a Material Adverse Effect on Lincoln. In this Agreement, with reference to any event having a "Material Adverse Effect" on any entity shall mean, any event, change or effect related to the condition (financial or otherwise), properties, assets, liabilities, operations, businesses or business prospects of such entity. 3.2 Capital Structure. As of the date hereof, the authorized capital stock of Lincoln consists of (i) 10,000 shares of Lincoln Common Stock of which, as of December 15, 1993, 9,417 shares were issued and outstanding; (ii) no shares of preferred stock, and (iii) no bonds, debentures, notes or other indebtedness having the right to vote (or convertible into securities having the right to vote) on any matters on which shareholders may vote ("Voting Debt"). All outstanding shares of -6- Lincoln's capital stock are validly issued, fully paid and nonassessable and are not subject to preemptive rights. As of the date of this Agreement (except pursuant to this Agreement), there are no options, warrants, calls, rights, commitments or agreements of any character to which Lincoln is a party or by which it is bound obligating Lincoln to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or any Voting Debt of, or other equity interest in, Lincoln or securities convertible or exchangeable for such shares, Voting Debt or other equity interests, or obligating Lincoln to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. 3.3 No Subsidiaries or Equity Investments. Lincoln does not own, directly or indirectly, any capital stock or other equity securities of any corporation or have any direct or indirect equity or ownership interest, including interests in partnerships and joint ventures, in any other entity or business. 3.4 Corporate Authority. Lincoln has all requisite corporate power and authority to enter into this Agreement and, subject to the approval of this Agreement and the transactions contemplated hereby by the shareholders of Lincoln, to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Lincoln, subject to the approval of this Agreement by the shareholders of Lincoln. This Agreement has been duly executed and delivered by Lincoln and, subject to the approval of this Agreement by the shareholders of Lincoln, and assuming this Agreement constitutes a valid and binding obligation of Parent and Spencer, constitutes a valid and binding obligation of Lincoln enforceable in accordance with its terms. 3.5 No Violation. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or the loss of a material benefit under, or the creation of a lien, pledge, security interest or other encumbrance on assets (any such conflict, violation, default, right of termination, cancellation or acceleration, loss or creation, a "Violation"), pursuant to (i) any provision of the Amended Articles of Incorporation or By-laws or other constituent documents of Lincoln, (ii) any provision of any loan or credit agreement, note, mortgage, indenture, lease, Employee Benefit Plans (as defined in Section 3.13) or other agreement, obligation, instrument, permit, concession, franchise, license, or (iii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Lincoln or its properties or assets, which Violation, in the case -7- of each of clauses (ii) and (iii), would have a Material Adverse Effect on Lincoln. 3.6 Consents and Approvals. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign (a "Governmental Entity"), is required by or with respect to Lincoln in connection with the execution and delivery of this Agreement by Lincoln or the consummation by Lincoln of the transactions contemplated hereby, the failure to obtain which would have a Material Adverse Effect on Lincoln except for: (i) the filing of the Articles of Merger with the Secretary of State of the State of Indiana in accordance with Section 23-1-40-5 of the Indiana BCL, (ii) the obtaining from IURC an order approving the transactions contemplated hereby (the "IURC Order"), and (iii) such filings, authorization orders and approvals as may be required of other state and local governmental authorities, (the "Local Approvals"). 3.7 Lincoln IURC Documents. Lincoln shall deliver to Parent a true and complete copy of each report and schedule (except Gas Cost Adjustment filings) filed by Lincoln with the IURC since January 1, 1991 (as such documents have since the time of their filing been amended, the "IURC Documents") which are all the documents (other than preliminary material) that Lincoln was required to file with the IURC since such date. As of their respective dates, none of the Lincoln IURC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of Lincoln included in the Lincoln IURC Documents comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the IURC with respect thereto, have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the financial position of Lincoln as at the dates thereof and the results of its operations and cash flows for the periods then ended. 3.8 Financial Statements. (a) Lincoln has furnished Parent with copies of the following financial statements of Lincoln: (i) balance sheets as of December 31, 1991, 1992 and September 30, 1993; and (ii) statements of income for each of the fiscal years ended December 31, 1991, December 31, 1992 and for the nine months ended September 30, 1993 (the "Financial Statements"). The Financial Statements are complete and correct, were prepared in accordance with GAAP consistently applied -8- throughout the periods indicated, and present fairly the financial position of Lincoln. The Financial Statements are attached hereto as Schedule 3.8. Since January 1, 1991, Lincoln has not made any material change in its methods of accounting for financial reporting purposes. 3.9 No Undisclosed Liabilities. Except as and to the extent set forth in the IURC Documents, the Financial Statements or Schedule 3.9, Lincoln does not have any liabilities or obligations of any nature, whether or not accrued, absolute, contingent or otherwise (the "Undisclosed Liabilities"). 3.10 Books and Records. Lincoln will make available for inspection by Parent all the books of account relating to business of Lincoln. Such books of account of Lincoln reflect all the transactions and other matters required to be set forth under GAAP applied on a consistent basis. 3.11 Litigation. As of the date of this Agreement, except as disclosed on Schedule 3.11, there is no suit, action or proceeding pending, or, to the knowledge of Lincoln, threatened against or affecting Lincoln which is reasonably likely to have a Material Adverse Effect on Lincoln, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Lincoln which has or could have a Material Adverse Effect on Lincoln. 3.12 Taxes. Lincoln (including any predecessors) has timely filed when due all Tax returns required to be filed by any of them and has paid (or Lincoln has paid on its behalf), or has made adequate provision for or set up in accordance with GAAP an adequate accrual or reserve for the payment of, all Taxes required to be paid in respect of all periods for which returns have been filed or are due (whether or not shown as being due on any Tax returns), and has established an adequate accrual or reserve for the payment of all Taxes payable in respect of any period for which no return has been filed or is due, and the most recent financial statements heretofore delivered to Parent reflect in accordance with GAAP a reserve for all Taxes payable by Lincoln accrued through the date of such financial statements. No material deficiencies for any Taxes have been proposed, asserted or assessed against Lincoln, and no audit of the Tax returns of Lincoln is currently being conducted by any Taxing authority. Copies of all Federal Tax returns required to be filed by Lincoln (including any predecessors) for each of the last three years, together with all schedules and attachments thereto, have been delivered by Lincoln to Parent. Lincoln (including any predecessors) is not a party to, is bound by, or has any obligation under any Tax sharing or similar agreement. For the purpose of this Agreement, the term "Tax" (including, with correlative meaning, the terms "Taxes", "Taxing", and "Taxable") shall include all Federal, state, local and foreign income, profits, franchise, gross receipts, payroll, sales, employment, use, property, gains, transfer, recording, license, -9- value-added, withholding, excise and other taxes, duties or assessments of any nature whatsoever (whether payable directly or by withholding), together with any and all estimated Tax interest, penalties and additions to Tax imposed with respect to such amounts and any obligations in respect thereof under any Tax sharing, Tax allocation, Tax indemnity or similar agreement as well as any obligations arising pursuant to Reg. 1.1502-6 or comparable state, local or foreign provision. 3.13 Employee Benefit Matters. (a) With respect to each employee benefit plan (including, without limitation, any "employee benefit plan," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, insurance or other plan, arrangement or understanding (whether or not in writing or legally binding) (all the foregoing being herein called the "Employee Benefit Plans"), maintained or contributed to by Lincoln, or any other organization which is a member of a controlled group of organizations (within the meaning of Sections 414(b), (c), (m) or (o) of the Code) of which Lincoln is a member ("Controlled Group"), Lincoln has made available to Parent, or will deliver to Parent within 30 days after the date hereof, a true and correct copy of (i) the most recent annual report (Form 5500) filed with the Internal Revenue Service (the "IRS"), if any, (ii) a copy of any such Employee Benefit Plan and (iii) each trust agreement and group annuity contract, if any, relating to any such Employee Benefit Plan. (b) Since January 1, 1974, neither Lincoln nor any member of its Controlled Group has at any time maintained or contributed to, or been obligated to contribute to, a defined benefit plan within the meaning of Section 3(35) of ERISA. (c) Each of the Employee Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of the Code has been determined by the IRS to be so qualified, and, to the best knowledge of Lincoln, no circumstances exist that are reasonably expected by Lincoln to result in the revocation of any such determination. Lincoln is in compliance in all material respects with, and each Employee Benefit Plan is and has been operated in all material respects in compliance with, all applicable laws, rules and regulations governing such plan, including, without limitation, ERISA and the Code. Each Employee Benefit Plan intended to provide for the deferral of income, the reduction of salary or other compensation or to afford other income tax benefits complies with the requirements of the applicable provisions of the Code or other laws, rules and regulations required to provide such income tax benefits. (d) Any Simplified Employee Pension (within the meaning of Section 408(k) of the Code) adopted or contributed to -10- by Lincoln or any member of its Controlled Group has been adopted and maintained in accordance with the applicable provisions of the Code. (e) With respect to the Employee Benefit Plans, individually and in the aggregate, no event has occurred, and to the knowledge of Lincoln, there exists no condition or set of circumstances in connection with which Lincoln could be subject to any liability that is reasonably likely to have a Material Adverse Effect on Lincoln (except liability for benefits claims and funding obligations payable in the ordinary course), under ERISA, the Code or any other applicable law. (f) Except as set forth in Schedule 3.13(f), with respect to each Employee Benefit Plan, there are no funded benefit obligations for which contributions have not been made or properly accrued and there are no unfunded benefit obligations which have not been accounted for by reserves, or otherwise properly footnoted in accordance with GAAP on the Financial Statements. (g) Except as set forth in Schedule 3.13(g), none of the Employee Benefit Plans that are welfare plans (within the meaning of Section 3(l) of ERISA) ("Welfare Plans") provides for any retiree benefits. (h) Each Welfare Plan has been adopted and maintained in accordance with its terms and applicable law. (i) Except as set forth in Schedule 3.13(i), (i) the consummation or announcement of any transaction contemplated by this Agreement will not (either alone or upon the occurrence of any additional or further acts or events) result in any (A) payment (whether of severance pay or otherwise) becoming due from Lincoln to any officer, employee, former employee or director thereof or to the trustee under any "rabbi trust" or similar arrangement, or (B) benefit under any Employee Benefit Plan being established or becoming accelerated, vested or payable and (ii) Lincoln is not a party to (A) any management, employment, deferred compensation, severance (including any payment, right or benefit resulting from a change in control), bonus or other contract for personal services with any officer, director or employee, (B) any consulting contract with any person who prior to entering into such contract was a director or officer of Lincoln or (C) any plan, agreement, arrangement or understanding similar to any of the foregoing. 3.14 Labor Matters. With respect to Lincoln, except as disclosed in Schedule 3.14, each of the following is true: (i) Lincoln is not a party to any collective bargaining agreement. -11- (ii) during the last five years, Lincoln has not been subject to a labor strike, National Labor Relations Board dispute, slowdown or stoppage and to Lincoln's best knowledge, none are threatened against Lincoln; (iii) none of the employees of Lincoln is a member of or represented by any labor union and, to Lincoln's best knowledge, there are no attempts of whatever kind and nature being made to organize any of such employees; (iv) no agreement (including any collective bargaining agreement), arbitration or court decision, decree or order or governmental order which is binding on Lincoln in any way limits or restricts Lincoln from relocating or closing any of its operations; (v) there are no charges, administrative proceedings or formal complaints of discrimination (including but not limited to discrimination based upon sex, age, marital status, race, national origin, sexual preference, handicap or veteran status) pending or, to the Lincoln's knowledge, threatened, or to Lincoln' knowledge, any investigation pending or threatened before the Equal Employment Opportunity Commission or any Federal, state or local agency or court; (vi) no employee, including officers, has been paid compensation in excess of $35,000 during the year ended December 31, 1992, or at an annual rate in excess of $35,000 during the year that will end December 31, 1993. 3.15 Contracts and Commitments. (a) Schedule 3.15(a) sets forth each contract, agreement, or course of dealings, and any sub-contracts thereto (written or unwritten) outstanding as of the date hereof to which Lincoln is a party (other than any contract or agreement required to be disclosed on any other Schedule) and which: (i) involves future payment or receipt of cash or future performance or receipt of services or delivery or receipt of goods and materials, in each case with an aggregate value in excess of $10,000, including but not limited to sale and purchase agreements, distributorship and sales representative agreements and loan agreements, notes, and other financing documents or commitments to enter into any of the foregoing agreements; (ii) is a guarantee or indemnity in respect of indebtedness of any person (including Lincoln, the shareholders of Lincoln, or any other Affiliate of such shareholders) which may involve future payment by Lincoln in excess of $10,000 or is a mortgage, security agreement, or other arrangement intended to secure indebtedness of any person (including Lincoln, the shareholders of Lincoln or -12- any other Affiliate of such shareholders) in excess of $10,000 or creating an Encumbrance on any asset of the Company; For purposes of this Agreement, the term "Affiliate" shall mean with respect to any party to this Agreement, any other individual, corporation, partnership, trust or unincorporated organization directly or indirectly controlling, controlled by, or under common control with such party. For purposes of this Agreement, the term "Affiliate" shall include directors of Lincoln, executive officers of Lincoln, and any shareholder of Lincoln who owns ten (10) percent or more of the outstanding common stock of Lincoln. (iii) is a lease with respect to personal property; (iv) is an agreement, indenture, or other instrument which contains restrictions with respect to the payment of dividends or any other distribution in respect of the capital stock of Lincoln; (v) imposes a right of first refusal, option, or other restriction with respect to any assets of Lincoln; (vi) is a loan or advance to, or investment in, any person or an agreement, contract, or commitment relating to the making of any such loan, advance, or investment; (vii) is an agreement, contract, or commitment limiting the freedom of Lincoln to engage in any line of business or to compete with any person; or (viii) is a shareholders agreement or voting agreement. (b) Except as set forth in Schedule 3.15(b), each of the agreements set forth in Schedule 3.15(a) and the agreements or contracts of Lincoln disclosed in any other Schedule (the "Contracts") was entered into in a bona fide transaction in the ordinary course of business and is in full force and effect. Lincoln has heretofore delivered to Parent complete and correct copies or descriptions (in the case of unwritten contracts) of the Contracts. There is not under any Contract: (A) any existing default by Lincoln or, to Lincoln's best knowledge, by any other party thereto, or (B) any event which, after notice or lapse of time or both, would constitute a default by Lincoln, or to Lincoln's best knowledge, by any other party, or result in a right to accelerate or terminate or result in a loss of rights of Lincoln; 3.16 Personal Property. Schedule 3.18 sets forth a complete list of all the personal property owned by Lincoln with an original cost of more than $1,000. Lincoln has good and valid title to all of its personal property, free and clear of all pledges, liens, charges, encumbrances, easements, defects, -13- security interests, claims, options, and restrictions of every kind ("Encumbrances"). Lincoln owns or has valid rights to use all of the assets currently used by Lincoln. The machinery, tools, equipment, and other physical assets of Lincoln are in good working order, normal wear and tear excepted, are being used or are useful in the business of Lincoln at its present level of activity and are in an operating condition sufficient to conduct the business of Lincoln as now being conducted. 3.17 Real Property and Leases. Schedule 3.17 sets forth each and every parcel of real property, leasehold interest held by Lincoln. In addition, documentation with respect to easements granted in favor of Lincoln is available for inspection at Lincoln's offices. Except as disclosed on Schedule 3.17, Lincoln has good and marketable title in fee simple, free of any Encumbrances to the real property listed in Schedule 3.17, other than such Encumbrances disclosed in the Financial Statements or such Encumbrances which individually or in the aggregate would not have a Material Adverse Effect on Lincoln. Lincoln is in peaceful and undisturbed possession of each leasehold estate. There are no material defaults by Lincoln as tenant under the leasehold estates. Except as disclosed in Schedule 3.17 all of the buildings, structures, improvements and fixtures used by or useful in the business of Lincoln, owned or leased by Lincoln, are in a good state of repair, maintenance and operating condition and, except as so disclosed and, except for normal wear and tear, there are no defects with respect thereto which would impair the day-to-day use of any such buildings, structures, improvements or fixtures or which would subject Lincoln to liability under applicable law. 3.18 Compliance With Law. (a) Except as set forth in Schedule 3.18(a), the operations and activities of Lincoln (including former subsidiaries) has complied and are in compliance in all respects with all applicable Federal, state and local laws, including, without limitation, health and safety statutes and regulations and all Environmental Laws, including, without limitation, all restrictions, conditions, standards, limitations, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws or contained in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder. (b) Schedule 3.18(b) sets forth all Federal, state and local governmental licenses, permits and other authorizations ("Permits") of the business of Lincoln and all reports of inspection of Lincoln and its properties from January 1, 1992 to the date hereof under all applicable Federal, state and local health and safety laws and regulations; Lincoln has heretofore delivered to Parent complete and correct copies of all of the foregoing and applications relating thereto. -14- (c) Except as set forth in Schedule 3.18(c), Lincoln has obtained all Permits that are (i) required under all Federal, state and local laws, including the Environmental Laws, for the ownership, use and operation of each location owned, operated or leased by Lincoln (the "Property") or (ii) otherwise necessary in the conduct of the business of Lincoln. Except as set forth in Schedule 3.18(c), all such Permits are in effect, no appeal nor any other action is pending to revoke any such Permit, and Lincoln is in full compliance with all terms and conditions of all such Permits. (d) There have been no environmental studies made in the last five years relating to the Property or any other property or facility previously owned, operated or leased by Lincoln or any former subsidiary. (e) Except as set forth in Schedule 3.18(e), there is no civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter pending relating to Lincoln (including former subsidiaries), or the Property (or any other property or facility formerly owned, operated or leased by Lincoln or its former subsidiaries) or, to Lincoln's best knowledge, threatened relating to Lincoln (including former subsidiaries) or the Property (or any other such property or facility formerly owned, operated or leased by Lincoln or its former subsidiaries) and relating in any way to the Environmental Laws or any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder. (f) Except as set forth in Schedule 3.18(f), Lincoln (including former subsidiaries) has not, and to Lincoln's best knowledge, no other Person has, Released, placed, stored, buried or dumped any Hazardous Substances, Oils, Pollutants or Contaminants or any other wastes produced by, or resulting from, any business, commercial, or industrial activities, operations, or processes, on, beneath, or adjacent to the Property (or any other property or facility formerly owned, operated or leased by Lincoln or its former subsidiaries) except for inventories of such substances to be used, and wastes generated therefrom, in the ordinary course of business of Lincoln (including former subsidiaries) (which inventories and wastes, if any, were and are stored or disposed of in accordance with applicable laws and regulations and in a manner such that there has been no Release of any such substances into the environment). (g) Except as set forth in Schedule 3.18(g), no Release or Cleanup occurred at the Property (or any other property or facility formerly owned, operated or leased by Lincoln or its former subsidiaries) which could result in the assertion or creation of a lien on the Property by any Governmental Entity with respect thereto, nor has any such assertion of a lien been made by any Governmental Entity with respect thereto. -15- (h) Except as set forth in Schedule 3.18(h), no employee of Lincoln (including former subsidiaries) in the course of his or her employment with Lincoln (including former subsidiaries) has been exposed to any Hazardous Substances, Oils, Pollutants, Contaminants or other substance, generated, produced or used by Lincoln (including former subsidiaries) which could give rise to any claim against Lincoln (including former subsidiaries). (i) Except as set forth in Schedule 3.18(i), Lincoln (including former subsidiaries) has not received any notice or order from any Governmental Entity advising it that Lincoln (including former subsidiaries) is responsible for or potentially responsible for Cleanup or paying for the cost of Cleanup of any Hazardous Substances, Oils, Pollutants or Contaminants or any other waste or substance, and Lincoln (including former subsidiaries) has not entered into any agreements concerning such Cleanup, nor is Lincoln aware of any facts which might reasonably give rise to such notice, order or agreement. (j) Except as set forth in Schedule 3.18(j), the Property does not contain any: (a) underground storage tanks; (b) asbestos; (c) equipment using PCBs; (d) underground injection wells; or (e) septic tanks in which process wastewater or any Hazardous Substances, Oils, Pollutants or Contaminants have been disposed; (k) Except as set forth in Schedule 3.18(k), with regard to Lincoln and the Property (or any other property or facility formerly owned, operated or leased by Lincoln or any former subsidiary of Lincoln), there are no past or present (or, to Lincoln's best knowledge, future) events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent compliance or continued compliance with the Environmental Laws as in effect on the date hereof or with any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, or which may give rise to any common law or legal liability under the Environmental Laws, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, notice of violation, study or investigation, based on or related to the manufacture, generation, processing, distribution, use, treatment, storage, place of disposal, transport or handling, or the Release or threatened Release into the indoor or outdoor environment by Lincoln or a present or former facility of Lincoln or any former subsidiary of Lincoln, of any Hazardous Substances, Oils, Pollutants or Contaminants. (l) There are no former manufactured gas plant sites which were owned, operated or leased by Lincoln or any former Subsidiary of Lincoln. (m) Lincoln has not entered into any agreement that may require it to pay to, reimburse, guaranty, pledge, defend, -16- indemnify or hold harmless any person for or against Environmental Liabilities and Costs. (n) The following terms shall be defined as follows: (i) Cleanup - means all actions required to: (1) cleanup, remove, treat or remediate Hazardous Substances, Oils, Pollutants or Contaminants in the indoor or outdoor environment; (2) prevent the Release of Hazardous Substances, Oils, Pollutants or Contaminants so that they do not migrate, endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (3) perform pre- remedial studies and investigations and post-remedial monitoring and care; or (4) respond to any government requests for information or documents in any way relating to cleanup, removal, treatment or remediation or potential cleanup, removal, treatment or remediation of Hazardous Substances, Oils, Pollutants or Contaminants in the indoor or outdoor environment. (ii) Environmental Laws - means all foreign, Federal, state and local laws, regulations, rules and ordinances relating to pollution or protection of the environment, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Substances, Oils, Pollutants or Contaminants into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport or handling of Hazardous Substances, Oils, Pollutants or Contaminants, and all laws and regulations with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Substances, Oils, Pollutants or Contaminants. (iii) Environmental Liabilities and Costs - means all liabilities, obligations, responsibilities, obligations to conduct Cleanup, losses, damages, deficiencies, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, all fees, disbursements and expenses of counsel, expert and consulting fees and costs of investigations and feasibility studies and responding to government requests for information or documents), fines, penalties, restitution and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future, resulting from any claim or demand, by any Person, whether based in contract, tort, implied or express warranty, strict liability, joint and several liability, criminal or civil statute, including any Environmental Law, or arising from environmental, health or safety conditions, the Release or threatened Release of Hazardous Substances, Oils, Pollutants or Contaminants into the environment, as a result of past or -17- present ownership, leasing or operation of any properties, owned, leased or operated by Lincoln or any former subsidiary of Lincoln, including, without limitation, any of the foregoing incurred in connection with the conduct of any Cleanup. (iv) Hazardous Substances, Oils, Pollutants or Contaminants - means all substances defined as such in the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. 300.5, or defined as such by, or regulated as such under, any Environmental Law. (v) Release - means, when used as a noun, any release, spill, emission, discharge, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, and surface or subsurface strata) or into or out of any property, including the movement of Hazardous Substances, Oils, Pollutants or Contaminants through or in the air, soil, surface water, groundwater or property, and when used as a verb, the occurrence of any Release. 3.19 Insurance. (a) Schedule 3.19 sets forth (i) Lincoln's policies of insurance presently in force and, including without limitation, those covering Lincoln's public and product liability and its personnel, properties, buildings, machinery, equipment, furniture, fixtures, and operations, specifying with respect to each such policy, the name of the insurer, type of coverage, term of policy, limits of liability and annual premium; (ii) Lincoln's premiums, by year, by type of coverage, for the past three years based on information received from Lincoln's insurance carrier(s); (iii) all outstanding insurance claims by Lincoln for damage to or loss of property or income which have been referred to insurers or which Lincoln believes to be covered by commercial insurance; (iv) general comprehensive liability policies carried by Lincoln since 1989, including excess liability policies; and (v) any agreements, arrangements, or commitments by or relating to Lincoln under which Lincoln indemnifies any other Person or is required to carry insurance for the benefit of any other Person. (b) The insurance policies set forth in Schedule 3.19 are in full force and effect, all premiums with respect thereto covering all periods up to and including the date of the Closing shall be paid when due, and no notice of cancellation or termination has been received with respect to any such policy. Such policies are sufficient for compliance with all requirements of law and all agreements to which Lincoln is a party; are valid, outstanding and enforceable policies; provide adequate insurance coverage for the assets and operations of Lincoln; will remain in full force and effect through the respective dates set forth in Schedule 3.19 without the payment of additional premiums; and -18- will not in any way be affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement. 3.20 Suppliers and Customers. Except as disclosed on Schedule 3.20, no supplier, customer, distributor or sales representative of Lincoln has canceled or otherwise terminated, or made any written threat to Lincoln or to any of its Affiliates to cancel or otherwise terminate, for any reason, including the consummation of the transactions contemplated hereby, its relationship with Lincoln, or has at any time after July 31, 1993, materially decreased its services or supplies provided to Lincoln or its usage of the services or products of Lincoln. Except as disclosed on Schedule 3.20, to Lincoln's best knowledge, no supplier, customer, distributor or sales representative of Lincoln intends to cancel or otherwise terminate its relationship with Lincoln or to materially decrease its services or supplies provided to Lincoln or its usage of the services or products of Lincoln. 3.21 Absence of Questionable Payments. Except as disclosed on Schedule 3.21, neither Lincoln nor any director, officer, agent, employee, or other Person acting on behalf of Lincoln, has used any corporate or other funds for unlawful contributions, payments, gifts, or entertainment, or made any unlawful expenditures relating to political activity to government officials or others or established or maintained any unlawful or unrecorded funds in violation of applicable law. Except as disclosed on Schedule 3.21, neither Lincoln nor any current director, officer, agent, employee, or other Person acting on behalf of Lincoln, has accepted or received any unlawful contributions, payments, gifts, or expenditures. 3.22 Absence of Certain Changes or Events. Since the date of the most recent Financial Statements, Lincoln has conducted its business only in the ordinary and usual course, and, as of the date of this Agreement, there has not been (i) any damage, destruction or loss, whether covered by insurance or not, which has, or insofar as reasonably can be foreseen in the future is reasonably likely to have, a Material Adverse Effect on Lincoln; (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of Lincoln's capital stock; or (iii) any transaction, commitment, dispute or other event or condition (financial or otherwise) of any character (whether or not in the ordinary course of business) individually or in the aggregate having or which, insofar as reasonably can be foreseen, in the future is reasonably likely to have, a Material Adverse Effect on Lincoln, except for the previously disclosed negative impact upon income resulting from a union strike at Peerless Pottery. 3.23 Shareholders. Attached hereto as Schedule 3.23, is a complete and accurate list of the shareholders of Lincoln -19- containing the number of shares and percentage of Lincoln Common Stock owned by each such shareholder. 3.24 Vote Required. The affirmative vote of the holders of a majority of the outstanding shares of Lincoln Common Stock is the only vote of the holders of any class or series of Lincoln capital stock necessary to approve this Agreement and the transactions contemplated hereby. 3.25 Accounting Matters. Neither Lincoln nor, to its best knowledge, any of its Affiliates, has through the date of this Agreement, taken or agreed to take any action that would prevent Parent from accounting for the business combination to be effected by the Merger as a "pooling-of- interests" within the meaning of Opinion 16 of the Accounting Principles Board. 3.26 Ownership of Parent Stock. Neither Lincoln nor any of its Affiliates "beneficially own", in the aggregate, more than 1% of the outstanding shares of Parent Common Stock. 3.27 Restricted Securities. Lincoln hereby acknowledges that the shares of Parent Common Stock to be issued in exchange for the shares of Lincoln Common Stock in the Merger, will be issued in a transaction which is exempt from registration with the Securities and Exchange Commission (the "SEC"), pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") and Regulation D promulgated thereunder, and that therefor such shares of Parent Common Stock are "restricted securities" as defined in Section (a)(3) of Rule 144 promulgated under the Securities Act. Lincoln further acknowledges that the shareholders of Lincoln may not sell, assign or transfer the Parent Common Stock received by such shareholder pursuant to the Merger unless such Parent Common Stock is registered under the Securities Act or an exemption from registration is available. Lincoln further acknowledges that appropriate legends will be placed on certificates representing Parent Common Stock received by the shareholders of Lincoln in the Merger. 3.28 Disclosure. (a) No representations or warranties by Lincoln in this Agreement, including the Schedules hereto, and no statement contained in any document (including, without limitation, the Financial Statements, certificates, or other writings furnished or to be furnished by Lincoln to Parent or any of its representatives pursuant to the provisions hereof or in connection with the transactions contemplated hereby), contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. There is no fact known to Lincoln which has or could have a Material Adverse Effect on Lincoln and which has not been set forth in this Agreement, the Financial Statements, or any Schedule, Exhibit, or certificate delivered, or to be delivered, in accordance with the terms hereof. -20- (b) Lincoln has furnished or will cause to be furnished to Parent complete and correct copies of all agreements, certificates of compliance, instruments and documents set forth on a Schedule, or to be set forth on a Schedule, or underlying a disclosure set forth on a Schedule. Each of the Schedules will be complete and correct when delivered to Parent in accordance with the terms of this Agreement. 3.29 Lincoln's Best Knowledge. The term "Lincoln's best knowledge", shall mean the best knowledge of Lincoln, or its directors, officers or employees, after due inquiry. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SPENCER Each of Parent and Spencer represents and warrants to Lincoln as follows: 4.1 Organization, Standing and Power. Each of Parent and Spencer is a corporation duly organized and validly existing under the laws of the state of Indiana and has all requisite power and authority, and in the case of Parent has been duly authorized by all necessary approvals and orders of the Indiana Utility Regulatory Commission to own, lease and operate its properties and to carry on its business as now being conducted. 4.2 Capital Structure. As of September 30, 1993 the authorized capital stock of Parent consists of (i) 50,000,000 shares of Parent Common Stock of which 15,705,427 shares were issued and outstanding, (ii) 800,000 shares of cumulative preferred stock, $100 par value, issuable in series of which (A) 85,895 shares of 4.8% Series nonredeemable cumulative preferred stock were issued and outstanding, (B) 25,000 shares of 4.75% nonredeemable cumulative preferred stock were issued and outstanding, (C) 75,000 shares of 8.75% Series nonredeemable cumulative preferred stock were issued and outstanding, and (D) 75,000 shares of 6.50% redeemable cumulative preferred stock were issued and outstanding, and (iii) 5,000,000 shares of special preferred stock, no par value, issuable in series of which 21,150 shares were issued and outstanding. As of the date hereof, the authorized capital stock of Spencer consists of 1000 shares of Spencer Common Stock, 100 shares of which are issued and outstanding and are owned by Parent. All outstanding shares of Parent's capital stock and Spencer Common Stock are validly issued, fully paid and nonassessable and are not subject to preemptive rights. 4.3 Corporate Authority. Parent and Spencer have all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the -21- consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Spencer. This Agreement has been duly executed and delivered by Parent and Spencer, as the case may be, and assuming this Agreement constitutes a valid and binding obligation of Lincoln, constitutes a valid and binding obligation of Parent and Spencer enforceable in accordance with its terms. 4.4 No Violation. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not result in any Violation pursuant to (i) any provision of the Amended Articles of Incorporation or By-laws of Parent or the Articles of Incorporation or By-laws of Spencer or (ii) any provision of any loan or credit agreement, note, mortgage, indenture, lease, or other agreement, obligation, instrument, permit, concession, franchise, license or (iii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or Spencer or their respective properties or assets, which Violation, in the case of each of clauses (ii) and (iii), would have a Material Adverse Effect on Parent, Spencer and Parent's subsidiaries taken as a whole. 4.5 Consents and Approvals. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Parent, Spencer or any of Parent's subsidiaries in connection with the execution and delivery of this Agreement by Parent and Spencer or the consummation by Parent or Spencer of the transactions contemplated hereby, the failure to obtain which would have a Material Adverse Effect on Parent, Spencer and Parent's subsidiaries, taken as a whole, except for: (i) the filing of the Articles of Merger with the Secretary of State of the State of Indiana in accordance with Section 23-1-40-5 of the Indiana BCL, (ii) the obtaining of the IURC Order, (iii) the obtaining from the SEC of an order pursuant to the Public Utility Holding Company Act of 1935, as amended ("PUCHA"), approving the transactions contemplated hereby (the "SEC PUHCA Order"), (iv) the filing of such documents with, and the qualification with, the various state securities authorities under state securities (the "Blue-Sky Laws"), that are required in connection with the transactions contemplated by this Agreement (the "Blue-Sky Filings"), and (v) the Local Approvals. 4.6 Parent SEC Documents. Parent has made available to Lincoln a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed by -22- Parent with the SEC since January 1, 1991 (as such documents have since the time of their filing been amended, the "Parent SEC Documents") which are all the documents (other than preliminary material) that Parent was required to file with the SEC since such date. As of their respective dates, the Parent SEC Documents complied in all material respects with the requirements of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Parent SEC Documents, and none of the Parent SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of Parent included in the Parent SEC Documents comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto, or in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited statements, to normal, recurring audit adjustments) the consolidated financial position of Parent and its consolidated subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. 4.7 Absence of Certain Changes or Events. Except as disclosed in the Parent SEC Documents filed prior to the date of this Agreement or in the unaudited consolidated balance sheet of Parent and its subsidiaries as at September 30, 1993, and the related consolidated statements of income, cash flows and changes in shareholders' equity (the "Parent 1993 Financials"), true and correct copies of which have been delivered to Lincoln, or except as contemplated by this Agreement, since the date of the Parent 1993 Financials, Parent and its subsidiaries have conducted their respective businesses only in the ordinary and usual course, and, as of the date of this Agreement, there has not been (i) any damage, destruction or loss, whether covered by insurance or not, which has, or insofar as reasonably can be foreseen in the future is reasonably likely to have, a Material Adverse Effect on Parent and its subsidiaries taken as a whole; (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of Parent's or its subsidiaries' capital stock, except for regular cash dividends on Parent Common Stock and preferred stock; or (iii) any transaction, commitment, dispute or other event or condition (financial or otherwise) of any character (whether or not in the ordinary course of business) individually or in the aggregate having or which, insofar as reasonably can be foreseen, in the future is reasonably likely to have, a Material Adverse Effect on Parent and its subsidiaries taken as a whole. -23- 4.8 Ownership of Lincoln Stock. Parent and its Affiliates do not "beneficially own" any shares of Lincoln Common Stock. 4.9 Interim Operations of Spencer. Spencer was formed solely for the purpose of engaging in the transactions contemplated hereby, has engaged in no other business activities and has conducted its operations only as contemplated hereby. ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS During the period from the date of this Agreement and continuing until the Effective Time (except as expressly contemplated or permitted by this Agreement, or to the extent that the parties shall otherwise consent in writing), Lincoln and Parent each agree that: 5.1 Ordinary Course. Lincoln shall carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and use all reasonable efforts to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with customers, suppliers and others having business dealings with it to the end that its goodwill and ongoing business shall not be impaired in any material respect at the Effective Time. 5.2 Dividends; Changes in Stock. Lincoln shall not (i) declare or pay any dividends on or make other distributions in respect of any of its capital stock, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) repurchase or otherwise acquire any shares of its capital stock. 5.3 No Issuance of Securities. Lincoln shall not issue, deliver or sell, or authorize or propose the issuance, delivery or sale of, any shares of its capital stock or any securities convertible into, or any rights, warrants or options to acquire, any such shares. 5.4 Constituent Documents. Except as contemplated by Section 1.3, Lincoln shall not amend or propose to amend its Amended Articles of Incorporation or its By-laws. 5.5 No Acquisitions. Lincoln shall not acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial equity interest in or substantial portion of the assets of, or by any manner, any business or any -24- corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets not in the ordinary course of business. 5.6 No Dispositions. Lincoln shall not sell, lease, license, encumber or otherwise dispose of, or agree to sell, lease, license, encumber or otherwise dispose of, any of its assets, which are material, individually or in the aggregate, to Lincoln. 5.7 No Indebtedness. Lincoln shall not incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of Lincoln or guarantee any debt securities of others other than in each case in the ordinary course of business consistent with prior practice. 5.8 No Solicitations. Lincoln shall not, nor shall it permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative to solicit or encourage (including by way of furnishing information) or take any other action to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any Alternate Proposal, or agree to or endorse any Alternate Proposal. "Alternate Proposal" shall mean any offer or proposal for a merger, consolidation or other business combination involving Lincoln or any offer or proposal to acquire in any manner a substantial equity interest in, or a substantial portion of the assets of Lincoln other than the transactions contemplated by this Agreement. Lincoln shall promptly orally, and within fifteen (15) business days in writing, advise Parent of any such inquiries or Alternate Proposals. If, in such notice of the Alternate Proposal, the price to be paid for shares of Lincoln Common Stock is greater than the price to be paid for such shares pursuant to this Agreement, Parent shall have thirty (30) days to match the price of such Alternate Proposal, with all other terms and conditions contained in this Agreement remaining constant. If Parent shall have exercised its rights to match the price of such Alternate Proposal, this Agreement shall remain in full force and binding effect. If Parent shall not have exercised its rights to match the price of such Alternate Proposal, this Agreement will remain in full force and binding effect, unless within 60 days of the day Parent receives notice of such Alternate Proposal, Lincoln executes definitive agreements with such third party with respect to such Alternate Proposal. 5.9 No Actions. Except as may be required by law, no party shall take any action that would or is reasonably likely to result in any of its representations and warranties set forth in this Agreement being untrue as of the date made or in any of the conditions to the Merger set forth in Article VII not being satisfied. -25- 5.10 Advice of Changes; Filings with Governmental Entities. Each party shall confer on a regular and frequent basis with the other, report on operational matters and promptly advise the other of any change or event having, or which, insofar as reasonably can be foreseen, could have, a Material Adverse Effect on such party and its subsidiaries taken as a whole. Each party shall promptly provide the other party (or the other party's counsel) copies of all filings made by such party with any state or Federal Governmental Entity in connection with this Agreement and the transactions contemplated hereby. 5.11 Employee Benefit Covenant. During the period from the date of this Agreement and continuing until the Effective Time, Lincoln agrees that it will not, without the prior written consent of Parent, (i) enter into, adopt, amend (except as may be required by law) or terminate any agreement, arrangement, benefit plan or policy between Lincoln and one or more of its directors, officers or employees or (ii) except for normal increases in the ordinary course of business consistent with past practice that, in the aggregate, do not result in a material increase in benefits or compensation expense to Lincoln, increase in any manner the compensation or fringe benefits of any director, officer or employee or (iii) pay any benefit not required by any arrangement as in effect as of the date hereof or (iv) enter into any contract, agreement, commitment or arrangement to do any of the foregoing. 5.12 Tax Covenant. During the period from the date of this Agreement and continuing until the Effective Time, Lincoln agrees (i) to file all returns required to be filed by it and shall pay all Taxes required to be paid, whether or not shown on such returns, and (ii) that it will not, except in the ordinary course of business consistent with prior practice, make any Tax election or settle or compromise any Tax liability. 5.13 IURC Proceedings. During the period from the date of this Agreement and continuing until the Effective Time, Lincoln hereby agrees, as to itself and its officers employees, agents and attorneys, to diligently pursue its rights and obligations with respect to all proceedings before the IURC, including the current gas rate proceeding. -26- ARTICLE VI ADDITIONAL AGREEMENTS 6.1 Access to Information; Confidentiality. Upon reasonable notice, Lincoln shall afford to the officers, employees, accountants, counsel and other representatives of Parent, reasonable access, during normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments and records and, during such period, Lincoln shall furnish promptly to Parent all information concerning its business, properties and personnel as Parent may reasonably request. Unless otherwise required by law, Parent shall hold any such information delivered by Lincoln to Parent which is non-public in confidence until such time as such information otherwise becomes publicly available through no wrongful act of Parent, and in the event of termination of this Agreement for any reason, Parent shall promptly return all non-public documents obtained from Lincoln, and all copies of such documents, to Lincoln. 6.2 Preparation of the Information Statement. Lincoln shall promptly as reasonably practicable after the date of this Agreement, prepare an information statement (the "Information Statement") for use in connection with obtaining the approval of Lincoln's shareholders as provided in Section 6.7. Parent shall provide information to Lincoln for use in the Information Statement as is reasonably necessary, and Lincoln shall include all information provided by Parent, including without limitation any information provided to comply with the Securities Act. Lincoln and Parent shall cooperate in all reasonable respects in the preparation and distribution of the Information Statement. Lincoln shall not distribute the Information Statement without the prior approval of Parent, which approval shall not be unreasonably withheld. 6.3 Preparation of Registration Statement. (a) Parent will use its commercially reasonable best efforts, to prepare and file with the SEC as promptly as reasonably practicable a registration statement on Form S-3 (the "Registration Statement") providing for a secondary offering after the Closing of the Merger, on a continuous basis pursuant to Rule 415 promulgated under the Securities Act, covering the resale of the Parent Common Stock received by the shareholders of Lincoln in connection with the transactions contemplated by this Agreement, pursuant to "brokers' transactions" (within the meaning of Rule 144 promulgated under the Securities Act) on the NYSE. The Registration Statement shall comply as to form in all material respects with the provisions of the Securities Act and the rules and regulations promulgated thereunder. Lincoln shall furnish to Parent all information concerning Lincoln and the holders of the Lincoln Common Stock for use in the Registration Statement as may be required by the Securities Act. Lincoln -27- acknowledges that until the Registration Statement becomes effective, the shares of Parent Common Stock issued at the Effective Time will be subject to transfer restrictions under the Securities Act, and until the effective date of the Registration Statement, the certificates representing such shares shall contain appropriate restrictive legends. Parent and Lincoln shall cooperate in all reasonable respects in the preparation and filing of the Registration Statement. 6.4 Information Supplied. None of the information supplied or to be supplied by Lincoln for inclusion or incorporation by reference in (i) the Registration Statement will, at the time it is filed with the SEC and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading and (ii) the Information Statement will, at the date distributed to the shareholders of Lincoln and at the time of the meeting of such shareholders to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by Parent for inclusion or incorporation by reference in (i) the Registration Statement will, at the time it is filed with the SEC and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading and (ii) the Information Statement will, at the date distributed to the shareholders of Lincoln and at the time of the meeting of such shareholders to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. 6.5 Blue-Sky Filings. Parent shall make all necessary filings under state securities or "Blue Sky" laws in connection with the issuance by Parent of Parent Common Stock in connection with the Merger and Parent shall use its best efforts to obtain all qualifications as may be required under such laws in connection therewith; provided, however, that Parent shall not be required to register or qualify as a foreign corporation or to take any action which would subject it to the service of process in suits, in any jurisdiction where it is not then so subject. Lincoln shall furnish to Parent all information concerning Lincoln and the holders of the Lincoln Common Stock as may be reasonably requested in connection with any such filings. -28- 6.6 Stock Exchange Listing. Parent shall use its best efforts to cause the shares of Parent Common Stock to be issued in the Merger to be approved for listing on the NYSE and any other national securities exchange on which shares of Parent Common Stock may at such time be listed, subject to official notice of issuance, prior to the effective date of the Registration Statement. 6.7 Shareholder Approval. Lincoln shall take all action necessary in accordance with applicable law and its Amended Articles of Incorporation and By-laws to convene a meeting of its shareholders for the purpose of considering the approval of this Agreement and the transactions contemplated hereby. Prior to the date of such shareholder meeting Lincoln shall distribute the Information Statement to each shareholder. Lincoln shall, through its Board of Directors, recommend to its shareholders approval of the Merger and transactions contemplated hereby; provided, however, that the Board of Directors shall not be obligated to recommend approval of such matters if such Board of Directors, acting with the written advice of counsel, determines that such recommendation would be contrary to their legal obligations as Directors. Lincoln and Parent will coordinate and cooperate with respect to the timing of such shareholder meeting and shall use their best efforts to hold such meeting as soon as practicable after the receipt of the required regulatory approvals of the transactions contemplated hereby. 6.8 Legal Conditions to Merger. Each of Lincoln, Parent and Spencer will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on itself with respect to this Agreement, including furnishing all information required under applicable law to any Governmental Entity, and will promptly cooperate with and furnish information to each other in connection with any such requirements imposed upon any of them or any of their subsidiaries in connection with the Merger. Each of Lincoln, Parent and Spencer will take all reasonable actions necessary to obtain (and will cooperate with each other in obtaining) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity or other public or private third party, required to be obtained or made by Parent, Lincoln, Spencer or any of their subsidiaries in connection with the Merger or the taking of any action contemplated thereby or by this Agreement. 6.9 Expenses. Whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense, and, in connection therewith, each of Parent and Lincoln shall pay, with its own funds and not with funds provided by the other party, any and all property or transfer taxes imposed on such party resulting from the Merger. -29- 6.10 Brokers or Finders. Each of Parent and Lincoln represents, as to itself, and its Affiliates, that no agent, broker, investment banker, financial advisor or other firm or person is or will be entitled to any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement, Parent and Lincoln agree to indemnify and hold the other harmless from and against any and all claims, liabilities or obligations with respect to any other fees, commissions or expenses asserted by any person on the basis of any act or statement alleged to have been made by such party or its Affiliate. 6.11 Best Efforts. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements. 6.12 Tax Treatment. Parent, Spencer and Lincoln each agree to treat the Merger as a reorganization within Section 368(a)(2)(E) of the Code. 6.13 Accounting Treatment. Parent, Spencer and Lincoln each agree to account for the Merger as a "pooling-of-interests" within the meaning of Opinion 16 of the Accounting Principles Board, and each of Parent and Lincoln shall use its best efforts to provide all information necessary for Arthur Andersen & Co. to prepare the "pooling-of-interest" letter referred to in Section 7.1(d). 6.14 Compliance Letters. (a) Prior to the Closing Date, Lincoln shall deliver to Parent a letter substantially in the form attached hereto as Exhibit A, identifying all persons who may be, at the time this Agreement is submitted for approval to the shareholders of Lincoln, Affiliates of Lincoln for purposes of "pooling-of-interests" accounting treatment and for purposes of Rule 145 promulgated under the Securities Act. (b) As of the Closing Date, Lincoln shall use its best efforts to cause each Affiliate of Lincoln to deliver to Parent, a written agreement substantially in the form attached hereto as Exhibit B, with respect to certain matters relating to the Federal securities laws and "pooling-of- interest" accounting treatment. (c) As of the Closing Date, Lincoln shall use its best efforts to cause each of its shareholders to deliver to Parent a written agreement substantially in the form attached hereto as Exhibit C, with respect to certain matters relating to the Federal securities laws. -30- 6.15 Ancillary Agreements. Simultaneous with the execution of this Agreement, certain shareholders of Lincoln have entered into (i) an indemnification agreement, agreeing to indemnify Parent for certain liabilities of Lincoln in connection with the transactions contemplated hereby, and (ii) an agreement granting Parent certain rights with respect to Lincoln Common Stock owned by such shareholders. Lincoln and Parent have also executed a letter agreement dated December 22, 1993, with respect to certain employee matters. The indemnification agreement, the rights agreement and the employee matter letter are collectively referred to hereinafter as the "Ancillary Agreements". ARTICLE VII CONDITIONS PRECEDENT 7.1 Conditions to Each Party's Obligation To Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the satisfaction prior to the Closing Date of each of the following conditions: (a) Shareholder Approval. This Agreement, and the transactions contemplated hereby, shall have been approved and adopted by the affirmative vote of the holders of a majority of the outstanding shares of Lincoln Common Stock. (b) Regulatory Approvals. Other than the filing provided for by Section 1.2, all authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity the failure to obtain which would have a Material Adverse Effect on the Surviving Corporation, shall have been filed, occurred or been obtained, including but not limited to the SEC PUHCA Order, the IURC Order and the Local Approvals, and all applicable waiting periods, if any, including any extensions thereof, under any applicable law, statute, regulations or rule, shall have expired or terminated. Parent shall have received all permits and other authorizations necessary under the Blue-Sky Laws to issue the Parent Common Stock in exchange for the Lincoln Common Stock and to consummate the Merger. (c) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition (an "Injunction") preventing the consummation of the Merger, or materially changing the transactions contemplated hereby, shall be in effect. (d) Pooling of Interests. Parent shall have received a letter from Arthur Andersen & Co., dated a date within two business days before the Closing Date and addressed to Parent, stating that the Merger will qualify as a "pooling-of-interests" -31- transaction under Opinion 16 of the Accounting Principles Board. (e) Tax Free Reorganization. Each of Lincoln and Parent shall have received a certificate, in form and substance satisfactory to Lincoln or Parent, as the case may be, from each shareholder of Lincoln that owns seven (7) percent or more of the outstanding common stock of Lincoln issued and outstanding immediately prior to the Effective Time, representing that such shareholder has no plan or intention to sell, exchange, or otherwise dispose of (i) shares of Parent Common Stock received in the Merger, (ii) shares of Parent Common Stock held by such shareholder prior to the Effective Time, or (iii) except as provided in the Merger Agreement, shares of Lincoln Common Stock held by such shareholder prior to the Effective Time. 7.2 Conditions to Obligations of Parent and Spencer. The obligation of Parent and Spencer to effect the Merger is subject to the satisfaction of each of the following conditions unless waived by Parent and Spencer: (a) Representations and Warranties. Except as otherwise contemplated by this Agreement, the representations and warranties of Lincoln set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement (except to the extent such representations and warranties speak as of an earlier date) and as of the Closing Date as though made on and as of the Closing Date, and Parent shall have received a certificate signed on behalf of Lincoln by an executive officer of Lincoln to such effect. (b) Performance of Obligations of Lincoln. Lincoln shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Parent shall have received a certificate signed on behalf of Lincoln by an executive officer of Lincoln to such effect. (c) Tax Opinion. Parent shall have received the opinion of Winthrop, Stimson, Putnam & Roberts, counsel to Parent, based on the appropriate representations of Lincoln and Parent in form and substance satisfactory to such counsel, to the effect that the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a)(2)(E) of the Code, and that Parent, Spencer and Lincoln will each be a party to that reorganization within the meaning of Section 368(b) of the Code, dated on or about the date of the Closing. (d) Board Approval. The Board of Directors of Parent shall have approved this Agreement by January 15, 1994. (e) Consents Under Agreements. Lincoln shall have obtained the consent or approval of each person (other than the Government Entities), whose consent or approval shall be required -32- in order to permit Lincoln to consummate the transactions contemplated hereby (including, without limitation, consents or approvals incident to contracts, franchises, deeds, easements, intangibles and other rights and entitlements necessary for the continued operation of Lincoln's business), except those for which failure to obtain such consents and approvals would not, individually or in the aggregate, have a Material Adverse Effect (i) on the Surviving Corporation or (ii) upon the consummation of the transactions contemplated hereby. (f) Material Adverse Change. Since December 31, 1992, there shall not have been any material adverse change, or changes which in the aggregate are materially adverse, in the financial condition, assets, liabilities (contingent or otherwise) results of operations, business or business prospects of Lincoln. (g) Compliance Letters. Parent shall have received from Lincoln an executed copy of the agreement in the form of Exhibit A hereto designating each Affiliate of Lincoln, and Parent shall have received from each Affiliate so designated an executed copy of the agreement in the form of Exhibit B. Parent shall have also received from each shareholder who is not an Affiliate of Lincoln an executed copy of the agreement in the form of Exhibit C. (h) Satisfactory Investigation. Parent shall have satisfactorily completed its investigation, including a review by Parent's independent public accountants, of the assets, equipment, facilities, liabilities (contingent or otherwise) financial condition, business and business prospects of Lincoln in connection with the transactions contemplated hereby and shall have been satisfied with such results. Parent shall have satisfactorily completed its investigation of any event or condition arising or discovered after the date of this Agreement that, could reasonably be expected to result in a Material Adverse Effect on Lincoln. (i) Environmental Investigation. Parent shall have completed, to its satisfaction, an environmental inspection of the facilities of Lincoln, and Parent shall not have discovered, either in the course of the environmental inspection or at any time prior to the Closing Date, any actual or potential liabilities (contingent or otherwise) relating to environmental matters which could reasonably be expected to result in a Material Adverse Effect on Lincoln. (j) Schedules. Lincoln shall have provided to Parent the detailed Schedules and other information required by this Agreement by February 15, 1994 and the information in such Schedules shall not disclose any material adverse change, or changes since December 31, 1992 which in the aggregate are materially adverse, in the assets, liabilities (contingent or otherwise), financial condition, results of operations, business or business prospects of Lincoln, other than such changes -33- disclosed in the IURC Documents filed prior to the date of this Agreement. 7.3 Conditions to Obligations of Lincoln. The obligation of Lincoln to effect the Merger is subject to the satisfaction of each of the following conditions unless waived by Lincoln: (a) Representations and Warranties. Except as otherwise contemplated by this Agreement, the representations and warranties of Parent and Spencer set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement (except to the extent such representations speak as of an earlier date) and as of the Closing Date as though made on and as of the Closing Date, and Lincoln shall have received a certificate signed on behalf of Parent by an executive officer of Parent to such effect. (b) Performance of Obligations of Parent and Spencer. Parent and Spencer shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Closing Date, and Lincoln shall have received a certificate signed on behalf of Parent by an executive officer of Parent to such effect. (c) Tax Opinion. Lincoln shall have received the opinion of its counsel based on the appropriate representations of Parent and Lincoln in form and substance satisfactory to such counsel, to the effect that the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a)(2)(E) of the Code, and that Parent, Spencer and Lincoln will each be a party to that reorganization within the meaning of Section 368(b) of the Code, dated on or about the date of the Closing. (d) Material Adverse Change. Since December 31, 1992, there shall not have been any material adverse change, or changes which in the aggregate are materially adverse, in the financial condition, assets, liabilities (contingent or otherwise) results of operations, business or business prospects of Parent, Spencer and subsidiaries of Parent taken as a whole. ARTICLE VIII TERMINATION AND AMENDMENT 8.1 Termination. At any time prior to the Effective Time, whether before or after approval of the matters presented in connection with the Merger by the holders of Lincoln Common Stock, this Agreement may be terminated: (a) by mutual consent of Parent and Lincoln; -34- (b) by either Parent or Lincoln if the Merger shall not have been consummated before July 1, 1994, unless extended by mutual agreement; (c) by either Parent or Lincoln if there has been a material breach of any representation, warranty, covenant or agreement on the part of the other set forth in this Agreement which breach has not been cured within ten (10) business days following receipt by the breaching party of notice of such breach or adequate assurance of such cure shall not have been given by or on behalf of the breaching party within such ten (10) business day period; (d) by either Parent or Lincoln if any permanent Injunction or other order of a court or other competent authority preventing the consummation of the Merger shall have become final and nonappealable; (e) by either Parent or Lincoln if the required approval of the holders of Lincoln Common Stock shall not have been obtained by reason of the failure to obtain the required approval upon a vote taken at a duly held meeting of shareholders or at any adjournment thereof, or (f) by either Parent or Lincoln pursuant to Section 5.8. 8.2 Effect of Termination. In the event of termination of this Agreement by either Lincoln or Parent as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Spencer or Lincoln or their respective officers or directors, except to the extent that such termination results from the breach by a party hereto of any of its representations, warranties, covenants or agreements set forth in this Agreement. 8.3 Amendment. This Agreement may be amended by the parties hereto, 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 the holders of Lincoln Common Stock but, after any such approval, no amendment shall be made which by law requires further approval by such shareholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 8.4 Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action duly taken, may, 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 contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any -35- agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. ARTICLE IX GENERAL PROVISIONS 9.1 Further Assurances. Each party will execute and deliver all such further documents and instruments and take all such further action as may be necessary in order to consummate the transactions contemplated hereby. 9.2 Notices. Any notice or communication required or permitted hereunder shall be in writing and either delivered personally or telecopied (with confirmation of receipt) or sent by certified or registered mail, postage prepaid, and shall be deemed to be given, dated and received when so delivered personally or telecopied (with confirmation of receipt) or, if mailed, five business days after the date of mailing to the following address or telecopy numbers, or to such other address or addresses as such person may subsequently designate by notice given hereunder. (a) if to Parent or Spencer, to: Southern Indiana Gas & Electric Company 20 N.W. Fourth Street Evansville, Indiana 47741-0001 Telecopy: (812) 464-4554 Telephone: (812) 424-5300 Attention: Mr. Andrew E. Goebel with a copies to: Winthrop, Stimson, Putnam & Roberts One Battery Park Plaza New York, NY 10004-1490 Telecopy: (212) 858-1500 Telephone: (212) 858-1000 Attention: John H. Byington, Jr., Esq. -36- and to: Bamberger, Foreman, Oswald and Hahn Seventh Floor - Hulman Building Evansville, Indiana 47704-0657 Telecopy: (812) 425-1591 Telephone: (812) 421-4936 Attention: George A. Porch, Esq. (b) if to Lincoln, to: Lincoln Natural Gas Company, Inc. 317 Main Street Rockport, Indiana 47635 Telecopy: (812) 649-9524 Telephone: (812) 649-2311 Attention: Mr. James O. Martin with a copy to: Lindsey & Lindsey 217 Main Street Rockport, Indiana 47635 Telecopy: (812) 649-9676 Telephone: (812) 649-4571 Attention: Sid Lindsey, Esq. 9.3 Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. 9.4 Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 9.5 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when such counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. -37- 9.6 Entire Agreement. This Agreement (including the documents and the instruments referred to herein, including without limitation, the Ancillary Agreements) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. 9.7 No Third Party Beneficiaries. This Agreement (including the documents and the instruments referred to herein) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. 9.8 Governing Law. This Agreement shall be governed and construed in accordance with the internal substantive laws of the State of Indiana without regard to any applicable conflicts of law principles. 9.9 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. In the event any court or other competent authority holds any provision of this Agreement to be null, void or unenforceable, the parties hereto shall negotiate in good faith the execution and delivery of an amendment to this Agreement in order, as nearly as possible, to effectuate, to the extent permitted by law, the intent of the parties hereto with respect to such provision. 9.10 Publicity. Except as otherwise required by law or the rules of the NYSE, so long as this Agreement is in effect, neither Lincoln nor Parent shall, nor shall permit any of its Affiliates to, issue or cause the publication of any press release or other public announcement with respect to the transactions contemplated by this Agreement without the consent of the other party, which consent shall not be unreasonably withheld. 9.11 Assignment. 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, except that Spencer may assign, in its sole discretion, any or all rights, interests and obligations hereunder to Parent or to any direct or indirect wholly owned subsidiary of Parent. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. -38- IN WITNESS WHEREOF, Parent, Spencer and Lincoln have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first above written. SOUTHERN INDIANA GAS & ELECTRIC COMPANY BY /s/ R.G. Reherman --------------------------- Name: R.G. Reherman Title: Chairman, President & C.E.O. SPENCER ENERGY CORP. BY /s/ R.G. Reherman ---------------------------- Name: R.G. Reherman Title: Chairman, President & C.E.O. LINCOLN NATURAL GAS COMPANY, INC. BY /s/ James Orville Martin --------------------------- Name: James Orville Martin Title: -39- EXHIBIT A [LETTERHEAD OF LINCOLN] Date Southern Indiana Gas and Electric Company 20 N.W. Fourth Street Evansville, Indiana 47741-0001 Gentlemen: The following persons may be deemed to be affiliates of Lincoln Natural Gas Company, Inc. within the meaning of Rule 145 under the Securities Act of 1933, as amended, and the Securities and Exchange Commission's Accounting Series Release 135 and for purposes of "pooling-of- interest" accounting treatment: ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ ______________________ Very truly yours, Lincoln Natural Gas Company, Inc. By: ______________________ Name: Title: EXHIBIT B (Affiliate) Gentlemen: The undersigned, a holder of shares of Common Stock, par value $___ per share ("Lincoln Common Stock"), of Lincoln Natural Gas Company, Inc. an Indiana corporation ("Lincoln"), is entitled to receive in connection with the merger (the "Merger") of Spencer Energy Corp., an Indiana corporation, with and into Lincoln, Common Stock, no par value per share (the "Parent Common Stock") of Southern Indiana Gas & Electric Company (the "Parent"). The undersigned acknowledges that it has received shares of Parent Common Stock in a transaction which was exempt from registration with the Securities and Exchange Commission pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and Regulation D promulgated thereunder, and that therefor such shares of Parent Common Stock are "restricted securities" as defined in Section (a)(3) of Rule 144 promulgated under the Act. The undersigned further acknowledges that the undersigned may not sell, assign or transfer the Parent Common Stock received pursuant to the Merger unless such Parent Common Stock is registered under the Act or an exemption from registration is available. The undersigned understands that such exemptions are limited and the undersigned has obtained advice of counsel as to the nature and conditions of such exemptions, including information with respect to the applicability to the sales of such securities of Rule 144 promulgated under the Act. The undersigned hereby represents to and covenants with the Parent that the undersigned will not sell, assign or transfer any of the Parent Common Stock received by the undersigned in exchange for shares of Company Stock pursuant to the Merger except (i) pursuant to an effective Registration Statement under the Act, or (ii) in a transaction which, in the opinion of independent counsel reasonably satisfactory to Parent (the fees of which counsel will be paid by the undersigned) or described in a "no-action" or other interpretive letter from the Staff of the Securities and Exchange Commission, is not required to be registered under the Act. The undersigned acknowledges and agrees that the appropriate legends will be placed on certificates representing Parent Common Stock received by the undersigned in the Merger or held by a transferee thereof, which legends will be removed by delivery of substitute certificates upon (i) the effective date of a Registration Statement under the Act filed with respect to such Parent Common Stock held by the undersigned, or (ii) receipt of an opinion in form and substance reasonable satisfactory to Parent from independent counsel reasonably satisfactory to Parent (the fees of which counsel will be paid by the undersigned) to the effect that such legends are no longer required for purposes of the Act. The undersigned acknowledges that the undersigned may be deemed an "affiliate" of Lincoln for purposes of the federal securities laws and for purposes of "pooling-of-interests" accounting treatment, although nothing contained herein should be construed as an admission of such fact. The undersigned acknowledges that "affiliates" who desire to sell their Parent Common Stock at such a time when the Registration Statement under the Act may no longer be effective (two years after the Effective Date), shall consult with Parent as to the availability of an exemption from the registration requirements of the Act. The undersigned further represents to and covenants with Parent that it will not sell, assign, transfer, exchange or otherwise dispose of any of the Parent Common Stock prior to such time as Lincoln shall have published a quarterly earnings report, including combined sales and net income information, covering at least 30 days of post-Merger combined operations. The undersigned acknowledges that (i) it has carefully read this letter and understands the requirements hereto and the limitations imposed upon the distribution, sale, transfer or other disposition of shares of Parent Common Stock and (ii) the receipt by Parent of this letter is an inducement and a condition to Parent's obligations to consummate the Merger. Very truly yours, Name Dated: -2- EXHIBIT C (Non-Affiliate) Gentlemen: The undersigned, a holder of shares of Common Stock, par value $___ per share ("Lincoln Common Stock"), of Lincoln Natural Gas Company, Inc., an Indiana corporation ("Lincoln"), is entitled to receive in connection with the merger (the "Merger") of Spencer Energy Corp., an Indiana corporation, with and into Lincoln, Common Stock, no par value per share (the "Parent Common Stock") of Southern Indiana Gas & Electric Company (the "Parent"). The undersigned acknowledges that it has received shares of Parent Common Stock in a transaction which was exempt from registration with the Securities and Exchange Commission pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and Regulation D promulgated thereunder, and that therefor such shares of Parent Common Stock are "restricted securities" as defined in Section (a)(3) of Rule 144 promulgated under the Act. The undersigned further acknowledges that the undersigned may not sell, assign or transfer the Parent Common Stock received pursuant to the Merger unless such Parent Common Stock is registered under the Act or an exemption from registration is available. The undersigned understands that such exemptions are limited and the undersigned has obtained advice of counsel as to the nature and conditions of such exemptions, including information with respect to the applicability to the sales of such securities of Rule 144 promulgated under the Act. The undersigned hereby represents to and covenants with the Parent that the undersigned will not sell, assign or transfer any of the Parent Common Stock received by the undersigned in exchange for shares of Company Stock pursuant to the Merger except (i) pursuant to an effective Registration Statement under the Act, or (ii) in a transaction which, in the opinion of independent counsel reasonably satisfactory to Parent (the fees of which counsel will be paid by the undersigned) or described in a "no-action" or other interpretive letter from the Staff of the Securities and Exchange Commission, is not required to be registered under the Act. The undersigned acknowledges and agrees that the appropriate legends will be placed on certificates representing Parent Common Stock received by the undersigned in the Merger or held by a transferee thereof, which legends will be removed by delivery of substitute certificates upon (i) the effective date of a Registration Statement under the Act filed with respect to such Parent Common Stock held by the undersigned, or (ii) receipt of an opinion in form and substance reasonable satisfactory to Parent from independent counsel reasonably satisfactory to Parent (the fees of which counsel will be paid by the undersigned) to the effect that such legends are no longer required for purposes of the Act. The undersigned acknowledges that (i) it has carefully read this letter and understands the requirements hereto and the limitations imposed upon the distribution, sale, transfer or other disposition of shares of Parent Common Stock and (ii) the receipt by Parent of this letter is an inducement and a condition to Parent's obligations to consummate the Merger. Very truly yours, Name Dated: -2- EX-2 6 EXHIBIT B-3 SOUTHERN INDIANA GAS AND ELECTRIC CO. EXHIBIT B-3 ================================================================= RIGHT OF FIRST REFUSAL AGREEMENT among SOUTHERN INDIANA GAS & ELECTRIC COMPANY, LINCOLN NATURAL GAS COMPANY, INC., and certain shareholders of LINCOLN NATURAL GAS COMPANY, INC. Dated as of December 23, 1993 ================================================================= RIGHT OF FIRST REFUSAL AGREEMENT RIGHT OF FIRST REFUSAL AGREEMENT dated as of December 23, 1993, (the "Rights Agreement"), among SOUTHERN INDIANA GAS & ELECTRIC COMPANY, an Indiana corporation with its principal executive offices at 20 N.W. Fourth Street, Evansville, Indiana ("Parent"), LINCOLN NATURAL GAS COMPANY, INC., an Indiana corporation with its principal executive offices at 317 Main Street, Rockport, Indiana ("Lincoln") and the shareholders of Lincoln which are signatories to this Rights Agreement (the "Principal Shareholders"). WHEREAS, concurrently with the execution and delivery of this Rights Agreement, Parent, Lincoln, and Spencer Energy Corp., a single purpose Indiana corporation and a wholly owned subsidiary of Parent ("Spencer") are entering into an Agreement and Plan of Merger (the "Merger Agreement") (capitalized terms not defined herein shall have the meanings set forth in the Merger Agreement), which provides that, among other things, upon the terms and subject to the conditions thereof, Spencer will be merged with and into Lincoln (the "Merger"), with Lincoln continuing as the surviving corporation; and WHEREAS, as a condition to Parent's and Spencer's willingness to enter into the Merger Agreement, Parent has requested that the Principal Shareholders agree, and the Principal Shareholders so agree, to grant to Parent a right of first refusal with respect to certain securities of Lincoln on the terms and subject to the conditions set forth herein; NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein and in the Merger Agreement and for other good and valuable consideration, the receipt of which are hereby acknowledged, the parties hereto agree as follows: 1.1 Right of First Refusal. The Principal Shareholders hereby grant to Parent the right of first refusal to purchase all or any part of the Lincoln Common Stock held by the Principal Shareholders. In the event a Principal Shareholder receives an offer from a third party to sell such securities, that Principal Shareholder shall give to Parent written notice of such offer within fifteen (15) days. Such notice shall describe the type of securities proposed to be purchased, the identity of the third party offering to purchase the securities, and the price, amount and other terms which the third party has offered for the securities. Parent shall have thirty (30) days from the date of receipt of such notice to agree to purchase (subject to obtaining the SEC PUHCA Order and the IURC Order) from that Principal Shareholder any of such securities for the price stated in the notice but with all other terms remaining as in the Merger Agreement, by responding in writing to that Principal Shareholder and stating the quantity of securities to be purchased by Parent. If Parent fails to exercise its right of first refusal within the thirty day period, the selling Principle Shareholder shall have sixty (60) days thereafter to sell the securities not elected to be purchased by Parent at the price, to the third person, and upon the terms specified in the notice provided by that Principal Shareholder to Parent. If that Principal Shareholder has not so sold the securities within the sixty day period to the third person, then that Principal Shareholder shall not thereafter sell any such securities without first offering to Parent in the manner provided above. 1.2 No Solicitations. Each of the Principal Shareholders agree that it shall not, nor shall it permit any investment banker, financial advisor, attorney, accountant or other representative to solicit or encourage (including by way of furnishing information) or take any other action to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, an offer to purchase the shares of Lincoln Common Stock held by any of the Principal Shareholders. 1.3 Termination. This Rights Agreement shall expire at the Effective Time (as defined in the Merger Agreement). 1.4 Enforceability. The parties hereto represent and warrant that this Rights Agreement has been duly and validly executed and delivered, and is a valid and binding instrument enforceable against the parties hereto and their respective estates, heirs, executors, administrators and legal successors in accordance with its terms. The parties agree that the non- enforceability of any part or parts of this agreement renders only that part or parts of the agreement, and not the entire agreement, non-enforceable. 1.5 Further Assurances. Each party will execute and deliver all such further documents and instruments and take all such further action as may be necessary in order to consummate the transactions contemplated hereby. 1.6 Notices. Any notice or communication required or permitted hereunder shall be in writing and either delivered personally or telecopied (with confirmation of receipt) or sent by certified or registered mail, postage prepaid, and shall be deemed to be given, dated and received when so delivered personally or telecopied (with confirmation of receipt) or, if mailed, five business days after the date of mailing to the following address or telecopy number, or to such other address or addresses as such person may subsequently designate by notice given hereunder. -2- (a) if to Parent, to: Southern Indiana Gas & Electric Company 20 N.W. Fourth Street Evansville, Indiana 47741-0001 Telecopy: (812) 464-4554 Telephone: (812) 424-5300 Attention: Mr. Andrew E. Goebel with a copy to: Winthrop, Stimson, Putnam & Roberts One Battery Park Plaza New York, New York 10004-1490 Telecopy: (212) 858-1500 Telephone: (212) 858-1000 Attention: John H. Byington, Jr., Esq. and to: Bamberger, Foreman, Oswald and Hahn Seventh Floor - Hulman Building Evansville, Indiana 47704-0657 Telecopy: (812) 425-1591 Telephone: (812) 421-4936 Attention: George A. Porch, Esq. (b) if to the Principal Shareholders, to Lindsey & Lindsey 217 Main Street Rockport, Indiana 47635 Telecopy: (812) 649-9676 Telephone: (812) 649-4571 Attention: Sid Lindsey, Esq. 1.7 Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Rights Agreement. 1.8 Counterparts. This Rights Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when such counterparts have been signed by each of the parties -3- and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 1.9 Entire Agreement. This Rights Agreement (including the documents and the instruments referred to herein) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. 1.10 Governing Law. This Rights Agreement shall be governed and construed in accordance with the internal substantive laws of the State of Indiana without regard to any applicable conflicts of law principles. 1.11 Assignment. Neither this Rights 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 Rights Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 1.12 Amendments; Waiver. This Rights Agreement may be amended by the parties hereto and the terms and conditions hereof may be waived only by an instrument in writing signed on behalf of each of the parties hereto, or, in the case of a waiver, by an instrument signed on behalf of the party waiving compliance. -4- IN WITNESS WHEREOF, Parent and Lincoln have caused this Rights Agreement to be signed by their respective officers thereunto duly authorized, and the Principle Shareholders, listed below, have caused this Rights Agreement to be signed, all as of the date first above written. SOUTHERN INDIANA GAS & ELECTRIC COMPANY BY /s/ R.G. Reherman ---------------------------------------- Name: R.G. Reherman Title: Chairman, President & C.E.O. LINCOLN NATURAL GAS COMPANY, INC. BY /s/ James Orville Martin ---------------------------------------- Name: James Orville Martin Title: THE PRINCIPAL SHAREHOLDERS: THE JAMES ORVILLE MARTIN TRUST BY /s/ James Orville Martin, Trustee ------------------------------------ James Orville Martin, Trustee THE THERESA L. MARTIN TRUST BY /s/ Theresa L. Martin ----------------------------------- Theresa L. Martin, Trustee /s/ Robert M. Arnold ----------------------------------- Robert M. Arnold as tenant in common with Susan Arnold /s/ Susan Arnold ----------------------------------- Susan Arnold as tenant in common with Robert M. Arnold EX-2 7 EXHIBIT B-4 EXHIBIT B-4 ================================================================= INDEMNITY AGREEMENT among SOUTHERN INDIANA GAS & ELECTRIC COMPANY, LINCOLN NATURAL GAS COMPANY, INC., and certain shareholders of LINCOLN NATURAL GAS COMPANY Dated as of December 23, 1993 ================================================================= INDEMNITY AGREEMENT INDEMNITY AGREEMENT dated as of December 23, 1993, (the "Indemnity Agreement"), among SOUTHERN INDIANA GAS & ELECTRIC COMPANY, an Indiana corporation with its principal executive offices at 20 N.W. Fourth Street, Evansville, Indiana ("Parent"), LINCOLN NATURAL GAS COMPANY, INC., an Indiana corporation with its principal executive offices at 317 Main Street, Rockport, Indiana ("Lincoln") and the shareholders of Lincoln referred to in Exhibit A attached hereto (the "Principal Shareholders"). WHEREAS, concurrently with the execution and delivery of this Indemnity Agreement, Lincoln, Parent, and Spencer Energy Corp., a single purpose Indiana corporation and a wholly owned subsidiary of Parent ("Spencer") are entering into an Agreement and Plan of Merger (the "Merger Agreement") (capitalized terms not defined herein shall have the meanings set forth in the Merger Agreement), which provides that, among other things, upon the terms and subject to the conditions thereof, Spencer will be merged with and into Lincoln (the "Merger"), with Lincoln continuing as the surviving corporation; and WHEREAS, as a condition to Parent's and Spencer's willingness to enter into the Merger Agreement, Parent has requested that the Principal Shareholders agree, and the Principal Shareholders so agree, to indemnify Parent on the terms and subject to the conditions set forth herein; NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein and in the Merger Agreement and for other good and valuable consideration, the receipt of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I REPRESENTATIONS AND WARRANTIES Each of the Principal Shareholders represents and warrants to Parent as follows: 1.1 Ownership of Shares. Each Principal Shareholder is the lawful legal and beneficial owner of that number of shares of Lincoln Common Stock set forth by such Principal Shareholder's name on Exhibit A. Each Shareholder owns such shares free and clear of all pledges, liens, charges, encumbrances, easements, defects, security interests, claims, options, and restrictions of every kind ("Encumbrances"). Upon the delivery of the shares of Lincoln Common Stock to Parent in the manner contemplated by Article II of the Merger Agreement, Parent shall acquire the legal and beneficial, valid and indefeasible title to such shares of Lincoln Common Stock, free and clear of all Encumbrances. 1.2 Restricted Securities. Each Principal Shareholder hereby acknowledges that the shares of Parent Common Stock to be issued in exchange for the shares of Lincoln Common Stock in the Merger, will be issued in a transaction which is exempt from registration with the SEC, pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder, and that therefor such shares of Parent Common Stock are "restricted securities" as defined in Section (a)(3) of Rule 144 promulgated under the Securities Act. Each Principal Shareholder further acknowledges that he/she may not sell, assign or transfer the Parent Common Stock received by him/her pursuant to the Merger unless such Parent Common Stock is registered under the Securities Act or an exemption from registration is available. Each Principal Shareholder further acknowledges that appropriate legends will be placed on certificates representing Parent Common Stock received by such Principal Shareholder in the Merger. ARTICLE II ASSIGNMENT AND ASSUMPTION 2.1 Assignment. Lincoln hereby assigns and transfers to the Principal Shareholders, to the extent accepted by them in Section 2.2 hereof, all liabilities, costs and expenses associated with, or arising out of, Undisclosed Liabilities (as defined in Section 3.9 of the Merger Agreement). 2.2 Acceptance and Assumption. The Principal Shareholders hereby, jointly and severally, assume, undertake and accept, up to a maximum amount of $100,000 each, any and all liabilities, costs and expenses associated with, or arising out of, the Undisclosed Liabilities (as defined in Section 3.9 of the Merger Agreement) which become known within one year of the Closing Date and which they, or any of them, had, or could have had with the exercise of reasonable diligence, knowledge of at the Closing Date. 2.3 Effectiveness. The assignment and assumption contemplated by Article II of this Indemnity Agreement shall become effective, automatically and without further action, upon the Effective Time of the Merger. -2- ARTICLE III INDEMNIFICATION 3.1 Indemnification by the Principal Shareholders. The Principal Shareholders (up to a maximum limit of $100,000 each) hereby agree to jointly and severally defend, indemnify and hold harmless, for a period of one year from the Closing Date, the Parent, Lincoln, and their respective successors, assigns and affiliates (collectively, the "Parent Indemnitees") from and against any and all losses, deficiencies, liabilities, damages, assessments, judgments, costs and expenses, including, but not limited to, court costs and attorneys' fees (including those incurred in connection with the defense or prosecution of the indemnifiable claim, those incurred in connection with the enforcement of this provision, and all other court costs and attorneys' fees assessed against the Parent Indemnitees), including environmental liabilities and costs (collectively, "Parent Losses"), caused by, resulting from or arising out of: (a) (i) breaches of any representation or warranty on the part of the Principal Shareholders hereunder; (ii) breaches of any representation or warranty on the part of Lincoln pursuant to the Merger Agreement and its related documents; (ii) failures by the Principal Shareholders to perform or otherwise fulfill any undertaking, assumption, agreement, covenant or obligation hereunder; and (iv) failures by the Lincoln to perform or otherwise fulfill any undertaking, assumption, agreement, covenant or obligation hereunder, or pursuant to the Merger Agreement and its related documents; (b) any and all Undisclosed Liabilities; (c) any and all claims arising in connection with breach of contract, death, personal injury, other injury to Persons, property damage, losses or deprivation of rights (whether based on statute, negligence, breach of warranty, strict liability or any other theory) caused by or resulting from, directly or indirectly, the manufacture or sale of any product, or the provision of any services, by Lincoln on or before the Closing Date, or any other claims asserted against Lincoln arising from any action or inaction of the Principal Shareholders or Lincoln on or before the Closing Date, including but not limited to, the actions set forth in Schedule 3.11 of the Merger Agreement; (d) (i) each and every item set forth in Schedules 3.18(a) through 3.18(k) of the Merger Agreement; (ii) the actual, alleged or threatened release, storage, transportation, treatment or generation of hazardous substances, oils, pollutants or contaminants generated, stored, used, disposed of, treated, handled or shipped by the Principal Shareholders, Lincoln, any -3- former subsidiary of Lincoln, or any prior owner of the Property on or before the Closing Date; or (iii) any cleanup of hazardous substances, oils, pollutants or contaminants released, disposed of or discharged: (A) on, beneath or adjacent to the Property prior to or on the Closing Date, or (B) at any other location if such substances were generated, used, stored, disposed of, treated, transported or released by the Principal Shareholders, Lincoln, any former subsidiary of Lincoln, or any prior owner of the Property prior to or on the Closing Date; (e) any and all Federal taxes not paid by Lincoln for, or relating to, periods before the Closing Date; and (f) any and all actions, suits, proceedings, claims, and demands, incident to any of the foregoing or such indemnification; provided, however, that if any claim, liability, demand, assessment, action, suit or proceeding shall be asserted in respect of which a Parent Indemnitee proposes to demand indemnification ("Parent Indemnified Claims"), the Parent or such other Parent Indemnitee shall notify the Principal Shareholders thereof, provided further, however, that the failure to so notify the Principal Shareholders shall not reduce or affect the Principal Shareholders' obligations with respect thereto except to the extent that the Principal Shareholders are materially prejudiced thereby. Subject to rights of or duties to any insurer or other third Person having liability therefor, the Principal Shareholders shall have the right promptly upon receipt of such notice to assume the control of the defense, compromise, or settlement of any such Parent Indemnified Claims (provided that any compromise or settlement must be reasonably approved by the Parent), including, at its own expense, employment of counsel reasonably satisfactory to the Parent; provided, however, that if the Principal Shareholders shall have exercised their right to assume such control, the Parent may, in its sole discretion and at its expense, employ counsel to represent it (in addition to counsel employed by the Principal Shareholders) in any such matter, and in such event counsel selected by the Principal Shareholders shall be required to cooperate with such counsel of the Parent in such defense, compromise, or settlement. 3.2 Indemnification by the Parent. Parent hereby agrees to defend, indemnify and hold harmless the Principal Shareholders and their successors, assigns and affiliates (collectively, "Shareholder Indemnitees") from and against any and all losses, deficiencies, liabilities, damages, assessments, judgments, costs and expenses, including, without limitation, court costs and attorneys' fees (including those incurred in connection with the defense or prosecution of the indemnifiable claim, those incurred in connection with the enforcement of this provision, and all other court costs and attorneys' fees assessed against the Shareholder Indemnitees) (collectively, "Shareholder Losses"), resulting from or arising out of: -4- (a) (i) breaches of representation and warranty on the part of Parent or Spencer in the Merger Agreement; and (ii) failures by Parent or Spencer to perform or otherwise fulfill any undertaking, assumption, agreement, covenant or obligation hereunder or in the Merger Agreement, as the case may be; and (b) any and all actions, suits, proceedings, claims, and demands incident to any of the foregoing or such indemnification; provided, however, that if any claim, liability, demand, assessment, action, suit or proceeding shall be asserted in respect of which a Shareholder Indemnitee proposes to demand indemnification ("Shareholder Indemnified Claims"), the Principal Shareholders or such other Shareholder Indemnitee shall notify the Parent thereof, provided further, however, that the failure to so notify the Parent shall not reduce or affect the Parent's obligations with respect thereto except to the extent that the Parent is materially prejudiced thereby. Subject to rights of or duties to any insurer or other third Person having liability therefor, the Parent shall have the right promptly upon receipt of such notice to assume the control of the defense, compromise, or settlement of any such Shareholder Indemnified Claims (provided that any compromise or settlement must be reasonably approved by the Principal Shareholders) including, at its own expense, employment of counsel reasonably satisfactory to the Principal Shareholders; provided, however, that if the Parent shall have exercised its right to assume such control, the Principal Shareholders may, in their sole discretion and at their expense, employ counsel to represent them (in addition to counsel employed by the Parent) in any such matter, and in such event counsel selected by the Parent shall be required to cooperate with such counsel of the Principal Shareholders in such defense, compromise, or settlement. 3.3 Non-Exclusive Remedy. The indemnification provisions provided in this Indemnity Agreement shall not constitute the exclusive remedies available to the Parent or the Principal Shareholders. 3.4 Death. Upon the death of a Principal Shareholder, the indemnification obligations arising under this Indemnity Agreement (including obligations that may arise in the future) shall become the obligations of such Principal Shareholder's estate, heirs, executors, administrators, and legal successors. 3.5 Survival of Representations and Warranties. The respective representations and warranties of Parent, Spencer and Lincoln contained in the Merger Agreement shall survive the Closing Date for a period of 12 months. The representations and warranties of the Principal Shareholders contained in this Indemnity Agreement shall survive the Closing Date without limitation. -5- 3.6 Survival of Covenants. The respective undertakings, assumptions, agreements, covenants or obligations of Parent, Spencer, Lincoln and the Principal Shareholders contained in this Indemnity Agreement and the Merger Agreement shall survive the Closing Date, except as previously limited herein. ARTICLE IV GENERAL PROVISIONS 4.1 Further Assurances. Each party will execute and deliver all such further documents and instruments and take all such further action as may be necessary in order to consummate the transactions contemplated hereby. 4.2 Notices. Any notice or communication required or permitted hereunder shall be in writing and either delivered personally or telecopied (with confirmation of receipt) or sent by certified or registered mail, postage prepaid, and shall be deemed to be given, dated and received when so delivered personally or telecopied (with confirmation of receipt) or, if mailed, five business days after the date of mailing to the following address or telecopy number, or to such other address or addresses as such person may subsequently designate by notice given hereunder. (a) if to Parent, to: Southern Indiana Gas & Electric Company 20 N.W. Fourth Street Evansville, Indiana 47741-0001 Telecopy: (812) 464-4554 Telephone: (812) 424-5300 Attention: Mr. Andrew E. Goebel with a copy to: Winthrop, Stimson, Putnam & Roberts One Battery Park Plaza New York, NY 10004 Telecopy: (212) 858-1500 Telephone: (212) 858-1000 Attention: John H. Byington, Jr., Esq. -6- and to: Bamberger, Foreman, Oswald and Hahn Seventh Floor - Hulman Building Evansville, Indiana 47704-0657 Telecopy: (812) 425-1591 Telephone: (812) 421-4936 Attention: George A. Porch, Esq. (b) if to the Principal Shareholders, to: Lindsey & Lindsey 217 Main Street Rockport, Indiana 47635 Telecopy: (812) 649-9676 Telephone: (812) 649-4571 Attention: Sid Lindsey, Esq. 4.3 Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Indemnity Agreement. 4.4 Counterparts. This Indemnity Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when such counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 4.5 Entire Agreement. This Indemnity Agreement (including the documents and the instruments referred to herein), constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. 4.6 Governing Law. This Indemnity Agreement shall be governed and construed in accordance with the internal substantive laws of the State of Indiana without regard to any applicable conflicts of law principles. 4.7 Assignment. Neither this Indemnity 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 Indemnity Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. -7- 4.8 Amendments; Waiver. This Indemnity Agreement may be amended by the parties hereto and the terms and conditions hereof may be waived only by an instrument in writing signed on behalf of each of the parties hereto, or, in the case of a waiver, by an instrument signed on behalf of the party waiving compliance. -8- IN WITNESS WHEREOF, Parent and Lincoln have caused this Indemnity Agreement to be signed by their respective officers thereunto duly authorized, and the Principal Shareholders, listed below, have caused this Indemnity Agreement to be signed, all as of the date first above written. SOUTHERN INDIANA GAS & ELECTRIC COMPANY BY /s/ R.G. Reherman ------------------------------------------- Name: R.G. Reherman Title: Chairman, President & C.E.O. LINCOLN NATURAL GAS COMPANY, INC. BY /s/ James Orville Martin ------------------------------------------- Name: James Orville Martin Title: THE PRINCIPAL SHAREHOLDERS: THE JAMES ORVILLE MARTIN TRUST BY /s/ James Orville Martin, Trustee -------------------------------------- James Orville Martin, Trustee THE THERESA L. MARTIN TRUST BY /s/ Theresa L. Martin, Trustee ------------------------------------- Theresa L. Martin, Trustee /s/ Robert M. Arnold ------------------------------------- Robert M. Arnold as tenant in common with Susan Arnold /s/ Susan Arnold ------------------------------------- Susan Arnold as tenant in common with Robert M. Arnold -9- EXHIBIT A Shareholders Number of Shares Percent of Ownership ------------ ---------------- -------------------- The James Orville 2249 23.9% Martin Trust The Theresa L. Martin 2080 22.1% Trust Robert M. Arnold and 1170 12.4% Susan Arnold as Tenants in Common EX-2 8 EXHIBIT B-5 SOUTHERN INDIANA GAS AND ELECTRIC CO. EXHIBIT B-5 [Letterhead of Southern Indiana Gas and Electric Company] December 22, 1993 Mr. James O. Martin, President Lincoln Natural Gas Company, Inc. 317 Main Street Rockport, Indiana 47635 Dear Mr. Martin: This letter is to confirm previous verbal commitments, should the parties successfully conclude the merger transaction agreed to by them as evidenced by execution this date of "The Agreement and Plan of Merger" among Southern Indiana Gas and Electric Company, Spencer Energy Corp., and Lincoln Natural Gas Company, Inc., as follows: 1. Southern Indiana Gas and Electric Company has no plans to terminate any of the present full-time employees of Lincoln holding the position of Manager or below as a result of the transaction; and 2. Should future changes in operation, organizational structure or other causes result in a reduction in the number of employees assigned to the current Lincoln operations, Southern Indiana Gas and Electric Company will, assuming acceptable job performance by the respective employees, provide employment opportunities for such employees elsewhere in its utility organization. We look forward to a long and mutually rewarding relationship with the employees of Lincoln and will strive to complete the merger formalities as expeditiously as possible. Sincerely, /s/ R.G. Reherman R.G. Reherman EX-2 9 EXHIBIT B-6 SOUTHERN INDIANA GAS AND ELECTRIC CO. EXHIBIT B-6 ----------- Names and Shareholdings of Stockholders of Lincoln Natural Gas Company, Inc. Holding 1% or More of its Common Stock --------------------------------------- SHAREHOLDERS NO. SHARES PERCENT ------------ ---------- ------- James Orville Martin, Trustee 2,249 23.9% Theresa L. Martin, Trustee 2,080 22.1% Robert M. & Susan Arnold 1,170 12.4% Mildred Samuels 600 6.3% Phyllis Blakeslee 450 4.7% Josephine Bigger 432 4.5% Joe W. & Jean Parsley 400 4.2% Joan E. Martin 400 4.2% Michael & Ellen Martin Sarver 400 4.2% Lawrence & Karen Marie Martin 400 4.2% Robert & Virginia Richard 200 2.1% Anabel Wood 100 1.0% Margaret W. Mason, Trustee 100 1.0% Theresa H. Wiener 100 1.0% James L. Wright and/or Carol Wright 100 1.0% - ------------------ [FN] Of the James Orville Martin Trust. Of the Theresa L. Martin Trust. Tenants in common. EX-99 10 EXHIBIT D-1 SOUTHER INDIANA GAS AND ELECTRIC CO. EXHIBIT D-1 STATE OF INDIANA INDIANA UTILITY REGULATORY COMMISSION JOINT PETITION OF SOUTHERN INDIANA GAS ) AND ELECTRIC COMPANY ("SIGECO") AND ) LINCOLN NATURAL GAS COMPANY, INC. ) ("LINCOLN") FOR AUTHORITY TO ) CAUSE NO. IMPLEMENT A TRANSACTION WHEREBY ) SIGECO'S WHOLLY OWNED SUBSIDIARY ) SPENCER ENERGY CORP. ("SPENCER") ) ___________________ WILL ACQUIRE THE STOCK OF LINCOLN ) AND MERGE INTO LINCOLN AND FOR ) AUTHORITY FOR NECESSARY FINANCING ) BY SIGECO THEREFOR AND FOR APPROVAL ) OF THE TRANSACTION ) PETITION TO THE INDIANA UTILITY REGULATORY COMMISSION: The Joint Petitioners, Southern Indiana Gas and Electric Company ("SIGECO"), and Lincoln Natural Gas Company, Inc. ("Lincoln") represent, show and petition the Commission as follows: 1. Characteristics of SIGECO. SIGECO is an Indiana public utility corporation with its principal office located in Evansville, Vanderburgh County, Indiana. It is engaged in the electric and gas utility business in eight counties in extreme southwestern Indiana. At present SIGECO serves approximately 99,000 gas customers and 118,000 electric customers. It owns, operates, maintains and manages plant, property, equipment and facilities used and useful for the generation, transmission, transportation, storage, distribution and sale of electricity and for the transmission, transportation, storage, distribution and sale of gas to the public. SIGECO is subject to the jurisdiction of the Commission in the manner and to the extent provided by the laws of the State of Indiana and it operates under indeterminate permits and certificates for convenience and necessity duly acquired. 2. Characteristics of SIGECO's Subsidiary Spencer Energy Corp. ("Spencer"). Spencer is an Indiana corporation which is a wholly owned subsidiary of SIGECO. Through its acquisition of all of the capital stock of Lincoln, Spencer will become the sole owner of Lincoln and will then merge into Lincoln to cause Lincoln to continue to exist and operate as a wholly owned subsidiary of SIGECO. 3. Characteristics of Lincoln. Lincoln is a closely held Indiana corporation which owns and operates the gas utility in Rockport, Spencer County, Indiana, and surrounding territory. Lincoln is an Indiana public utility corporation engaged in the gas utility business, and it presently serves approximately 1,330 customers in Spencer County in southwestern Indiana and owns, operates, maintains and manages plant, property, equipment and facilities used and useful for the production, transmission, transportation, distribution and sale of natural gas to the public. Lincoln is subject to the jurisdiction of the Commission in the manner and to the extent provided by the laws of the State of Indiana and it operates under indeterminate permits and certificates of convenience and necessity duly acquired. 4. Relief Sought. SIGECO seeks authority and approval of the Commission for financing necessary for SIGECO to conclude the transaction described. SIGECO and Lincoln also jointly request -2- Commission authority for and approval of the said entire transaction including, but not limited to, approval of the issuance by SIGECO of its common stock in order to carry out the acquisition by its subsidiary Spencer of all of the capital stock of Lincoln and the subsequent merger of Spencer into Lincoln. 5. The Transaction. SIGECO, Spencer and Lincoln have entered into an agreement dated December 23, 1993 (the "Agreement") whereby Spencer will acquire the common stock of Lincoln and Spencer will then merge into Lincoln so that Spencer will cease to exist. The result will be that Lincoln will become a wholly owned subsidiary of SIGECO. A copy of the final Agreement will be provided as a supplemental exhibit within thirty (30) days. The Agreement will be approved by all of the directors and shareholders of Spencer and by the necessary majority of shareholders of Lincoln and by the directors of SIGECO. Certified copies of the resolution adopted by the individual corporations will also be provided as supplementary exhibits within fifteen (15) days. The price to be paid by Spencer for Lincoln is a fair and reasonable price resulting from arms' length negotiations between the parties to the Agreement. The requested approval by the Commission and the consummation of the transaction so that Spencer becomes the owner of Lincoln and is then merged so that Lincoln is owned by SIGECO is in the public interest and in the best interests of the Joint Petitioners and their customers, and Lincoln and its shareholders. Accordingly, Petitioners submit that this Commission -3- should approve the acquisition of Lincoln and the issuance of common stock requested by SIGECO therefor. 6. Request for Authorization to Own and Operate Lincoln. SIGECO intends, for the immediate future, to own and operate Lincoln separately as a wholly owned subsidiary. As such, SIGECO will own all of the capital stock of Lincoln and control all of Lincoln's assets, including but not limited to its indeterminate permits, franchises, certificates, plant and properties, contracts and business. SIGECO therefore requests Commission authority and approval of the transaction and the ownership and operation of Lincoln as provided therein. 7. Accounting and Financial Information. A description of the accounting journal entries which SIGECO proposes to record on its books once the transaction is complete will be provided. As contemplated, and set forth in item 12 herein, the transaction will be accounted for as a pooling of interests. Therefore it will have only a slight effect on the capitalization of SIGECO, with the ultimate result being a small increase in the common equity component of SIGECO's capital structure and essentially no change in the other components. Financial statements of the parties will be provided. 8. Benefits of Transaction. Petitioner represents that the transaction will benefit all concerned. Lincoln's present holders will receive a fair price for their stock and Lincoln will then be owned by SIGECO. Lincoln will continue to operate essentially as it presently does for the immediate future. Inasmuch as both Lincoln and SIGECO are gas utilities that have -4- contiguous service areas, over time the two gas systems may be consolidated-- if appropriate and in the public interest. The Petitioner expects that, after a reasonable time for planning and implementation, benefits can be derived from the expertise, purchasing power and other similar advantages of all or some combined operations. This will result in greater efficiency and better service for Lincoln's customers over the long term while SIGECO and its customers are also expected to benefit from the eventual spread of fixed gas utility costs over a larger customer base and greater utility efficiencies created by a larger but still very manageable gas operation. The transaction is expected to eventually present opportunities for economies of scale by, among other operating benefits, centralized meter repair, reduced gas cost by larger volume gas purchases, greater efficiency and economy in management, administration, insurance, training, engineering, purchasing, human relations and computerization. 9. Attorneys for SIGECO. George A. Porch, Bamberger, Foreman, Oswald and Hahn, 7th Floor Hulman Building, P.O. Box 657, Evansville, Indiana 47704, are the attorneys for SIGECO and are duly authorized to accept service of papers in this case on behalf of SIGECO. Sidney Lindsey, Lindsey & Lindsey, 217 Main Street, Rockport, Indiana 47635, is counsel for Lincoln and is duly authorized to accept service of papers in this case on behalf of Lincoln. 10. Relevant Statutes. The Joint Petitioners consider that Indiana Code Sections 8-1-2-6; 12; 14; 23; 48; 49; 78; 79; 80; -5- and 83 among others, may be applicable and requests Commission authority and approval pursuant thereto. 11. Request for Expedited Action. Time is of the essence in consummating the transaction. Petitioner therefore requests that action on this Petition be expedited so that a final order will be issued no later than March 1, 1994. 12. Requested Financing and Issuance of Securities. The Merger Agreement provides for the shareholders of Lincoln to transfer to Spencer 100% of the capital stock of Lincoln in exchange for payment by Spencer of SIGECO common stock in the principal amount of approximately One Million Three Hundred Fifty Thousand Dollars ($1,350,000) in accordance with the formula contained in the Agreement. SIGECO intends to issue new common stock for this purpose. SIGECO requests authority to issue such new common stock. WHEREFORE, Joint Petitioners pray that the Commission enter an order in this cause approving the Agreement and the transaction therein contemplated whereby Spencer will acquire and own all of the stock of Lincoln and then merge into Lincoln so that SIGECO becomes the sole owner of Lincoln; and approving and issuing all necessary certificates and authorizations enabling and empowering SIGECO to own and operate Lincoln for the present as its wholly owned operating subsidiary, and authorizing and approving SIGECO's proposed -6- financing by the issuance of its securities as described herein; for approval of the entire transaction, and for all other relief appropriate in the premises. Southern Indiana Gas and Electric Company By: /s/ Ronald G. Reherman ------------------------------------------ Ronald G. Reherman, Its Chairman, President and Chief Executive Officer Attest: /s/ A.E. Goebel - ------------------------------- A.E. Goebel, Its Secretary The undersigned, R.G. REHERMAN and A.E. GOEBEL, affirm, under the penalty of perjury, that they are, respectively, the Chairman, President and Chief Executive Officer and Secretary of Southern Indiana Gas and Electric Company; that in such capacities they have executed the foregoing Petition and that the representations contained therein are true to the best of their respective knowledge, information and belief. /s/ R.G.Reherman /s/ A.E. Goebel - --------------------------- --------------------------- R.G. Reherman A.E. Goebel George A. Porch BAMBERGER, FOREMAN, OSWALD AND HAHN 7th Floor Hulman Building P.O. Box 657 Evansville, IN 47704-0657 Attorneys for Petitioner, Southern Indiana Gas and Electric Company -7- STATE OF INDIANA ) : ss.: COUNTY OF VANDERBURGH ) Before me the undersigned, a Notary Public in and for Vanderburgh County, State of Indiana, personally appeared R.G. Reherman and A.E. Goebel and acknowledged the execution of the foregoing instrument this 23rd day of December, 1993. WITNESS MY HAND and Notarial Seal this 23rd day of December, 1993. /s/ Donnal S. Welden ----------------------------------- Notary Public Donna S. Welden ----------------------------------- (Printed) My Commission Expires: 11/29/96 - ---------------------------- My County of Residence: Vanderburgh - ---------------------------- Lincoln Natural Gas Company, Inc. By: /s/ James Orville Martin ------------------------------------- James Orville Martin, Its President Attest: /s/ Robert M. Arnold - ------------------------------- Robert M. Arnold, Its Secretary The above signed, ORVILLE MARTIN and ROBERT ARNOLD, affirm, under the penalty of perjury, that they are, respectively, the President and Secretary of Lincoln Natural Gas Company, Inc.; that in such capacities they have executed the foregoing Petition and that the representations contained therein are true to the best of their respective knowledge, information and belief. -8- STATE OF INDIANA ) : ss.: COUNTY OF VANDERBURGH ) Before me the undersigned, a Notary Public in and for Vanderburgh County, State of Indiana, personally appeared Orville Martin and Robert Arnold and acknowledged the execution of the foregoing instrument this 23rd day of December, 1993. WITNESS MY HAND and Seal this 23rd day of December, 1993. /s/ Donnal S. Welden ----------------------------------- Notary Public Donna S. Welden ----------------------------------- (Printed) My Commission Expires: 11/29/96 - ---------------------------- My County of Residence: Vanderburgh - ---------------------------- Sidney R. Lindsey LINDSEY & LINDSEY 217 Main Street Rockport, IN 47635 Attorneys for Petitioner, Lincoln Natural Gas Company, Inc. -9- CERTIFICATE OF SERVICE I hereby certify I have this 27th of December, 1993, mailed a true and correct copy of the above and foregoing document to the Office of Utility Consumer Counselor, Indiana Government Center North, 100 N. Senate Ave., Room N-501, Indianapolis, Indiana 46204-2208. /s/ George A. Porch ----------------------------------- GEORGE A. PORCH, #5791-82 A Member of the Firm of BAMBERGER, FOREMAN, OSWALD AND HAHN 7th Floor, Hulman Building P.O. Box 657 Evansville, Indiana 47704-0657 Telephone: (812) 425-1591 ATTORNEYS FOR PETITIONER, SOUTHERN INDIANA GAS AND ELECTRIC CO. STATE OF INDIANA INDIANA UTILITY REGULATORY COMMISSION PETITION OF SOUTHERN INDIANA GAS ) AND ELECTRIC COMPANY FOR A ) DOCKET NO. 39812 NECESSITY CERTIFICATE TO RENDER ) GAS SUPPLY, DISTRIBUTION, ) TRANSPORTATION SERVICE AND SALES ) IN CERTAIN RURAL AREAS IN SPENCER ) COUNTY, INDIANA ) JOINT MOTION FOR VACATION OF PROCEDURAL SCHEDULE AND TO SET A NEW PREHEARING Petitioner, Southern Indiana Gas and Electric Company ("SIGECO"), and Intervening Petitioner, Lincoln Natural Gas Company, Inc. ("Lincoln"), jointly move the Commission for an order vacating the procedural schedule in the captioned cause and setting a new prehearing. In support of their Motion, the movants show the Commission as follows: 1. On December 27, 1993, movants filed a joint petition for Commission approval of a transaction whereby SIGECO will acquire Lincoln and thereafter operate Lincoln as a separate entity. 2. The captioned cause concerns the issuance of a Certificate for Territorial Authority ("CTA") for SIGECO and/or Lincoln to provide gas service to certain open sections of Spencer County. 3. SIGECO and Lincoln do not believe it desirable to proceed with what may be a contested CTA hearing when SIGECO may, in the relatively near future, acquire Lincoln. 4. The procedural schedule set in this cause pursuant to the Prehearing Conference Order of December 8, 1993, sets prefiling dates in January, 1994, and a hearing for January 28, 1994. Movants do not believe the Commission will have acted on their pending joint motion for approval of the acquisition transaction prior to March 1, 1994. 5. Movants do desire to have a CTA granted herein, but in the interest of administrative economy request that the present procedural schedule be vacated and that a new schedule be set pursuant to a prehearing to be held in April, 1994. 6. Counsel has discussed the filing of this Joint Motion with Counsel for the Office of the Utility Consumer Counselor and that office has no objection to the filing and granting of this Motion. Respectfully submitted, /s/ J. Herbert Davis, for ----------------------------------- Mr. George A. Porch BAMBERGER, FOREMAN, OSWALD AND HAHN 7th Floor Hulman Building P.O. Box 657 Evansville, Indiana 47704-0657 Counsel for Southern Indiana Gas and Electric Company /s/ Sidney R. Lindsey ----------------------------------- Sidney R. Lindsey Lindsey & Lindsey 217 Main Street Rockport, Indiana 47635 (812) 649-4571 Counsel for Lincoln Natural Gas Company, Inc. -2- CERTIFICATE OF SERVICE I hereby certify I have this 27 of December, 1993, mailed a true and correct copy of the above and foregoing document to the Office of the Utility Consumer Counselor, Indiana Government Center North, 100 North Senate Avenue, Room N-501, Indianapolis, Indiana 46204-2208. /s/ George A. Porch ----------------------------------- George A. Porch #5791-82 -3- EX-99 11 EXHIBIT H SOUTHERN INDIANA GAS AND ELECTRIC CO. EXHIBIT H SECURITIES AND EXCHANGE COMMISSION (Release No. 35 - ________) Filings Under the Public Utility Holding Company Act of 1935 ("Act") March __, 1994 Notice is hereby given that the following filing(s) has/have been made with the Commission pursuant to provisions of the Act and rules promulgated thereunder. All interested persons are referred to the application(s) and/or declaration(s) for complete statements of the proposed transaction(s) summarized below. The application(s) and/or declaration(s) and any amendments thereto is/are available for public inspection through the Commission's Office of Public Reference. Interested persons wishing to comment or request a hearing on the application(s) and/or declaration(s) should submit their views in writing by April __, 1994 to the Secretary, Securities and Exchange Commission, Washington, D.C. 20549, and serve a copy on the relevant applicant(s) and/or declarant(s) at the address(es) specified below. Proof of service (by affidavit or, in case of an attorney at law, by certificate) should be filed with the request. Any request for hearing shall identify specifically the issues of fact or law that are disputed. A person who so requests will be notified of any hearing, if ordered, and will receive a copy of any notice or order issued in the matter. After said date, the application(s) and/or declaration(s), as filed or as amended, may be granted and/or permitted to become effective. Southern Indiana Gas and Electric Company (70- ) Southern Indiana Gas and Electric Company ("SIGECO"), 20-24 N.W. Fourth Street, Evansville, Indiana 47741, an Indiana public utility holding company exempt from registration under Sections 3(a)(1) and 3(a)(2) of the Act pursuant to Rule 2, has filed an application under Sections 9(a)(2) and 10 of the Act. SIGECO proposes to acquire all of the issued and outstanding shares of common stock, par value $10 per share ("Lincoln Common Stock"), of Lincoln Natural Gas Company, Inc. ("Lincoln"), an Indiana public utility corporation. SIGECO provides retail electric service directly to Evansville and 74 other cities, towns and communities, and adjacent rural areas, wholesale electric service to an additional nine communities and gas service to Evansville and 63 other nearby communities and their environs. At December 31, 1993, SIGECO served 118,163 electric customers and 100,398 gas customers. Lincoln is a closely held Indiana public utility corporation which owns and operates a gas distribution system in the City of Rockport, Spencer County, Indiana, and surrounding territory. Lincoln serves approximately 1,330 customers in Spencer County in southwestern Indiana. Lincoln's gas service territory is adjacent to SIGECO's gas service -2- territory. There are currently 9,417 issued and outstanding shares of Lincoln Common Stock held by 23 shareholders. A wholly-owned subsidiary of SIGECO, Spencer Energy Corp., an Indiana corporation ("Spencer"), will be merged (the "Merger") with and into Lincoln pursuant to an Agreement and Plan of Merger, dated December 23, 1993, among SIGECO, Spencer and Lincoln (the "Agreement"), with Spencer ceasing to exist and Lincoln continuing as the surviving corporation in a transaction qualifying as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended. In that the Merger, the holders of Lincoln Common Stock issued and outstanding immediately prior to the Merger would be entitled to receive shares of common stock, without par value, of SIGECO ("SIGECO Common Stock") having a market value of approximately $1,350,000 in accordance with the formula contained in the Agreement, and each share of common stock, no par value, of Spencer issued and outstanding immediately prior to the Merger would be converted into one share of Lincoln Common Stock. The number of shares of SIGECO Common Stock to be exchanged in the transactions will be determined by their average closing market price over a five-day period before the relevant closing date. The transaction is intended to result in the liquidation of Spencer and the survival of Lincoln as a wholly-owned subsidiary of SIGECO. -3- For the Commission, by the Division of Investment Management, pursuant to delegated authority. Secretary -4- EX-99 12 APPENDIX 6(B)(1) SOUTHER INDIANA GAS & ELECTRIC Appendix 6(b)(1)
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY (SIGECO) PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF DECEMBER 31, 1993 (DOLLARS IN THOUSANDS) PRO FORMA ASSETS SIGECO LINCOLN GAS ADJUSTMENTS CONSOLIDATED ------ ----------- ----------- ------------ Utility plant, net $635,461 $ 408 $ 0 $635,869 -------- Total other investments and property 90,557 0 0 90,557 ------ ------ Current assets: Cash and cash equivalents 5,756 127 0 5,883 Other current assets 84,885 283 0 85,168 ------ --- - ------ Total current assets 90,641 410 0 91,051 ------ --- - ------ Total deferred charges 43,364 0 0 43,364 ------ - - ------ $ 860,023 $ 818 $ 0 $ 860,841 ============ ============ =========== =============== SHAREHOLDERS' EQUITY AND LIABILITIES Capitalization: Common shareholders' equity $ 107 Common stock $ 102,691 $ 97 -97 $ 102,798 Additional paid-in-capital 0 18 -18 0 Retained earnings 204,058 391 0 204,449 Less treasury stock, at cost 24,540 8 -8 24,540 ------ - -- ------ 282,209 498 0 282,707 ------- --- - ------- Preferred stock 19,605 0 0 19,605 Long-term debt 273,981 0 0 273,981 ------- - - ------- Total capitalization 575,795 498 0 576,293 ------- --- - ------- Current liabilities 125,611 276 0 125,887 Deferred income taxes and other credits 158,617 44 0 158,661 ------- -- - ------- $ 860,023 $ 818 $ 0 $ 860,841 ============ ============ ============ ===============
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY (SIGECO) PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME AS OF DECEMBER 31, 1993 (DOLLARS IN THOUSANDS) SIGECO LINCOLN GAS ADJUSTMENTS CONSOLIDATED ------ ----------- ----------- ------------ Operating revenues: Electric $ 258,405 $ 0 $ 0 $ 258,405 Gas 70,116 968 0 71,084 ------ --- - ------ 328,521 968 0 329,489 ------- --- - ------- Operating expenses Operation Fuel for electric generation 81,080 0 0 81,080 Purchased electric energy 9,348 0 0 9,348 Cost of gas sold 50,544 725 0 51,269 Other 40,541 177 0 40,718 ------ --- - ------ Total operation 181,513 902 0 182,415 ------- --- - ------- Maintenance 26,655 120 0 26,775 Depreciation and amortization 36,939 21 0 36,960 Federal and state income taxes 18,325 (19) 0 18,306 Property and other taxes 13,447 21 0 13,468 ------ -- - ------ 276,879 1,045 0 277,924 ------- ----- - ------- Operating income 51,642 (77) 0 51,565 ------ ---- - ------ Other income: Allowance for other funds used during construction 3,092 0 0 3,092 Interest 920 10 0 930 Other, net 2,530 3 0 2,533 ----- - - ----- 6,542 13 0 6,555 ----- -- - ----- Income before interest charges 58,184 (64) 0 58,120 ------ ---- - ------ Interest and other charges: Interest on long-term debt 18,437 0 0 18,437 Other interest 746 1 0 747 Allowance for borrowed funds, used during construction (1,425) 0 0 (1,425) Amortization of premium, discount and expense on debt, net 773 0 0 773 --- - - --- 18,531 1 0 18,532 ------ - - ------ Net income 39,653 (65) 0 39,588 ------ ---- - ------ Preferred stock dividends 1,105 0 0 1,105 ----- - - ----- Net income applicable to common stock $ 38,548 $ (65) $ 0 $ 38,483 =========== =========== ========== =========== Average common shares outstanding 15,705 9 (9) 15,749 44 Earnings per average common share $ 2.45 $ (6.93) $ 0.00 $ 2.44 The transaction will be accounted for as a pooling of interest so the SIGECO stock issued will be recorded at Lincoln Natural Gas Company, Inc.'s net book value. The pro forma information was prepared based on the assumption that the price of Southern Indiana Gas and Electric Company's (SIGECO) common shares used in determining the exchange is $30.50 per share and that the consideration paid by SIGECO in the Lincoln Natural Gas Company, Inc. transaction is composed 100% of SIGECO stock. The following is a summary of the pro forma adjustments to the combined condensed financial statements (in thousands): Elimination of Lincoln Natural Gas Company, Inc. equity accounts: Common Stock . . . . . . . . . . . . . . $ 97,500 Additional Paid-In-Capital . . . . . . . $ 17,606 Treasury Stock . . . . . . . . . . . . . $ 8,130 Recording of Sigeco Stock Exchanged: Common Stock . . . . . . . . . . . . . . $ 106,976 Issuance of shares: Estimated number of customers of Lincoln Natural Gas, Inc. at the date of closing 1,330 of the transaction . . . . . . . . . . . Price per customer . . . . . . . . . . . $ 1,000 $ 1,330,000 Share price (estimated) . . . . . . . . . $ 30.50 Shares issued . . . . . . . . . . . . . . 43,607
EX-99 13 APPENDIX 6(B)(2) SOUTHERN INDIANA GAS & ELECTRIC Appendix 6(b)(2) LINCOLN NATURAL GAS COMPANY --------------------------- FINANCIAL STATEMENTS -------------------- Year Ended December 31, 1993 ---------------------------- LINCOLN NATURAL GAS COMPANY, INC. BALANCE SHEET DECEMBER 31, 1993 ASSETS - ------ UTILITY PLANT ------------- Gas Property and System $ 764,432 Less: Accumulated Depreciation (356,172) ---------- Total Property, Net 408,260 CURRENT AND ACCRUED ASSETS -------------------------- Cash and Cash Equivalents 126,711 Temporary Cash Investments 100,000 Accounts Receivable - Trade 165,975 Other Current Assets 17,369 --------- Total Current and Accrued Assets 410,055 _________ TOTAL ASSETS $ 818,315 ========= LIABILITIES AND CAPITAL - ----------------------- CAPITAL ------- Common Stock, ($10 par, 10,000 shares $ 97,500 authorized, 9,750 shares issued and 9,417 shares outstanding) Additional Paid-in-Capital 17,606 Unappropriated Retained Earnings 391,175 --------- 506,281 Less: Treasury Stock (333 Shares) (8,130) --------- Total Capital 498,151 CURRENT AND ACCRUED LIABILITIES ------------------------------- Accounts Payable 186,992 Notes Payable 40,025 Customer Advances for Construction 15,119 Accrued Taxes 9,527 Accumulated Provision for Rate Refunds 20,362 Other Accrued Liabilities 3,886 --------- Total Current Liabilities 275,911 NON-CURRENT LIABILITIES ----------------------- Regulatory Liability 4,523 Accumulated Deferred Income Taxes 36,656 Deferred Investment Tax Credits 3,074 -------- Total Non-Current Liabilities 44,253 TOTAL LIABILITIES AND CAPITAL $ 818,315 ========= The accompanying Notes To Financial Statements are an integral part of this financial statement. LINCOLN NATURAL GAS COMPANY, INC. STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993 OPERATING REVENUES - ------------------ Sales of Gas $ 720,505 Transmission of Customer Owned Gas 158,709 GCA Adjustment 72,943 Other 16,120 -------- Total Operating Revenues 968,277 OPERATING EXPENSES - ------------------ Cost of Gas Sold 725,181 Maintenance 119,609 Other 178,065 Depreciation 20,720 Other Taxes 21,360 --------- Total Operating Expenses 1,064,935 --------- Net Operating Loss (96,658) --------- OTHER INCOME - ------------ Interest, net 8,981 Miscellaneous Revenue 3,304 ---------- Total Other Income 12,285 ---------- Net Loss Before Income Taxes (84,373) ---------- Federal Income Tax Benefit 19,071 ---------- Net Loss $ (65,302) ========= Average Common Shares Outstanding 9,417 Loss Per Share of Common Stock $ (6.93) ========= The accompanying Notes To Financial Statements are an integral part of this financial statement. LINCOLN NATURAL GAS COMPANY, INC. STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1993 ------------------------------------ Unappropriated Retained Earnings, Beginning of the Year 460,244 Net Loss (65,302) Common Stock Dividends ($.40 per share in 1993) (3,767) --------- Unappropriated Retained Earnings, End of Year 391,175 ========= The accompanying Notes To Financial Statements are an integral part of this financial statement. LINCOLN NATURAL GAS COMPANY, INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1993 ------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (65,302) Add (Deduct) adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 20,720 Change in accounts receivable (11,154) Change in accounts payable 79,889 Change in other assets and liabilities (74,616) --------- Net Cash From Operations (50,463) CASH FLOWS FROM FINANCING ACTIVITIES Change in notes payable 40,025 Payment of Dividends (3,767) --------- Net Cash From Financing 36,258 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (87,066) --------- Net Cash From Investing (87,066) NET DECREASE IN CASH AND CASH EQUIVALENTS (101,271) CASH AND CASH EQUIVALENTS Beginning of period 227,982 --------- End of period $ 126,711 ========= The accompanying Notes To Financial Statements are an integral part of this financial statement. LINCOLN NATURAL GAS COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 1993 ----------------------------- Note 1 - Accounting Policies The following is a summary of significant accounting policies of the Company: Nature of Business Lincoln Natural Gas Co., Inc., is a public utility distributor of natural gas. On December 13, 1993, the Board of Directors of the Company approved in principal an agreement and plan of merger pursuant to which Southern Indiana Gas & Electric Company, Inc. would acquire the Company. The merger is subject to certain conditions, including approval by the Company's shareholders, the Indiana Utility Regulatory Commission (IURC) and the Securities and Exchange Commission pursuant to the Public Utility Holding Company Act of 1935. The merger is expected to be completed in 1994. Property, Plant and Equipment Property, plant and equipment, consisting of gas property and systems, equipment, and vehicles, are stated principally at cost. Provisions for depreciation of property and equipment have been computed on the straight-line method at rates established in 1969, as dictated by the IURC. The Accelerated Cost Recovery System is used for additions after 1980, and the Modified Cost Recovery System for additions after 1985, for tax purposes. Operating Revenues and Cost of Gas Sold Revenues include all gas service provided during the year. At year-end, an estimate is recorded for gas delivered to customers but not yet billed. At December 31, 1993, this amount was $25,750 and is included in revenues and accounts receivable. All metered gas rates contain a gas cost adjustment (GCA) clause which allows for adjustment in charges for changes in the cost of purchased gas. The GCA clause provides that any under or over recovery will be included in adjustment factors for future periods. The cost of gas sold is charged to operating expense as delivered. -1- LINCOLN NATURAL GAS COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 1993 ----------------------------- On March 9, 1994, the IURC approved an overall increase in revenues of approximately 10.4%, or about $100,000, in the Company's base rates. Income Taxes Deferred income taxes have been provided in temporary timing differences between tax and financial accounting income. Timing differences relate primarily to differences between tax and book depreciation methods. Investment tax credits recorded have been deferred and are amortized through credits to income over the lives of the related property. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS No. 109 requires an asset and liability approach for financial accounting and reporting for income taxes. The new standard requires the Company to establish deferred tax assets and liabilities, as appropriate, for all temporary differences and to adjust deferred tax balances to reflect changes in tax rates expected to be in effect during the period the temporary differences reverse. Effective January 1, 1993, because of the effects of rate regulation, the Company recorded a decrease of $7,987 in deferred tax liabilities and established a corresponding regulatory liability of $7,987, primarily to recognize the probable future reduction in rates to flow back to customers deferred taxes previously collected in excess of current tax rates. The adoption of this standard did not have a material impact on the results of operations, cash flow or financial position. -2- LINCOLN NATURAL GAS COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 1993 ----------------------------- The components of the deferred income tax liability at January 1, 1993 and December 31, 1993 are as follows: January 1 December 31 --------- ----------- Depreciation and cost recovery differences $41,725 $44,497 Regulatory liabilities to be settled through future rates (7,987) (4,523) Deferred tax asset (net operating loss carryforward) 0 (3,313) -------- ------- Net Deferred Income Tax Liability $33,738 $36,656 ======== ======= The components of the current and deferred income tax benefit for the year ended December 31, 1993 were $18,525 and $546, respectively. A reconciliation of the statutory tax (benefit) rates to the Company's effective income tax (benefit) rate for the year ended December 31, 1993 is as follows: Statutory federal and state rate (18.8%) Refund from prior years (3.7%) ----- Effective (benefit) rate (22.5%) ===== Accounts Receivable The direct charge-off method is used to account for losses in the collection of accounts receivable. An allowance for uncollectible accounts is considered unnecessary by management because all significant accounts receivable expected to be uncollected have been written off. Bad debt expense consists of accounts written off, net of recoveries. Notes Payable The Company has a note with a bank totalling $40,060. The note is payable on demand, but if no demand is made, then the note is payable on October 1, 1994. The interest rate on the note is 5.4%. -3- LINCOLN NATURAL GAS COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 1993 ----------------------------- Note 2 - Property, Plant and Equipment Property and equipment at December 31, 1993 consisted of the following: Cost ---- Land and land rights $ 17,581 Gas property and systems 667,876 Vehicles 29,399 Machinery and equipment 29,769 Office Furniture 19,807 -------- 764,432 Less: Accumulated depreciation (356,172) -------- Net Plant $408,260 ======== Depreciation expense for the year ended December 31, 1993 was $20,720. Note 3 - Pension Expense The Company has a retirement plan covering substantially all of its employees. In 1982, the Company amended its pension plan in order to convert to a simplified employee pension plan. Pension expense charged to costs for the year ended December 31, 1993 was $8,310. Note 4 - Treasury Stock Treasury stock at December 31, 1993 equaled 333 shares at a cost of $8,130. Note 5 - Interest and Federal Income Tax The Company paid no interest or income taxes during 1993. -4- EX-99 14 APPENDIX 6(B)(3) SOUTHER INDIANA GAS & ELECTRIC Appendix 6(b)(3) LINCOLN NATURAL GAS COMPANY, INC. --------------------------------- FINANCIAL STATEMENTS -------------------- Years Ended December 31, 1992 and 1991 -------------------------------------- LINCOLN NATURAL GAS COMPANY, INC. -------------------------------- BALANCE SHEET ------------- December 31, 1992 and 1991 -------------------------- 1992 1991 ---- ---- ASSETS ------ Property -------- Property and Equipment-Note 2 677,366 662,889 Less: Accumulated Depreciation (335,452) (315,742) -------- -------- Net Property 341,914 347,147 Current Assets -------------- Cash and Temporary Investments 327,982 267,754 Accounts Receivable - Trade 152,970 170,384 Accounts Receivable - Other 1,851 1,851 Prepaid Expense 20,343 20,330 State and Federal Income Tax Refunds 6,550 6,943 ------- ------- Total Current Assets 509,696 467,262 TOTAL ASSETS 851,610 814,409 ======= ======= LIABILITIES AND CAPITAL ----------------------- Capital Stock and Retained Earnings ----------------------------------- Common Stock, par value $10 per share; 10,000 authorized, 9750 shares issued, 9417 shares outstanding 97,500 97,500 Retained Earnings 460,244 496,197 Premium on Sale 17,606 17,606 Less: Treasury Stock (333 shares) - (8,130) (8,130) Note 5 ------- ------- Total Capital 567,220 603,173 Deferred Income Taxes --------------------- 44,799 44,799 Current Liabilities ------------------- 1992 1991 ---- ---- Accounts Payable 124,496 129,825 Customers' Deposits 3,512 2,257 Accrued Taxes 8,357 7,362 Accrued Expenses 9,921 14,728 Accumulated Provision for Rate Refunds 93,305 12,265 ------- ------- 239,591 166,437 TOTAL LIABILITIES AND CAPITAL 851,610 814,409 ======= ======= The accompanying notes are an integral part of these financial statements. LINCOLN NATURAL GAS COMPANY, INC. --------------------------------- STATEMENTS OF INCOME -------------------- Years Ended December 31, 1992 and 1991 -------------------------------------- 1992 1991 ---- ---- Operating Income ---------------- Residential Sales 498,102 453,223 Commercial and Industrial Sales 254,988 235,831 Customers' Forfeited Discounts 5,722 5,924 Servicing Customers' Installations 2,021 2,213 Transmission - Customer Owned Gas 278,567 446,247 Pipeline Refund 0 50,289 GCA Adjustment (81,040) (12,895) -------- --------- Total Operating Income 958,360 1,180,632 Operating Expenses ------------------ Gas Purchased 590,170 665,581 Distribution 198,911 232,007 Collection 2,023 2,435 Sales Promotion 1,353 1,287 Administrative and General 148,408 215,257 Depreciation 19,710 18,515 Taxes 22,291 30,219 -------- --------- Total Operating Expenses 982,866 1,165,301 Operating Income (Loss) ----------------------- (24,506) 15,331 1992 1991 ---- ---- Other Income ------------ Non-Operating Revenues 1,109 1,912 Interest 14,282 23,584 -------- --------- 15,391 25,496 Income (Loss) Before Income Taxes --------------------------------- (9,115) 40,827 Provision for Federal Income Tax 0 6,124 ---------- ---------- NET INCOME (LOSS) (9,115) 34,703 ========== ========= The accompanying notes are an integral part of these financial statements. LINCOLN NATURAL GAS COMPANY, INC. --------------------------------- STATEMENTS OF RETAINED EARNINGS ------------------------------- Years Ended December 31, 1992 and 1991 -------------------------------------- 1992 1991 ---- ---- Retained Earnings at Beginning of Year 496,197 487,862 Net Income (9,115) 34,703 Less: Dividends Declared/Paid (26,838) (26,368) -------- -------- RETAINED EARNINGS AT END OF YEAR 480,244 496,197 ======= ======= The accompanying notes are an integral part of these financial statements. LINCOLN NATURAL GAS COMPANY, INC. --------------------------------- STATEMENTS OF CASH FLOWS ------------------------ Years Ended December 31, 1992 and 1991 --------------------------------------- 1992 1991 ---- ---- Cash Flows From Operating Activities ------------------------- Cash Received from Customers 975,774 1,164,396 Interest Income 14,282 23,584 Non-Operating Income 1,109 1,912 -------- ---------- Cash Provided by Operating Activities 991,165 1,189,892 Cash Paid for Merchandise, (889,622) (1,227,119) Supplies, and Employees -------- ---------- NET CASH FROM OPERATING ACTIVITIES 101,543 (37,227) Cash Flows From Investing Activities ------------------------- Purchase of Equipment (14,477) (19,528) Dividends Paid (26,838) (26,368) ------- ------- NET CASH FROM INVESTING ACTIVITIES (41,315) (45,896) Cash Flows From Financing Activities ------------------------- Payment of Debt 0 0 Sale of Capital Stock 0 0 --------- --------- NET CASH FROM FINANCING ACTIVITIES 0 0 NET INCREASE (DECREASE) IN CASH 60,228 (83,123) ======== ======== The accompanying notes are an integral part of these financial statements. LINCOLN NATURAL GAS COMPANY, INC. --------------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- December 31, 1992 and 1991 -------------------------- Note 1 - Accounting Policies The following is a summary of significant accounting policies of the Company. Nature of Business Lincoln Natural Gas Co., Inc., is a public utility distributor of natural gas. Property and Equipment Property and equipment, consisting of gas property and systems, equipment, and vehicles, are stated principally at cost. Provisions for depreciation of property and equipment have been computed on the straight-line method at rates established in 1969, as dictated by the Public Service Commission. The Accelerated Cost Recovery System is used for additions after 1980, and the Modified Cost Recovery System for additions after 1985, for tax purposes. Income Taxes Income taxes have been provided on timing differences between income tax and financial accounting. Timing differences relate primarily to depreciation methods. Accounts Receivable The direct charge-off method is used to account for losses in the collection of accounts receivable. An allowance for uncollectible accounts is considered unnecessary by management because all significant accounts receivable expected to be uncollected have been written off. Bad debt expense consists of accounts written off, net of recoveries. -1- LINCOLN NATURAL GAS COMPANY, INC. -------------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- December 31, 1992 and 1991 -------------------------- Note 2 - Property and Equipment Property and equipment at December 31, 1992 and 1991 consisted of the following: 1992 1991 ----------------------- ----------------------- Cost Accumulated Cost Accumulated Depreciation Depreciation Land & land rights $ 17,581 $ 134 $ 17,285 $ 109 Gas property & systems 583,598 288,310 569,973 274,154 Vehicles 29,399 19,899 29,399 16,790 Machinery 29,018 20,197 29,018 18,538 Office Furniture 17,770 6,912 17,214 6,151 -------- ---------- -------- ----------- Total $ 677,366 $ 335,452 $ 662,889 $ 315,742 ======== ========== ========= ========== Depreciation expense for the years ended December 31, 1992 and 1991 was $19,710 and $18,515, respectively. Note 3 - Pension Expense The Company has a retirement plan covering substantially all of its employees. In 1982, the Company amended its pension plan in order to convert to a simplified employee pension plan. Pension expense charged to costs for the years ended December 31, 1992 and 1991 was $9,705 and $24,356, respectively. -2- LINCOLN NATURAL GAS COMPANY, INC. -------------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- December 31, 1992 and 1991 -------------------------- Note 4 - Profit Sharing Plan In 1988, the Company started a profit sharing plan covering substantially all employees. Profit sharing expense for the years ended December 31, 1992 and 1991 was $0 and $0, respectively. Note 5 - Treasury Stock Treasury stock at December 31, 1992 and 1991 equaled 333 shares at a cost of $8,130. Note 6 - Deferred Federal Income Tax Deferred Federal Income Tax has been computed on timing differences between book and taxable income. Deferred Federal Income Tax for the year ended December 31, 1992 was $0. -3- -----END PRIVACY-ENHANCED MESSAGE-----