EX-99.1 2 dex991.htm MEMORANDUM OF UNDERSTANDING Memorandum of Understanding

Exhibit 99.1

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

 

IN RE ATLAS ENERGY, INC.

SHAREHOLDERS LITIGATION

    

 

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   Consolidated C.A. No. 5990-VCL

MEMORANDUM OF UNDERSTANDING

This Memorandum of Understanding (“MOU”) is entered into as of February 3, 2011, by and among the undersigned parties to the above-referenced action (the “Action”) pending before the Court of Chancery of the State of Delaware (the “Court”).

WHEREAS, on November 9, 2010, Atlas Energy, Inc. (“Atlas” or the “Company”) and Chevron Corporation (“Chevron”) announced that they had entered into a definitive merger agreement, whereby Chevron would acquire Atlas in a transaction valued at that time at $4.3 billion, or $43.34 per Atlas share (the “Proposed Transaction”);

WHEREAS, the $43.34 per share merger price (the “merger consideration”) represented a premium of approximately 50% over the closing price of Atlas shares on September 13, 2010 (when Chevron submitted its initial merger proposal to Atlas) and a 37% premium over the closing price of Atlas shares on November 8, 2010 (which is the last trading day before the deal was announced);

WHEREAS, the merger consideration for Atlas shareholders is to be paid in both cash ($38.25 per share) and limited partnership units of a publicly-traded Atlas subsidiary (approximately .523 units per share), and the trading price of those units has increased by more than $4 since the announcement of the deal, thereby increasing the value of the merger consideration by more than $2;

WHEREAS, between November 15, 2010 and November 19, 2010, two shareholders of Atlas – Jeanna Weber and Abraham Katsman (“Plaintiffs”) – filed verified


putative class action complaints in this Court challenging the Proposed Transaction. Those lawsuits initially were styled Weber v. Atlas Energy Inc., et al. and Katsman v. Atlas Energy Inc., et al. (the “Delaware Actions”). Four other virtually identical lawsuits were filed in the Pennsylvania Court of Common Pleas of Allegheny County (“Pennsylvania State Action”) and in the United States District Court for the Western District of Pennsylvania (“Pennsylvania Federal Action”). On December 10, 2010, the Pennsylvania State Action was stayed in deference to this Action;

WHEREAS, on December 8, 2010, Atlas filed a preliminary proxy statement with the Securities and Exchange Commission;

WHEREAS, on December 8, 2010, the Court also granted Plaintiffs’ Revised Proposed Order of Consolidation and Appointment of Lead Counsel;

WHEREAS, on December 28, 2010, Plaintiffs filed an Amended and Verified Class Action Complaint (the “Amended Complaint”). The Amended Complaint alleged that the Atlas directors breached their fiduciary duties by allegedly agreeing to an inadequate merger price and conducting an unfair process in connection with the Proposed Transaction. Plaintiffs also alleged that Chevron (and its merger subsidiary) aided and abetted those purported breaches of duty. Additionally, the Amended Complaint alleged numerous disclosure claims with respect to Atlas’s preliminary proxy statement;

WHEREAS, shortly after the filing of the Amended Complaint, Defendants consented to Plaintiffs’ demand for expedited discovery in advance of a possible preliminary injunction hearing. On January 9, 2011, the parties negotiated a letter agreement memorializing their agreement with respect to expedited discovery and briefing;

 

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WHEREAS, on January 11, 2011, Atlas filed its definitive proxy statement, announcing February 16, 2011 as the date for the stockholder vote on the Proposed Transaction;

WHEREAS, during that same week, and pursuant to the January 9, 2011 letter agreement, Defendants began an expedited rolling production of documents. Defendants (as well as certain Atlas-related entities, specifically Atlas Pipeline Holdings, L.P. (“AHD”) and Atlas Pipeline Partners, L.P. (“APL”)), produced on an expedited rolling basis, over 32,000 pages of documents concerning the Proposed Transaction. These included, among other things, board minutes and banker books, board presentations, management projections, and financial analyses performed by Atlas’s two financial advisors, Jefferies & Co. (“Jefferies”) and Deutsche Bank Securities Inc. (“Deutsche Bank”), as well as e-mails, hard copy files, handwritten notes, and other types of documents related to the Proposed Transaction from the Atlas directors and the five senior officers at Atlas involved in the negotiation of the Proposed Transaction;

WHEREAS, Plaintiffs also demanded the depositions of two Atlas directors - Jonathan Cohen, Vice Chairman of the Atlas Board, and Mark Biderman, an independent director on the Board and chairman of the Audit Committee. Plaintiffs further demanded the deposition of a senior banker from Atlas’s financial advisor, Jefferies, who was involved in advising the Atlas Board on the Proposed Transaction. These depositions occurred in New York City and Houston during the week of January 17, 2011;

WHEREAS, on January 18, 2011, Defendants filed a motion to stay the proceedings in the Pennsylvania Federal Action in deference to this Action, as well as motions to dismiss that federal litigation (such motions have yet to be ruled on);

WHEREAS, on January 18, 2011, the Court entered a Stipulation and Order Governing the Production and Exchange of Confidential Information;

 

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WHEREAS, on January 18, 2011, the Court also entered an Order Regarding Expedited Proceedings that, among other things, scheduled a preliminary injunction hearing for February 7, 2011 and provided deadlines for completing expedited discovery;

WHEREAS, on January 20, following completion of the expedited production of documents and the depositions of Messrs. Cohen and Biderman, counsel for the parties held preliminary discussions about the possibility of a settlement of the Action but failed to reach any accord. Discussions continued intermittently during the following days, including conversations concerning the claims raised in the Amended Complaint and the defenses thereto, as well as the ongoing efforts of Atlas to address certain of the disclosure claims raised by Plaintiffs;

WHEREAS, on January 26, 2011, Plaintiffs filed a Motion for a Preliminary Injunction and 50-page supporting brief seeking to enjoin the Atlas stockholder vote scheduled for February 16, 2011. The Plaintiffs’ brief identified disclosures that Plaintiffs believed were misleading or omitted from the Atlas definitive proxy statement, as well as issues related to the process followed by the individual Defendants in the Proposed Transaction;

WHEREAS, on January 31, 2011, Defendants took the depositions of Plaintiffs in New York City;

WHEREAS, before markets opened on February 1, 2011, Atlas filed and commenced mailing of a 36-page supplemental proxy statement that, among other things, principally sought to address the disclosure claims identified in Plaintiffs’ brief (the “Supplemental Proxy”) (attached hereto as Exhibit A);

WHEREAS, further intense negotiations occurred throughout the day and night of February 1, 2011, following the filing of the Supplemental Proxy. These negotiations concerned

 

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among other things, a payment of additional consideration to the Atlas stockholders in connection with the Proposed Transaction;

WHEREAS, during the night of February 1, 2011, the parties reached an agreement-in-principle on the structure of a settlement and agreed (i) to draft a memorandum of understanding reflecting those terms (which the parties would submit to the Court as soon as practicable), (ii) to notify the Court by telephone on the morning of February 2, 2011 of the parties’ agreement-in-principle (which the parties did on the morning of February 2, 2011); and (iii) to request that the preliminary injunction hearing be removed from the Court’s calendar (which the parties did on the morning of February 2, 2011);

WHEREAS, Defendants deny, and continue to deny, that they have committed, or aided and abetted in the commission of, any violation of law or duty or engaged in any wrongful acts whatsoever, and expressly maintain that they diligently and scrupulously complied with any applicable fiduciary, disclosure, and all other legal duties, and are entering into this MOU solely to eliminate the burden and expense of further litigation;

WHEREAS, Plaintiffs and Plaintiffs’ counsel believe that the claims asserted by the Plaintiffs have merit. However, Plaintiffs agreed to settle the Action based on the benefits provided herein, thereby avoiding the uncertain outcome, and inherent delays and risks of further litigation and trial;

WHEREAS, Defendants acknowledge that the consideration given to the Class in this MOU confers benefits on the Class, and that Plaintiffs’ efforts in this Action were the sole factors that caused Defendants to provide the benefits described herein, as well as many of the additional disclosures set forth in the Supplemental Proxy;

 

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WHEREAS, Plaintiffs’ counsel and Defendants’ counsel have not discussed the appropriateness or amount of any application by Plaintiffs’ counsel for an award of attorneys’ fees and expenses as of the execution of this MOU, except to note that any fee paid to counsel will not be paid out of the settlement consideration set forth herein for the benefit of Atlas’s stockholders;

WHEREAS, because Plaintiffs’ counsel have taken into consideration the strengths and weaknesses of their claims and have concluded that the terms contained in this MOU are fair and adequate to both Atlas and its stockholders and confer a substantial benefit upon them, and that it is reasonable to pursue a settlement of the Action based upon the procedures outlined herein and the benefits and protections offered herein, the parties wish to document their agreement-in-principle in this MOU;

NOW, THEREFORE, as a result of the foregoing and the negotiations among counsel for the parties, the parties to the Action have reached an agreement-in-principle providing for the settlement of the Action on the terms and subject to the conditions set forth below (the “Settlement”):

1. As a result of the prosecution of the Action and negotiations between and among the Parties, it is agreed that in consideration for the full and final settlement and release of all Settled Claims (as defined below) Atlas or its successor(s) will:

(i) promptly after completion of the requirements set forth in paragraph 2 below, pay to each holder of record of issued and outstanding shares of Atlas common stock as of immediately prior to the effective time of the merger (other than shares owned by Chevron, Merger Sub, or any other direct or indirect wholly owned subsidiary of Chevron) a cash payment of 10 cents for each such share, subject to the limitations on

 

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Excluded Shareholders (as defined below) (the “Settlement Payment”). Defendants acknowledge that the prosecution of this Action and the efforts of Plaintiffs’ counsel in this Action were the sole causal factors that led to the agreement to make this Settlement Payment;

(ii) provide prompt notification to Plaintiffs’ counsel, subject to the terms of the Stipulation and Order Governing the Production and Exchange of Confidential Information entered in this action, of any competing bids to acquire Atlas received from third parties prior to the February 16, 2011 stockholder vote;

(iii) agree to attach as Exhibit B to this MOU the four paragraphs at pages 45-46 of Plaintiffs’ brief in support of their preliminary injunction motion regarding the supply-side market risk premium and, as derived therefrom, the related weighted average cost of capital, discount rate and fairness range, as set forth by Plaintiffs in their brief. The MOU, and the exhibits thereto, will promptly be filed on a Form 8-K with the Securities and Exchange Commission.

2. The Settlement Payment shall be contingent on and shall not be paid until (a) consummation of the Proposed Transaction; (b) certification of the Class (as defined below) for settlement purposes; (c) Final Approval of the Settlement (as defined below); (d) approval of a complete release of all Released Persons (as defined below) by the Court, in a form customarily approved by the Court in connection with settlements of this type; (e) the inclusion in the preliminary order of approval and final judgment of a provision enjoining all members of the Class from asserting any of the Settled Claims; and (f) an order dismissing the Action with prejudice has become final and no longer subject to appeal, whether by passage of time or

 

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otherwise. Atlas or its successor(s) will be responsible for the costs of making the Settlement Payment and other costs of administering the Settlement, including notice costs.

3. “Excluded Stockholders” shall include Atlas’s directors, including Jonathan Cohen and Edward Cohen (and their respective affiliates and related entities), and their respective immediate family members. Excluded Stockholders shall have no claim to and shall not receive any of the Settlement Payment, in whole or in part. The Excluded Stockholders hereby relinquish any right of themselves to receive any part of the Settlement Payment, or any additional amount based on any claim relating to the fact that the Settlement Payment is being received by any other stockholder, in each case under any theory, including but not limited to contract, application of statutory or judicial law, or equity.

4. Plaintiffs acknowledge and agree that the parties to the Proposed Transaction may negotiate other and further amendments or modifications to the merger agreement, and agree that they will not challenge or object to any such amendments or modifications so long as they are not inconsistent with the fairness of the Settlement as referenced in this MOU, and such modifications or amendments do not reduce the consideration paid to stockholders under the merger agreement or the Settlement Payment, and also so long as any such modifications or amendments are not otherwise inconsistent with the Defendants’ fiduciary duties, if any, or other obligations to the Class (as defined below in Paragraph 10(a)).

5. Within one (1) business day of the execution of this MOU, counsel for the parties shall inform the Court of the execution of this MOU and shall request leave of the Court to present the Settlement as soon as practicable following the consummation of the Proposed Transaction.

 

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6. Defendants shall inform the courts in the Pennsylvania State Action and Pennsylvania Federal Action of the execution of this MOU and request a continuing stay of all proceedings (except with respect to matters necessary in connection with the Settlement).

7. The parties agree that the Settlement shall promptly be presented to the Court, which shall administer the settlement process, and that within three (3) business days of approval of the Settlement, the Defendants shall submit appropriate papers in the Pennsylvania State Action and Pennsylvania Federal Action, requesting dismissal of these actions with prejudice.

8. No fees or expenses in connection with the Settlement shall be paid to Plaintiffs’ counsel in the absence of consummation of the merger and Final Approval of the Settlement by the Court, including of a complete release of all Released Persons (as defined in Paragraph 10(b) below), in a form customarily approved by the Court in connection with such settlements. Plaintiffs reserve all rights with respect to any fee application related to any mooted disclosure claims, and Defendants reserve all applicable rights and defenses with respect thereto. This paragraph shall be immediately binding on the parties to this MOU.

9. The parties will attempt in good faith to agree promptly on an appropriate stipulation of settlement (the “Stipulation”) and such other documentation as may be required in order to obtain final approval by the Court of the Settlement and the dismissal of this Action with prejudice upon the terms set forth herein, and such Stipulation shall be executed and submitted to the Court for approval at the earliest practicable time following consummation of the Proposed Transaction. The Stipulation shall expressly provide that, among other things:

(a) The Defendants have denied, and continue to deny, that they have committed or aided and abetted in the commission of any violation of law or engaged in any

 

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alleged unlawful or wrongful acts whatsoever, and expressly maintain that they diligently and scrupulously complied with any fiduciary and all other legal duties;

(b) The Defendants are entering into the Stipulation solely because the proposed Settlement would eliminate the burden, expense and risk of further litigation;

(c) Plaintiffs’ counsel acknowledge that Defendants would assert legal and factual defenses to claims made in the Action, and that the terms of the settlement are fair, reasonable, adequate, and in the best interest of all members of the Class; and

(d) Plaintiffs’ counsel believe that their claims have merit based on proceedings to date, but recognize the risk of further litigation and have concluded that the proposed Settlement is fair and adequate and that it is reasonable to pursue the settlement of the Action based upon the procedures outlined herein and the benefits provided to the proposed Class.

10. The Stipulation will further provide for, among other things:

(a) Appropriate certification pursuant to Delaware Court of Chancery Rules 23(a), 23(b)(1) and (b)(2) of a non-opt out class that includes any and all persons or entities who held shares of Atlas common stock, either of record or beneficially, including any and all of their respective successors in interest, predecessors, representatives, trustees, executors, administrators, heirs, assigns or transferees, immediate and remote, and any person or entity acting for or on behalf of, or claiming under any of them, other than the Defendants, their subsidiary companies, affiliates, assigns, and members of their immediate families, as the case may be, who held Atlas shares at any time between November 8, 2010 and the date of the consummation of the Proposed Transaction (the “Class”);

 

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(b) The full and complete discharge, dismissal with prejudice on the merits, settlement and release of, and a permanent injunction barring, any and all manner of claims, demands, rights, actions, causes of action, liabilities, damages, losses, obligations, judgments, duties, suits, costs, expenses, matters and issues known or unknown, contingent or absolute, suspected or unsuspected, disclosed or undisclosed, liquidated or unliquidated, matured or unmatured, accrued or unaccrued, apparent or unapparent, that have been, could have been, or in the future can or might be asserted in any court, tribunal or proceeding, (including but not limited to any claims arising under federal, state, foreign or common law, including the federal securities laws and any state disclosure law), by or on behalf of Plaintiffs or any member of the Class, whether individual, direct, class, derivative, representative, legal, equitable, or any other type or in any other capacity (collectively, the “Releasing Persons”) against Atlas, Edward E. Cohen, Jonathan Z. Cohen, Carlton M. Arrendell, Donald W. Delson, Dennis A. Holtz, Harmon S. Spolan, Mark C. Biderman, Gayle P.W. Jackson, Jessica K. Davis, Ellen F. Warren, Bruce M. Wolf, Chevron and Arkhan Corporation, or any of their respective families, parent entities, controlling persons, associates, predecessors, successors, affiliates or subsidiaries, and each and all of their respective past or present officers, directors, stockholders, principals, representatives, employees, attorneys, financial or investment advisors, consultants, accountants, investment bankers, commercial bankers, entities providing fairness opinions, underwriters, brokers, dealers, advisors or agents, heirs, executors, trustees, general or limited partners or partnerships, limited liability companies, members, managers, joint ventures, personal or legal representatives, estates, administrators, predecessors, successors and assigns (collectively, the “Released Persons”) which have arisen, could have arisen, arise now or hereafter may arise out of or relate in any manner to the acts, events, facts, matters, transactions, occurrences, statements, representations,

 

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misrepresentations or omissions or any other matter whatsoever set forth in or otherwise related, directly or indirectly, to the allegations in the Action, the Proposed Transaction or any deliberations or negotiations in connection therewith; the Atlas-Chevron merger agreement (and the transactions contemplated therein); the transactions with AHD and APL and their subsidiaries that are conditions to the Atlas-Chevron transaction and the negotiations relating thereto; any fiduciary obligations of the Released Persons in connection with the Proposed Transaction or any alternatives thereto; other than as provided in this MOU, the fees, expenses, or cost incurred in prosecuting, defending, or settling the Action; any disclosures made in connection with the Proposed Transaction, including claims under the federal securities laws within the exclusive jurisdiction of the federal courts (including the adequacy and completeness of disclosures in the preliminary proxy statement, definitive proxy statement, and Supplemental Proxy); or any of the allegations that were or could have been asserted in any complaint or amendment(s) thereto filed in the Action (collectively, the “Settled Claims”); provided, however, that the Settled Claims shall not include any claims to enforce the Settlement or any claims properly asserted by any Atlas stockholder for appraisal under Section 262 of the Delaware General Corporation Law. The parties agree that this release is not intended to, and shall not, extend to any claims pending in the litigation styled In re Atlas Energy Resources, LLC Unitholder Litigation, C.A. No. 4589-VCN (Del. Ch.), or Ussach v. Atlas Energy, Inc., et al., No. 2:10-cv-01533 (W.D. Pa.);

(c) Defendants’ acknowledgment that the pendency and prosecution of the Action and the negotiations between the parties’ counsel resulted in Defendants’ agreement to the terms of this Settlement; and

 

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(d) Plaintiffs’ acknowledgment that they have determined to enter into this Settlement because it provides for the settlement consideration and because the terms of the Settlement are fair, reasonable, and adequate to the Class.

11. The Stipulation will include a provision that upon final approval of the Settlement, the Defendants and the Released Persons shall be deemed to have, and by operation of the judgment shall have, fully, finally, and forever released, relinquished, and discharged Plaintiffs, each and all members of the Class, and Plaintiffs’ counsel from all claims (including unknown claims) arising out of, relating to, or in connection with, the institution, prosecution, assertion, settlement or resolution of the Action or the Settled Claims.

12. “Unknown Claims” means any claim that a Releasing Party does not know or suspect exists in his, her or its favor at the time of the release of the Settled Claims as against the Released Persons, including without limitation those which, if known, might have affected the decision to enter into the Settlement. The Settlement is intended to extinguish all Settled Claims and, consistent with such intentions, the Releasing Persons shall waive their rights to the extent permitted by state law, federal law, foreign law or principle of common law, which may have the effect of limiting the release set forth above. This shall include a waiver by the Releasing Persons of any rights pursuant to § 1542 of the California Civil Code (or any similar, comparable or equivalent provision) which provides:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

The Releasing Persons acknowledge that members of the Class and/or other Company stockholders may discover facts in addition to or different from those that they now know or

 

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believe to be true with respect to the subject matter of this release, but that it is their intention, as Plaintiffs and on behalf of the Class, to fully, finally and forever settle and release any and all claims released hereby known or unknown, suspected or unsuspected, which now exist, or heretofore existed, or may hereafter exist, and without regard to the subsequent discovery or existence of such additional or different facts. Plaintiffs and the other undersigned parties acknowledge, and the members of the Class by operation of law shall be deemed to have acknowledged, that the inclusion of “Unknown Claims” in the definition of “Settled Claims” was separately bargained for and was a key element of the Settlement and was relied upon by each and all of the Defendants in entering into the Stipulation.

13. This MOU sets forth all of the material terms of the Settlement. The parties intend to memorialize as soon as practicable the Settlement in a Stipulation and such other documentation as may be required in order to obtain Final Approval by the Court of the Settlement and the dismissal of this Action with prejudice and on the merits (as provided in Paragraph 9 above). In the event of the parties’ failure to agree in good faith on the form of such Stipulation and documentation, any party may seek the assistance of the Court in facilitating the consummation of the Settlement as provided in this MOU. The Settlement shall be subject to the approval of the Court and any appeals that may be taken. Should the Settlement not be consummated in accordance with the terms described herein, or the Proposed Transaction not be consummated for any reason, the proposed Settlement shall be null and void and of no force and effect, and shall not be deemed to prejudice in any way the position of any party with respect to this litigation (except with respect to the provisions of Paragraph 16). In such event, neither the existence of this MOU nor its contents shall be admissible in evidence or shall be referred to for any purpose in this litigation or in any other litigation or proceeding. Plaintiffs shall also have

 

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the right to withdraw from this MOU in the event they believe Defendants fail to act consistent with their fiduciary duties in connection with any competing bid(s) as set forth in Paragraph 1(ii) above.

14. After execution of this MOU, the parties shall negotiate with respect to the amount of the award of fees and expenses in the Action (the “Fee Award”) and shall endeavor to reach agreement with respect thereto, and absent any such agreement, each party reserves all applicable rights and defenses. Any Fee Award made by the Court shall be in addition to the Settlement Payment and shall not reduce in any way the amount of the Settlement Payment. Subject to the terms and conditions of this MOU and the terms and conditions of the Settlement contemplated hereby, Atlas and/or or its successor(s) shall pay, on behalf of and for the benefit of all of the Defendants, the full amount of any Fee Award entered by the Court (pursuant to the terms of the Stipulation of Settlement). Final resolution by the Court of the Fee Award shall not be a precondition to the dismissal of the Actions in accordance with the Stipulation, and the Stipulation shall provide that the Fee Award may be considered separately from the proposed Settlement of the Action.

15. The failure of the Court to approve any requested Fee Award in whole or in part shall have no effect on the Settlement.

16. Pending negotiation, execution and Final Approval of the Settlement by the Court, the parties in the Action and their counsel agree to stay the Action, not to initiate any proceedings other than those incident to effecting the Settlement itself, not to seek any interim relief in favor of any member of the Class and to seek to remove or withdraw any pending requests for interim relief (including, but not limited to, preliminary injunction motions in the Action). As used in this MOU, the term “Final Approval of the Settlement” means that the Court

 

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has entered a final order and judgment certifying the class, approving the Settlement, dismissing the Action with prejudice on the merits (and with Plaintiffs and their counsel agreeing not to pursue fees or costs against Defendants other than pursuant to Paragraphs 8 and 14 above) and providing for such release language as set forth in Paragraphs 10(a-b) above; and that such final order and judgment is final and no longer subject to further appeal or review, whether by affirmance on or exhaustion of any possible appeal or review, by writ of certiorari or otherwise, or by lapse of time or otherwise. The Parties also agree to use their reasonable best efforts to prevent, stay, or seek dismissal of, or oppose entry of any interim or final relief in favor of any member of the Class in, any other litigation against any of the Parties to this MOU which challenges the Settlement, the merger, including any transactions contemplated thereby, or involves, directly or indirectly, a Settled Claim.

17. In the event the Settlement does not become final for any reason, Defendants reserve the right to oppose certification of any class in future proceedings.

18. Atlas or its successor(s) shall be responsible for paying the costs and expenses related to providing notice of the Settlement to the Class, as well as any costs and expenses related to the administration of the Settlement Payment.

19. Plaintiffs and their respective counsel in the Action represent and warrant that Plaintiffs are stockholders of the Company and have been stockholders at all relevant times and that none of Plaintiffs’ claims or causes of action referred to in any complaint in the Action or this MOU, or any claims Plaintiffs could have alleged, have been assigned, encumbered or in any manner transferred in whole or in part. Each of the undersigned attorneys will affirm that he or she has been duly empowered and authorized by his or her client(s) to enter into the Stipulation.

 

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20. This MOU constitutes the entire agreement among the parties with respect to the subject matter hereof, and may not be amended nor any of its provisions waived except by a writing signed by all of the parties hereto. Any dispute concerning this MOU and the Settlement shall be litigated in the State of Delaware.

21. This MOU and the Settlement contemplated by it shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflict of laws principles.

22. This MOU may be executed in counterparts by facsimile or original signature by any of the signatories hereto and as so executed shall constitute one agreement.

23. This MOU shall be binding upon and shall inure to the benefit of the parties and their respective agents, successors, executors, heirs and assigns.

24. All rights and obligations of the parties hereunder shall survive the closing of the Merger.

25. This MOU shall be of no further force and effect upon the execution by all parties of the Stipulation, which shall supersede the terms of this MOU.

IN WITNESS WHEREOF, the parties have executed this MOU effective as of the date set forth below.

 

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/s/ Brian D. Long

 

OF COUNSEL:

 

Patricia C. Weiser

Henry J. Young

Loren R. Ungar

THE WEISER LAW FIRM, P.C.

121 N. Wayne Avenue, Suite 1000

Wayne, Pennsylvania 19087

(610) 225-2677

 

Counsel for Plaintiff Weber and

Co-Lead Counsel for Plaintiffs

 

Jonathan M. Stein

LAW OFFICE OF
JONATHAN M. STEIN, P.L.

120 East Palmetto Park Road, Suite 420

Boca Raton, Florida 33432

(561) 961-2244

 

Counsel for Plaintiff Weber and

additional Counsel for Plaintiffs

  

Seth D. Rigrodsky (ID No. 3147)

Brian D. Long (ID No. 4347)

Gina M. Serra (ID No. 5387)

RIGRODSKY & LONG, P.A.

919 N. Market St., Suite. 980

Wilmington, Delaware 19801

(302) 295-5310

 

Counsel for Plaintiff Weber and

Delaware Co-Liaison Counsel for Plaintiffs

  

 

/s/ Robert D. Goldberg

 

OF COUNSEL:

 

Stanley D. Bernstein

U. Seth Ottensoser

BERNSTEIN LIEBHARD LLP

10 East 40th Street

New York, New York 10016

(212) 779-1414

 

Counsel for Plaintiff Katsman and

Co-Lead Counsel for Plaintiffs

  

Robert D. Goldberg (ID No. 631)

BIGGS & BATTAGLIA

921 Orange Street

Wilmington, Delaware 19801

(302) 655-9677

 

Counsel for Plaintiff Katsman and

Delaware Co-Liason Counsel for Plaintiffs

 

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/s/ Martin S. Lessner

 

OF COUNSEL:

 

Rachelle Silverberg

Jonathan M. Moses

Meredith L. Turner

WACHTELL, LIPTON, ROSEN & KATZ

51 West 52nd Street

New York, New York 10019

(212) 403-1000

 

Counsel for Defendant Atlas Energy, Inc. and

the Individual Defendants

  

Martin S. Lessner (ID No. 3109)

Christian Douglas Wright (ID No. 3554)

Kathaleen St. J. McCormick (ID No. 4579)

Paul J. Loughman (ID No. 5508)

YOUNG CONAWAY STARGATT
& TAYLOR, LLP

1000 West Street, 17th Floor

Wilmington, Delaware 19801

(302) 571-6600

 

Counsel for Defendant Atlas Energy, Inc. and the

Individual Defendants

  

/s/ Jennifer C. Voss

 

OF COUNSEL:

 

Matthew R. Kipp

Andrew J. Fuchs

William M. Rohner

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP

155 North Wacker Drive

Chicago, Illinois 60606

(312) 407-0700

 

Counsel for Defendants Chevron Corporation

and Arkhan Corporation

  

Edward P. Welch (ID No. 671)

Jennifer C. Voss (ID No. 3747)

Rachel J. Barnett (ID No. 4876)

Lori W. Will (ID No. 5402)

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP

One Rodney Square

Wilmington, Delaware 19801

(302) 651-3000

 

Counsel for Defendants Chevron Corporation

and Arkhan Corporation

DATED: February 3, 2011

  

 

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EXHIBIT A


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant  þ                            Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨ Preliminary Proxy Statement
¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
¨ Definitive Proxy Statement
þ Definitive Additional Materials
¨ Soliciting Material Pursuant to §240.14a-12

ATLAS ENERGY, INC.

 

 

(Name of Registrant as Specified in Its Charter)

N/A

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

þ No fee required

 

¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:

 

  (2) Aggregate number of securities to which transaction applies:

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

  (4) Proposed maximum aggregate value of transaction:

 

  (5) Total fee paid:

 

¨ Fee paid previously with preliminary materials.

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) Amount Previously Paid:

 

  (2) Form, Schedule or Registration Statement No.:

 

  (3) Filing Party:

 

  (4) Date Filed:


EXPLANATORY NOTE

Atlas Energy, Inc. previously filed a definitive proxy statement, dated January 11, 2011, with respect to the special meeting of Atlas Energy stockholders to be held on February 16, 2011. The Atlas Energy special meeting is being held to (1) consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of November 8, 2010 and amended as of December 7, 2010 (the “merger agreement”), by and among Atlas Energy, Chevron Corporation and Arkhan Corporation, an indirect wholly owned subsidiary of Chevron, pursuant to which Arkhan Corporation will merge with and into Atlas Energy, with Atlas Energy surviving as an indirect wholly owned subsidiary of Chevron, as more fully described in the proxy statement, and (2) consider and vote on a proposal to adjourn the special meeting to a later date or time, if necessary or appropriate, in the view of the Atlas Energy board of directors, to solicit additional proxies in favor of the proposal to adopt the merger agreement if there are insufficient votes at the time of such adjournment to adopt the merger agreement. The following supplements the disclosure in the proxy statement.

SUPPLEMENTAL DISCLOSURE

 

(1) The section of the proxy statement entitled “Proposal 1: The Merger — Background of the Merger” is hereby supplemented as follows:

 

  (A) The following is hereby inserted immediately following the last sentence of the first paragraph of such section:

“The transaction value of the joint venture implied a valuation of the Marcellus shale of $14,100 per acre on a gross basis without taking into account the present value of the significant portion of the drilling carry which is to be paid over time or the associated risks with the timing and amount of these future payments. The joint venture agreements, which are publicly available, also included a provision that, if Atlas Energy were to conduct a process to sell or merge itself and such process involved two or more potential bidders, then Atlas Energy would be required to allow Reliance Industries Limited to participate in such process.”

 

  (B) The fifth paragraph of such section (such paragraph beginning with “On July 6, 2010 . . .”) is hereby amended and restated to read as follows:

“On July 6, 2010, Jefferies met with certain members of Chevron management to discuss its conversation with Atlas Energy management, explaining that Atlas Energy management had stated that it would not support an acquisition of Atlas Energy unless the offer were at a significant premium to the then-current Atlas Energy stock price. Jefferies presented discussion materials to Chevron and highlighted the attractiveness of the Marcellus shale play, including Atlas Energy. These discussion materials included a preliminary net asset value analysis with an implied stock price range for Atlas Energy of $69.87 – $101.89 per share of common stock. This valuation of Atlas Energy was approximately two to four times the then-current Atlas Energy stock price and assumed that the Marcellus shale acreage had a value of $12,500 – $17,500 per acre. Without agreeing with the valuation set forth by Jefferies, Chevron management indicated during the discussions that it believed it would be able to offer a premium that the Atlas Energy board of directors and management would find attractive.”

 

  (C) The following sentence is hereby inserted immediately following the last sentence of the sixth paragraph of such section (such paragraph beginning with “On July 8, 2010, Jefferies met with members of Atlas Energy management . . .”):

“Prior to July 8, 2010, Jefferies had not been formally engaged or retained with respect to the merger by either Atlas Energy or Chevron.”

 

  (D) The sixth sentence of the sixteenth paragraph of such section (such paragraph beginning with “On September 24, 2010 . . .”) is hereby amended and restated to read as follows:

“Richard Weber discussed the business and operations of the company, including the advantages of the company’s operations compared to others operating in the Marcellus shale area, future potential

 


opportunities for the company and the various operational risks faced by the company, including in particular the execution risks relating to the continued development of the Marcellus shale, such as the substantial additional long-term funding and labor that would be required to ramp-up operations in the Marcellus shale as contemplated by Atlas Energy’s business plan, the possibility that actual production might not meet current expectations, legislative and regulatory uncertainty relating to drilling for natural gas, limitations on the supply of oil field services and equipment and interstate pipeline capacity, volatility of natural gas prices and increasing competition and technological developments in the U.S. natural gas industry.”

 

  (E) The following is hereby inserted immediately following the eighth sentence of the sixteenth paragraph of such section (such paragraph beginning with “On September 24, 2010 . . .”):

“Jefferies explained that, in its view, Chevron was likely to make the highest bid for Atlas Energy because (1) Chevron’s primary competitors had recently made acquisitions of companies in the shale gas industry or of shale gas assets, (2) certain other large oil and gas companies were not considering large acquisitions at the present time and (3) Atlas Energy had recently conducted a broad auction for a joint venture involving its acreage in the Marcellus shale, and Reliance Industries Limited and Chevron had presented the two best proposals in such auction. Jefferies further noted that Reliance Industries Limited may not be interested in acquiring Atlas Energy because it had recently entered into a joint venture with Atlas Energy and a separate joint venture with another company.”

 

  (F) The nineteenth paragraph (such paragraph beginning with “On October 6, 2010 . . .”) of such section is hereby amended and restated to read as follows:

“On October 6, 2010, following the request of the Atlas Energy board of directors, Daniel Herz and two Atlas Energy directors, Mark C. Biderman and Donald W. Delson, met with Deutsche Bank Securities, Inc. to discuss whether Deutsche Bank would be available to assist Atlas Energy and its board to analyze the business and value of Atlas Energy and general market conditions. Deutsche Bank had been identified by Atlas Energy management at the direction of the Atlas Energy board of directors, which requested that Atlas Energy meet with a financial advisor that had not performed significant services for Atlas Energy in the past and whose fees would not be contingent on the completion of the merger. Based on Deutsche Bank’s presentation, its experience in the oil and gas sector and confidentiality concerns regarding the transaction, Mr. Biderman and Mr. Delson determined not to meet with additional financial advisors and the Atlas Energy board of directors authorized Atlas Energy management to retain Deutsche Bank as an additional financial advisor.”

 

  (G) The first sentence of the thirty-second paragraph of such section (such paragraph beginning with “Between November 4 and November 8, 2010 . . .”) is hereby amended and restated to read as follows:

“Between November 4 and November 8, 2010, although the exclusivity agreement with Chevron had expired on November 5, members of Atlas Energy management and members of Chevron management continued to engage in exclusive negotiations and discussions regarding the open issues in the merger agreement.”

 

  (H) The fifth sentence of the thirty-sixth paragraph of such section (such paragraph beginning with “On November 8, 2010, Atlas Energy and Chevron . . .”) is hereby amended and restated to read as follows:

“Following additional negotiations, at which Atlas Energy management demanded an increased per-share consideration, Atlas Energy and Chevron agreed to proceed on the basis of a per-share cash merger consideration of $38.25.”

 

  (I) The following sentence is hereby inserted immediately following the third sentence of the thirty-eighth paragraph of such section (such paragraph beginning with “Later that day on November 8, 2010, the AHD special committee met . . .”):

“Citi’s opinion and a summary of its financial analyses (including related assumptions and qualifications) are set forth in an information statement on Schedule 14C filed by AHD with the SEC on January 19, 2011. The summary of Citi’s financial analyses in the information statement includes

 

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implied aggregate value reference ranges for the transferred business (as defined below under “The AHD Transaction Agreement — The AHD Sale”) of between $315 and $640 million.”

 

  (J) The following is hereby inserted after the end of such section:

“Following the execution of the merger agreement, on January 10, 2011, Atlas Energy received the following letter from Reliance Holding USA, Inc.:

January 10, 2011

Atlas Energy, Inc.

Westpointe Corporate Center One

550 Coraopolis Heights Road, Suite 300

Moon Township, PA 15108

Attention: Board of Directors

Ladies and Gentlemen:

We were very surprised by the announcement of your deal to be acquired by Chevron. A review of the Proxy Statement filed with the SEC on December 8, 2010 has raised several issues described below.

We do not understand why at no time during the seven months of discussions involving Chevron, during which time we were in regular dialogue as your joint venture partner, did Atlas Energy reach out to Reliance to gauge our interest in a possible company-level transaction.

It is also surprising that Atlas Energy would choose to deal on an exclusive basis with the runner-up in the competitive joint venture process that was completed less than a month before you and your representatives commenced the company-level transaction discussions.

We believe Reliance, as Atlas Energy’s joint venture partner and a company with substantial financial resources, would have been the most natural and obvious potential transaction partner for Atlas Energy. This is especially true in light of the many assurances that were conveyed by Atlas Energy management to Reliance during the joint venture negotiations about Reliance being the preferred partner should Atlas Energy choose to pursue a whole-company transaction.

We see from the Proxy Statement that the Atlas Energy board relied on Jefferies’ advice that “Chevron was likely to be the company that would make the highest bid for Atlas Energy”. We further note that Jefferies used a reference range regarding price per acre in its analysis of precedent asset transactions that was well below what Reliance agreed to pay in its recently concluded joint venture transaction with Atlas Energy.

The result appears to be a recommended deal that implies a valuation for Atlas Energy’s Marcellus assets, which account for a large part of its overall value, at a significant discount to the value attributed to the same assets in our joint venture.

Moreover, the timing of the sale process, coming right on the heels of the joint venture closing where a significant long-term commitment to Atlas Energy was made by Reliance following a full marketing process in which Chevron participated, raises many questions.

We request, as soon as possible, access to the Board and the management so that we can better understand the issues outlined above and to determine the best path forward. In addition, we request, as soon as possible, access to any non-public information and documents addressing the joint venture so that we can ensure that our rights under the joint venture, and the expected value there under, are not adversely affected as a result of the proposed Chevron transaction.

Based on the above, we would like to evaluate our options, including whether, as a significant partner for most of the value of Atlas Energy’s assets, we may be able to create incremental value for Atlas Energy and its constituencies. We are confident that we could complete any such discussions on an expedited basis.

 

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We have engaged Perella Weinberg Partners and Kirkland & Ellis to assist us in this process and are prepared to meet with you and your advisors as soon as practicable.

We look forward to the opportunity to engage in productive discussions with management and the Board of Directors of Atlas Energy to address our significant concerns about the joint venture and to determine whether there is any scope for enhancing the interests of the various Atlas Energy constituencies.

Sincerely yours,

RELIANCE HOLDING USA INC.

/s/ W. Van de Vijver                        

W. Van de Vijver

President and CEO

On January 14, 2011, Atlas Energy sent the following letter to Reliance Holding USA, Inc.:

January 14, 2011

Reliance Holding USA, Inc.

2000 W. Sam Houston Pkwy. S.

Suite 700

Houston, TX 77042

Attention: W. Van de Vijver

President and CEO

Re: Letter from Reliance Holding USA, Inc.

Dear Walter:

This letter is being sent on behalf of Atlas Energy, Inc. in response to your letter dated January 10, 2011 on behalf of Reliance Holding USA, Inc. to the board of directors of Atlas Energy.

We reiterate that Atlas Energy is committed fully to its ongoing joint venture with you, and we look forward to continuing collaboration with you in that context, in accordance with the terms of the applicable agreements.

We also refer you to the terms of Atlas Energy’s merger agreement with Chevron Corporation, including the provisions of Section 6.3 of such agreement.

Sincerely,

/s/ Edward E. Cohen                        

Edward E. Cohen

Atlas Energy has not received further communication from Reliance Holding USA, Inc. or any of its affiliates or representatives regarding the above.

On January 28, 2011, the Atlas Energy board of directors met to discuss the merger and certain litigation related to the merger, which is described below in “Proposal 1: The Merger — Litigation Concerning the Merger.” In response to claims raised by the plaintiffs that Jefferies had made two miscalculations and had used an outdated equity risk premium to calculate the weighted average cost of capital, Jefferies had examined its calculation of the discount rate. Jefferies advised the Atlas Energy board of directors that it had used the historical equity risk premium of 7.1% contained in the 2006 Stocks, Bonds, Bills, and Inflation Valuation Yearbook by Ibbotson Associates (which we refer to as the “2006 Ibbotson Yearbook”), as opposed to the historical equity risk premium of 6.7% contained in

 

4


the 2010 Stocks, Bonds, Bills, and Inflation Valuation Yearbook by Ibbotson Associates (which we refer to as the “2010 Ibbotson Yearbook”). For purposes of determining whether Jefferies continued to stand by the opinions it had delivered to the Atlas Energy board of directors on November 8, 2010, Jefferies had recalculated a discount rate in light of these issues, including using the historical equity risk premium of 6.7% contained in the 2010 Ibbotson Yearbook. Jefferies explained that the revised calculation resulted in a lower discount rate that yielded a higher valuation range for Atlas Energy as well as for the assets at issue in the related transactions with AHD and APL, but that Jefferies had reviewed its revisions with its fairness committee and was reaffirming its opinions. Although the plaintiffs had not questioned the accuracy of Deutsche Bank’s discounted cash flow analysis, the Atlas Energy board of directors invited Deutsche Bank to explain its methodology for calculating the discount rates employed in that analysis, and Deutsche Bank thereafter reconfirmed its analysis. Jefferies and Deutsche Bank each noted that it had used, consistent with its customary practice, a historical equity risk premium instead of the lower supply-side equity risk premium. Following the presentations by Jefferies and Deutsche Bank, the Atlas Energy board of directors concluded that the information it had learned did not cause it to change its recommendation that the merger agreement be adopted by Atlas Energy stockholders.”

 

(2) The section of the proxy statement entitled “Proposal 1: The Merger — Opinion of Jefferies” is hereby supplemented as follows:

 

  (A) The first sentence of the third paragraph (such paragraph beginning with “Using publicly available information, Jefferies calculated . . .”) of the section entitled “Jefferies’ Financial Analysis — Comparative Public Companies Analysis” is hereby amended and restated to read as follows:

“Using publicly available information, Jefferies calculated and analyzed enterprise value multiples of each comparative public company’s proved reserves, current daily production, the last twelve months earnings before interest, tax expense, depreciation and amortization, excluding amortization of purchased intangibles and certain other adjustments that Jefferies performed based on its prior experience and knowledge in the oil and gas exploration and production industry, or adjusted EBITDA, and the company’s projected 2010, 2011 and 2012 adjusted EBITDA, based on estimates published by Bloomberg Financial, all pro forma for announced transactions.”

 

  (B) The table in the section entitled “Jefferies’ Financial Analysis — Comparative Public Companies Analysis” is hereby amended and restated to read as follows:

 

     Multiple Range of Comparative
Companies of Atlas Energy
     Implied
Multiple – Atlas
Energy/Chevron
Merger
 
     Low      Median      High     

Enterprise Value as a Multiple of:

           

Proved Reserves ($/Mcfe)

   $ 1.55       $ 2.74       $ 22.55         $    3.76   

Current Daily Production ($/Mcfe/d)

   $ 10,617       $ 13,631       $ 67,237         $35,554   

Adjusted EBITDA

           

LTM

     7.3x         8.7x         30.1x         15.8x   

2010E

     7.4x         9.8x         23.8x         17.7x   

2011E

     5.9x         7.7x         11.4x         20.6x   

2012E

     2.7x         6.1x         8.0x         11.9x   

 

  (C) The following sentence is hereby inserted at the end of the second paragraph (such paragraph beginning with “With respect to the reserves in Appalachia . . .”) of the section entitled “Jefferies’ Financial Analysis — Comparative Transactions Analysis — Precedent Asset Transactions”:

“Each such reference range was derived from publicly available information relating to the 20 transactions listed in the preceding table and was determined by Jefferies based on its prior experience and knowledge in the oil and gas exploration and production industry.”

 

5


  (D) The following sentence is hereby inserted at the end of the fourth paragraph (such paragraph beginning with “With respect to the reserves in the Antrim shale formation . . .”) of the section entitled “Jefferies’ Financial Analysis — Comparative Transactions Analysis — Precedent Asset Transactions”:

“Each such reference range was derived from publicly available information relating to the 11 transactions listed in the preceding table and was determined by Jefferies based on its prior experience and knowledge in the oil and gas exploration and production industry.”

 

  (E) The following sentence is hereby inserted at the end of the sixth paragraph (such paragraph beginning with “With respect to the acreage held by Atlas Energy in the Marcellus shale formation . . .”) of the section entitled “Jefferies’ Financial Analysis — Comparative Transactions Analysis — Precedent Asset Transactions”:

“Each such reference range was derived from publicly available information relating to the 29 transactions listed in the preceding table and was determined by Jefferies based on its prior experience and knowledge in the oil and gas exploration and production industry.”

 

  (F) The seventh paragraph (such paragraph beginning with “Additionally, the value for certain other assets . . .”) of the section entitled “Jefferies’ Financial Analysis — Comparative Transactions Analysis — Precedent Asset Transactions” is hereby amended and restated to read as follows:

“Additionally, the value for certain other assets and operations of Atlas Energy (consisting of assets and operations relating to the Marcellus shale outside of the Reliance AMI, the Utica shale in Pennsylvania and the Collingwood/Utica shale in Michigan, the investment partnership business and Atlas Energy’s hedges) were calculated based on various methodologies for valuing such assets and operations based on Jefferies’ prior experience and knowledge. These assets were valued between $329 million and $979 million.”

 

  (G) The table entitled “Selected Precedent Corporate Transaction Multiples” in the section entitled “Jefferies’ Financial Analysis — Comparative Transactions Analysis — Precedent Corporate Transactions” is hereby amended and restated to read as follows:

 

Benchmark

   High      Low      Mean      Median      Implied
Multiple –
Atlas/Chevron
Merger

Proved Reserves ($/Mcfe)

   $ 6.94       $ 1.57       $ 3.75       $ 3.55       $    3.76

Current Daily Production ($/Mcfe/d)

   $ 35,632       $ 7,228       $ 14,980       $ 13,277       $35,554

 

  (H) The second paragraph (such paragraph beginning with “To calculate the estimated enterprise value . . .”) of the section entitled “Jefferies’ Financial Analysis — Discounted Cash Flow Analysis” is hereby amended and restated to read as follows:

“To calculate the estimated enterprise value of Atlas Energy using discounted cash flow analysis, Jefferies added (i) projected unlevered free cash flows for the fourth quarter of 2010 and fiscal years 2011 through 2017 based on the projected financial data provided by Atlas Energy management to Jefferies to (ii) the “terminal value” of Atlas Energy as of 2017, and discounted such amounts to their present value using a range of selected discount rates. Specifically, Jefferies used a discount rate range of 14.0% to 15.0%. The discount rates were based on Jefferies’ professional judgment and its analysis of the weighted average cost of capital for Atlas Energy based upon historical estimates of the weighted average cost of capital for Atlas Energy. In determining the weighted average cost of capital, Jefferies applied its professional judgment and its customary methodology for analyzing the weighted average cost of capital. That methodology uses the historical equity risk premium among other factors in determining the weighted average cost of capital. Jefferies’ analysis resulted in an implied weighted average cost of capital of 14.7%. The projected unlevered free cash flows were calculated by taking adjusted EBITDA from consolidated exploration and production operations, subtracting depreciation and amortization and cash taxes, adding back depreciation and amortization and subtracting changes in

 

6


working capital and total capital expenditures. The residual values of Atlas Energy at the end of the forecast period, or “terminal values,” were estimated by applying multiples to estimated 2017 adjusted EBITDA from consolidated exploration and production operations. For this purpose, Jefferies selected a multiple of 7.0x and a multiple range of 6.0x to 8.0x for Atlas Energy, which Jefferies deemed to be the most appropriate assumption in its professional judgment, based on its prior experience and knowledge in the oil and gas sector and its consideration of comparable companies. The selected comparative public companies were the same as described under “Proposal 1: The Merger — Opinion of Jefferies — Jefferies’ Financial Analysis — Comparative Public Companies Analysis” above.”

Jefferies’ discounted cash flow analysis was subsequently revised as described in “Proposal 1: The Merger — Opinion of Jefferies — Further Analysis by Jefferies” below.

 

 

  (I) The following is hereby inserted immediately prior to the section entitled “Additional Information Relating to Jefferies”:

“Jefferies’ Financial Analysis – AHD Sale

On November 7, 2010, Jefferies rendered to Atlas Energy and ATN its oral opinion, subsequently confirmed in writing (which we refer to as the “AHD opinion”), that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its AHD opinion, the consideration to be received by ATN pursuant to the AHD sale (which we refer to as the “AHD sale consideration”) was fair, from a financial point of view, to ATN. The AHD sale consideration includes (1) 23,379,384 newly issued AHD common units (which had a value of $220 million based on the volume-weighted average price of AHD common units for the 10 trading-day period ended on November 8, 2010) and $30 million in cash, subject to the unit substitution, and (2) the assumption by AHD of all of the historical and future liabilities associated with the assets to be sold in the AHD sale.

The AHD opinion, the issuance of which was approved by Jefferies’ fairness opinion committee, is for the use and benefit of the Atlas Energy board of directors and ATN solely. The AHD opinion does not address the relative merits of the transactions contemplated by the AHD transaction agreement as compared to any alternative transaction or opportunity that might be available to Atlas Energy or ATN, nor does it address the underlying business decision by Atlas Energy or ATN to engage in the AHD sale or the terms of the AHD transaction agreement or the documents referred to therein. In addition, Jefferies was not asked to address, and the AHD opinion does not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of Atlas Energy or ATN. Jefferies expresses no opinion as to the price at which AHD common units will trade at any time. Furthermore, Jefferies does not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation, if any, payable to or to be received by any of Atlas Energy’s, ATN’s or AHD’s officers, directors or employees, or any class of such persons, in connection with the AHD sale relative to the AHD sale consideration to be received by ATN.

In arriving at its AHD opinion, Jefferies, among other things:

 

   

reviewed a draft dated November 7, 2010 of the AHD transaction agreement;

 

   

reviewed certain publicly available financial and other information about Atlas Energy and AHD;

 

   

reviewed certain information furnished to Jefferies by Atlas Energy’s, ATN’s and AHD’s respective managements, including financial forecasts and analyses, relating to the business, operations and prospects of Atlas Energy, ATN, certain subsidiaries of Atlas Energy and AHD;

 

   

held discussions with members of senior managements of Atlas Energy, ATN and AHD concerning the matters described in the second and third bullet above;

 

7


   

reviewed the trading price history and valuation multiples for AHD common units and compared them with those of certain publicly traded companies that Jefferies deemed relevant;

 

   

compared the proposed financial terms of the AHD sale with the financial terms of certain other transactions that Jefferies deemed relevant;

 

   

considered the potential pro forma impact of the AHD sale; and

 

   

conducted such other financial studies, analyses and investigations as Jefferies, in its professional judgment, deemed appropriate.

In Jefferies’ review and analysis and in rendering the AHD opinion, Jefferies assumed and relied upon, but did not assume any responsibility to independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by Atlas Energy, ATN and AHD or that was publicly available to Jefferies (including, without limitation, the information described above), or that was otherwise reviewed by Jefferies. Jefferies relied on assurances of the management of Atlas Energy, ATN and AHD that they are not aware of any facts or circumstances that would make such information inaccurate or misleading. Included in the financial information provided to Jefferies were certain financial forecasts, which are disclosed in “Proposal 1: The Merger — Atlas Energy Unaudited Prospective Financial Information.” In Jefferies’ review, Jefferies did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did Jefferies conduct a physical inspection of any of the properties or facilities of, Atlas Energy, ATN, certain subsidiaries of Atlas Energy or AHD, nor has Jefferies been furnished with any such evaluations or appraisals of such physical inspections, nor does Jefferies assume any responsibility to obtain any such evaluations or appraisals.

With respect to the financial forecasts provided to and examined by Jefferies, Jefferies notes that projecting future results of any company is inherently subject to uncertainty. Atlas Energy, ATN and AHD informed Jefferies, however, and Jefferies assumed, that such financial forecasts were reasonably prepared on bases reflecting the best then-available estimates and good-faith judgments of the management of Atlas Energy, ATN and AHD as to the future financial performance of Atlas Energy, ATN, certain other subsidiaries of Atlas Energy and AHD. Jefferies expresses no opinion as to any such financial forecasts or the assumptions on which they were made.

Jefferies’ AHD opinion was based on economic, monetary, regulatory, market and other conditions existing at the time of and that could be evaluated as of the date of its AHD opinion. Jefferies has no undertaking or obligation to advise any person of any change in any fact or matter affecting its AHD opinion of which Jefferies becomes aware after the date of its AHD opinion.

Jefferies made no independent investigation of any legal or accounting matters affecting Atlas Energy, ATN, certain subsidiaries of Atlas Energy or AHD, and Jefferies assumed the correctness in all respects material to its analysis of all legal and accounting advice given to Atlas Energy and its board of directors and ATN, including, without limitation, advice as to the legal, accounting and tax consequences of the terms of, and transactions contemplated by, the AHD transaction agreement to Atlas Energy and ATN and Atlas Energy stockholders and ATN equityholders. In addition, in preparing its AHD opinion, Jefferies did not take into account any tax consequences of the AHD sale. Jefferies assumed that the final form of the AHD transaction agreement would be substantially similar to the draft dated November 7, 2010 reviewed by Jefferies. Jefferies also assumed that, in the course of obtaining the necessary regulatory or third-party approvals, consents and releases for the consummation of the AHD sale, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Atlas Energy, ATN, certain subsidiaries of Atlas Energy, AHD or the contemplated benefits of the AHD sale.

The following is a brief summary of the analyses performed by Jefferies in connection with its AHD opinion. This summary is not intended to be an exhaustive description of the analyses performed

 

8


by Jefferies but includes all material factors considered by Jefferies in rendering its AHD opinion. Jefferies drew no specific conclusions from any individual analysis, but factored its observations from all of these analyses into its qualitative assessment of the AHD sale consideration. Each analysis performed by Jefferies is a common methodology utilized in determining valuations. Although other valuation techniques may exist, Jefferies believes that the analyses described below, when taken as a whole, provided the most appropriate analyses for Jefferies to arrive at its AHD opinion.

Summary of Analyses. Jefferies’ approach to valuing the assets being sold to AHD in the AHD sale used several customary methodologies, including:

 

   

asset-level discounted cash flow analysis; and

 

   

sum of parts asset-level discounted cash flow analysis.

The implied value ranges derived from each of these methodologies were compared to the AHD sale consideration. The implied value ranges in the proposed AHD sale, derived using the various valuation methodologies listed above, supported the conclusion that, from a financial point of view, the proposed AHD sale consideration was fair to Atlas Energy and ATN. In Jefferies’ professional judgment, these two methodologies were the most relevant to assessing the fairness of the AHD sale consideration from a financial point of view. Because of the disparate nature of the assets being transferred, Jefferies believed that comparative public companies and comparative transactions analyses were impractical.

In applying the various valuation methodologies to the particular businesses, operations and prospects of the applicable assets, and the particular circumstances of the proposed transaction, Jefferies made qualitative judgments as to the significance and relevance of each analysis. In addition, Jefferies made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Atlas Energy or ATN. Accordingly, the methodologies and the implied value range derived therefrom must be considered as a whole and in the context of the narrative description of the financial analyses, including the assumptions underlying these analyses. Considering the implied value ranges without considering the full narrative description of the financial analyses, including the assumptions underlying these analyses, could create a misleading or incomplete view of the process underlying, and conclusions contained in, Jefferies’ AHD opinion.

Asset-Level Discounted Cash Flow Analysis. Jefferies performed an asset-level discounted cash flow analysis of the applicable assets of Atlas Energy and ATN. An asset-level discounted cash flow analysis is a traditional valuation methodology used to derive the valuation of an asset by calculating the sum of an asset’s unlevered free cash flows over a forecast period and the asset’s terminal or residual value at the end of the forecast period.

To calculate the estimated value of the applicable assets using the asset-level discounted cash flow analysis, Jefferies added (i) projected unlevered free cash flows for the fourth quarter of 2010 and fiscal years 2011 through 2017 based on the projected financial data provided by Atlas Energy management to Jefferies to (ii) the “terminal value” of the applicable asset as of 2017, and discounted such amounts to their present value using a range of selected discount rates. Specifically, Jefferies used a discount rate range of 16.0% to 17.0%. The discount rates were based on Jefferies’ professional judgment and its analysis of the weighted average cost of capital for a small cap energy and production company based upon historical estimates of the weighted average cost of capital for such a company, as well as the weighted average cost of capital for companies with similar size and with an oil and gas exploration and production focus. In determining the weighted average cost of capital, Jefferies applied its professional judgment and its customary methodology for analyzing the weighted average cost of capital. That methodology uses the historical equity risk premium among other factors in determining the weighted average cost of capital. Jefferies’ analysis resulted in an implied weighted average cost of capital of 16.6%. The projected unlevered free cash flows were calculated by determining the EBITDA for the applicable assets less depreciation and amortization, plus depreciation and amortization, less

 

9


total capital expenditures and changes in working capital for such asset, plus partnership assets drilling margin less general partner contribution to drilling margin. The residual values of the applicable assets at the end of the forecast period, or “terminal values,” were estimated by applying multiples to estimated 2017 EBITDA for the assets. For this purpose, Jefferies selected a multiple range of 6.5x to 8.5x for the applicable assets, which Jefferies deemed to be the most appropriate assumption in its professional judgment, based on its prior experience and knowledge in the oil and gas sector and its consideration of comparable assets. The comparative companies considered in selecting the multiple range were as follows:

 

   

BreitBurn Energy Partners

 

   

Constellation Energy Partners

 

   

Encore Energy Partners

 

   

EV Energy Partners

 

   

Legacy Reserves

 

   

Linn Energy

 

   

Pioneer Southwest

 

   

Vanguard Natural Resources

The value range for the applicable assets yielded by the asset-level discounted cash flow analysis implied a value range for the applicable assets of $232 million to $269 million as compared to the proposed AHD sale consideration. Jefferies noted that the proposed AHD sale consideration was in line with the implied value range yielded by Jefferies’ asset-level discounted cash flow analysis.

Jefferies’ discounted cash flow analysis was subsequently revised as described in “Proposal 1: The Merger — Opinion of Jefferies — Further Analysis by Jefferies” below.

Sum of Parts Discounted Cash Flow Analysis. Jefferies performed a sum of parts discounted cash flow analysis of the applicable assets of Atlas Energy and ATN. A sum of parts discounted cash flow analysis is a traditional valuation methodology used to derive the valuation of different types of assets sold as a whole by calculating the sum of each type of asset’s unlevered free cash flows over a forecast period and such asset’s terminal or residual value at the end of the forecast period.

Oil and Gas Production Asset. To calculate the estimated value of the oil and gas production assets using the sum of parts discounted cash flow analysis, Jefferies added (i) projected unlevered free cash flows for the fourth quarter of 2010 and fiscal years 2011 through 2017 based on the projected financial data provided by Atlas Energy management to Jefferies and segment allocations made by Jefferies based on its knowledge of the operations of AHD based on publicly available documents to (ii) the “terminal value” of such asset as of 2017, and discounted such amounts to their present value using a range of selected discount rates and perpetual growth rates. Specifically, Jefferies used a discount rate range of 16.0% to 17.0% and a perpetual growth rate range of -4.0% to 0.0%. The discount rates were based on Jefferies’ professional judgment and its analysis of the weighted average cost of capital for such asset based upon historical estimates of the weighted average cost of capital for a small cap energy and production company, as well as the weighted average cost of capital for companies with similar size and assets and with an oil and gas exploration and production focus. In determining the weighted average cost of capital, Jefferies applied its professional judgment and its customary methodology for analyzing the weighted average cost of capital. That methodology uses the historical equity risk premium among other factors in determining the weighted average cost of capital. Jefferies’ analysis resulted in an implied weighted average cost of capital of 16.6%. The projected unlevered free cash flows were calculated by taking the EBITDA for such asset less depreciation and amortization, plus depreciation and amortization, less total capital expenditures and changes in working

 

10


capital for such asset. The residual values of the applicable assets at the end of the forecast period, or “terminal values,” were estimated by applying perpetual growth rates to estimated 2017 EBITDA for such asset. For this purpose, Jefferies selected a perpetual growth rate range of -4.0% to 0.0% for such asset, which range was based on the cash flow growth outlook of such asset, and which Jefferies deemed to be the most appropriate assumption in its professional judgment, based on its prior experience and knowledge in the oil and gas sector.

The value range for such asset yielded by the asset-level discounted cash flow analysis implied a value range for the applicable assets of $122 million to $140 million.

Partnership Management Asset. To calculate the estimated value of the partnership management assets using the sum of parts discounted cash flow analysis, Jefferies added (i) projected unlevered free cash flows for the fourth quarter of 2010 and fiscal years 2011 through 2017 based on the projected financial data provided by Atlas Energy management to Jefferies and segment allocations made by Jefferies based on its knowledge of the operations of AHD based on publicly available documents to (ii) the “terminal value” of such asset as of 2017, and discounted such amounts to their present value using a range of selected discount rates and perpetual growth rates. Specifically, Jefferies used a discount rate range of 13.5% to 14.5% and a perpetual growth rate range of 0.0% to 4.0%. The discount rates were based on Jefferies’ professional judgment and its analysis of the weighted average cost of capital for a small cap investment management company based upon historical estimates of the weighted average cost of capital for such a company, as well as the weighted average cost of capital for companies with similar size, assets under management and focus. In determining the weighted average cost of capital, Jefferies applied its professional judgment and its customary methodology for analyzing the weighted average cost of capital. That methodology uses the historical equity risk premium among other factors in determining the weighted average cost of capital. Jefferies’ analysis resulted in an implied weighted average cost of capital of 14.1%. The projected unlevered free cash flows were calculated by taking the EBITDA for such asset less depreciation and amortization, plus depreciation and amortization, less total capital expenditures and changes in working capital for such asset. The residual values of the applicable assets at the end of the forecast period, or “terminal values,” were estimated by applying perpetual growth rates to estimated 2017 EBITDA for such asset. For this purpose, Jefferies selected a perpetual growth rate range of 0.0% to 4.0% for such asset, which range was based on the cash flow growth outlook of such asset, and which Jefferies deemed to be the most appropriate assumption in its professional judgment, based on its prior experience and knowledge in the oil and gas sector.

The value range for such asset yielded by the asset-level discounted cash flow analysis implied a value range for the applicable assets of $77 million to $95 million.

Tennessee Processing Asset. To calculate the estimated value of the Tennessee gathering and processing pipeline assets using the sum of parts discounted cash flow analysis, Jefferies added (i) projected unlevered free cash flows for the fourth quarter of 2010 and fiscal years 2011 through 2017 based on the projected financial data provided by Atlas Energy management to Jefferies and segment allocations made by Jefferies based on its knowledge of the operations of AHD based on publicly available documents to (ii) the “terminal value” of such asset as of 2017, and discounted such amounts to their present value using a range of selected discount rates and perpetual growth rates. Specifically, Jefferies used a discount rate range of 13.0% to 14.0% and a perpetual growth rate range of 0.0% to 2.0%. The discount rates were based on Jefferies’ professional judgment and its analysis of the weighted average cost of capital for a small cap gathering and processing company based upon historical estimates of the weighted average cost of capital for such a company, as well as the weighted average cost of capital for companies with similar size, assets and focus. In determining the weighted average cost of capital, Jefferies applied its professional judgment and its customary methodology for analyzing the weighted average cost of capital. That methodology uses the historical equity risk premium among other factors in determining the weighted average cost of capital. Jefferies’ analysis

 

11


resulted in an implied weighted average cost of capital of 13.3%. The projected unlevered free cash flows were calculated by taking the EBITDA for such asset less depreciation and amortization, plus depreciation and amortization, less total capital expenditures and changes in working capital for such asset. The residual values of the applicable assets at the end of the forecast period, or “terminal values,” were estimated by applying perpetual growth rates to estimated 2017 EBITDA for such asset. For this purpose, Jefferies selected a perpetual growth rate range of 0.0% to 2.0% for such asset, which range was based on the cash flow growth outlook of such asset, and which Jefferies deemed to be the most appropriate assumption in its professional judgment, based on its prior experience and knowledge in the oil and gas sector.

The value range for such asset yielded by the asset-level discounted cash flow analysis implied a value range for the applicable assets of $25 million to $29 million.

The value range for the applicable assets yielded by the sum of parts discounted cash flow analysis implied a value range for the applicable assets of $224 million to $264 million as compared to the proposed AHD sale consideration. Jefferies noted that the proposed AHD sale consideration was in line with the implied value range yielded by Jefferies’ asset-level discounted cash flow analysis.

Jefferies’ discounted cash flow analysis was subsequently revised as described in “Proposal 1: The Merger — Opinion of Jefferies — Further Analysis by Jefferies” below.

Jefferies’ Financial Analysis – Laurel Mountain Acquisition

On November 7, 2010, Jefferies rendered to Atlas Energy and ATN its oral opinion, subsequently confirmed in writing (which we refer to as the “APL opinion”), that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its APL opinion, the purchase price of $403 million in cash (which we refer to as the “Laurel Mountain purchase price”) to be paid by ATN, or if Atlas Energy is the purchaser, Atlas Energy, pursuant to the Laurel Mountain purchase agreement was fair, from a financial point of view, to ATN, or if Atlas Energy is the purchaser, Atlas Energy.

The APL opinion, the issuance of which was approved by Jefferies’ fairness opinion committee, is for the use and benefit of the Atlas Energy board of directors and ATN solely. The APL opinion does not address the relative merits of the transactions contemplated by the Laurel Mountain purchase agreement as compared to any alternative transaction or opportunity that might be available to Atlas Energy or ATN, nor does it address the underlying business decision by Atlas Energy or ATN to engage in the Laurel Mountain acquisition or the terms of the Laurel Mountain purchase agreement or the documents referred to therein. In addition, Jefferies was not asked to address, and the APL opinion does not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of Atlas Energy or ATN. Furthermore, Jefferies does not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation, if any, payable to or to be received by any of Atlas Energy’s or ATN’s officers, directors or employees, or any class of such persons, in connection with the Laurel Mountain acquisition relative to the Laurel Mountain purchase price to be paid by ATN, or if Atlas Energy is the purchaser, Atlas Energy.

In arriving at its APL opinion, Jefferies, among other things:

 

   

reviewed a draft dated November 7, 2010, of the Laurel Mountain purchase agreement;

 

   

reviewed certain publicly available financial and other information about Atlas Energy and APL;

 

   

reviewed certain information furnished to Jefferies by APL’s management, including financial forecasts and analyses, relating to the business, operations and prospects of APL Sub;

 

   

held discussions with members of senior management of APL concerning the matters described in the second and third bullets above;

 

12


   

compared the proposed financial terms of the Laurel Mountain acquisition with the financial terms of certain other transactions that Jefferies deemed relevant;

 

   

considered the potential pro forma impact of the Laurel Mountain acquisition; and

 

   

conducted such other financial studies, analyses and investigations as Jefferies deemed appropriate.

In Jefferies’ review and analysis and in rendering the APL opinion, Jefferies assumed and relied upon, but did not assume any responsibility to independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by Atlas Energy and APL or that was publicly available to Jefferies (including, without limitation, the information described above), or that was otherwise reviewed by Jefferies. Jefferies relied on assurances of the management of Atlas Energy and APL that they are not aware of any facts or circumstances that would make such information inaccurate or misleading. Included in the financial information provided to Jefferies were certain financial forecasts, which are disclosed in “Proposal 1: The Merger — Atlas Energy Unaudited Prospective Financial Information.” In Jefferies’ review, Jefferies did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did Jefferies conduct a physical inspection of any of the properties or facilities of, Atlas Energy and APL, nor has Jefferies been furnished with any such evaluations or appraisals of such physical inspections, nor does Jefferies assume any responsibility to obtain any such evaluations or appraisals.

With respect to the financial forecasts provided to and examined by Jefferies, Jefferies notes that projecting future results of any company is inherently subject to uncertainty. APL informed Jefferies, however, and Jefferies assumed, that such financial forecasts were reasonably prepared on bases reflecting the best then-available estimates and good-faith judgments of the management of APL as to the future financial performance of APL Sub. Jefferies expresses no opinion as to any such financial forecasts or the assumptions on which they were made.

Jefferies’ APL opinion was based on economic, monetary, regulatory, market and other conditions existing at the time of and that could be evaluated as of the date of its APL opinion. Jefferies has no undertaking or obligation to advise any person of any change in any fact or matter affecting its APL opinion of which Jefferies becomes aware after the date of its APL opinion.

Jefferies made no independent investigation of any legal or accounting matters affecting Atlas Energy and ATN, and Jefferies assumed the correctness in all respects material to its analysis of all legal and accounting advice given to Atlas Energy and its board of directors and ATN, including, without limitation, advice as to the legal, accounting and tax consequences of the terms of, and transactions contemplated by, the Laurel Mountain purchase agreement to Atlas Energy and ATN and the Atlas Energy stockholders and ATN equityholders. In addition, in preparing its APL opinion, Jefferies did not take into account any tax consequences of the Laurel Mountain acquisition. Jefferies assumed that the final form of the Laurel Mountain purchase agreement would be substantially similar to the draft dated November 7, 2010 reviewed by Jefferies. Jefferies also assumed that, in the course of obtaining the necessary regulatory or third-party approvals, consents and releases for the consummation of the Laurel Mountain acquisition, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Atlas Energy, ATN or the contemplated benefits of the Laurel Mountain acquisition.

The following is a brief summary of the analyses performed by Jefferies in connection with its APL opinion. This summary is not intended to be an exhaustive description of the analyses performed by Jefferies but includes all material factors considered by Jefferies in rendering its APL opinion. Jefferies drew no specific conclusions from any individual analysis, but factored its observations from all of these analyses into its qualitative assessment of the Laurel Mountain purchase price. Each analysis performed by Jefferies is a common methodology utilized in determining valuations. Although

 

13


other valuation techniques may exist, Jefferies believes that the analyses described below, when taken as a whole, provided the most appropriate analyses for Jefferies to arrive at its APL opinion.

Summary of Analyses. Jefferies’ approach to valuing APL Sub’s 49% ownership interest in Laurel Mountain (which we refer to as the “Laurel Mountain interest”) used several customary methodologies, including:

 

   

comparative public companies analysis;

 

   

comparative transactions analysis; and

 

   

asset-level discounted cash flow analysis.

The implied value ranges derived from each of these methodologies were compared to the Laurel Mountain purchase price. The implied value ranges in the proposed Laurel Mountain acquisition, derived using the various valuation methodologies listed above, supported the conclusion that, from a financial point of view, the proposed Laurel Mountain purchase price was fair to Atlas Energy and ATN.

In applying the various valuation methodologies to the particular businesses, operations and prospects of the applicable assets, and the particular circumstances of the proposed transaction, Jefferies made qualitative judgments as to the significance and relevance of each analysis. In addition, Jefferies made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Atlas Energy or ATN. Accordingly, the methodologies and the implied value range derived therefrom must be considered as a whole and in the context of the narrative description of the financial analyses, including the assumptions underlying these analyses. Considering the implied value ranges without considering the full narrative description of the financial analyses, including the assumptions underlying these analyses, could create a misleading or incomplete view of the process underlying, and conclusions contained in, Jefferies’ APL opinion.

Comparative Public Companies Analysis. In order to assess how the public market values publicly traded companies with similar assets to the Laurel Mountain interest, Jefferies reviewed and compared specific financial and operating data relating to Laurel Mountain with selected companies that Jefferies deemed comparable to the Laurel Mountain interest, based on its experience in the oil and gas gathering and processing industry.

Jefferies reviewed the total enterprise value for the following oil and gas gathering and processing companies, which Jefferies selected because of their generally similar size and asset characteristics as compared to the Laurel Mountain interest. Jefferies noted that all companies selected were oil and natural gas gathering and processing companies with the majority of their assets located in North America.

The companies selected were as follows:

 

   

Chesapeake Midstream Partners

 

   

Copano Energy

 

   

Crestwood Midstream Partners

 

   

Crosstex Energy

 

   

DCP Midstream Partners

 

   

Eagle Rock Energy Partners

 

   

MarkWest Energy Partners

 

   

Regency Energy Partners

 

   

Targa Resource Partners

 

   

Western Gas Partners

 

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Using publicly available information, Jefferies calculated and analyzed enterprise value multiples of each comparative public company’s projected 2010, 2011 and 2012 EBITDA, based on estimates published by Bloomberg Financial. The enterprise value of each comparative public company was obtained by adding its outstanding debt to the sum of the market value of its common units using its unit price as of November 5, 2010, the value of any preferred stock and the book value of any minority interest minus its cash balance, as appropriate. Jefferies calculated the enterprise value multiples of EBITDA by dividing each company’s calculated enterprise value by its last twelve months EBITDA and estimated EBITDA for 2010, 2011 and 2012. The EBITDA multiples ranged from 8.2x to 17.7x in 2010, 6.9x to 14.6x in 2011 and 6.1x to 14.1x in 2012.

The results of the comparative public companies analysis are further summarized below:

 

     Multiple Range of
Comparative Companies
 
     Low      Median      High  

Enterprise Value as a Multiple of:

        

EBITDA

        

2010E

     8.2x         14.0x         17.7x   

2011E

     6.9x         11.9x         14.6x   

2012E

     6.1x         10.2x         14.1x   

Jefferies selected the comparative public companies listed above because their business and operating profiles were reasonably similar to that of Laurel Mountain. However, because of the inherent differences between the business, operations and prospects of Laurel Mountain and those of the selected comparative public companies, Jefferies believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparative public companies analysis. Accordingly, Jefferies also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Laurel Mountain and the selected comparative public companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degrees of operational risk between Laurel Mountain and the selected companies included in the comparative public companies analysis.

Based upon these judgments, Jefferies selected enterprise value multiple ranges of 10.0x to 14.0x, 9.0x to 13.0x and 7.5x to 11.5x for estimated 2010, 2011 and 2012 EBITDA, respectively. Jefferies applied these multiple ranges to Laurel Mountain’s estimated 2010, 2011 and 2012 EBITDA from operations, per Atlas Energy’s financial projections. Jefferies determined that the ranges determined based on estimated 2010 and 2011 EBITDA were not reflective of the value of the Laurel Mountain interest, as a significant driver of growth for this company would be driven by drilling activity by the joint venture with an affiliate of Reliance Industries Limited. The comparative public companies analysis for estimated 2012 EBITDA implied an enterprise value range for the Laurel Mountain interest of $297 million to $456 million.

 

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Comparative Transactions Analysis. Using publicly available information and Jefferies’ prior experience and knowledge, Jefferies valued the Laurel Mountain interest based on precedent transactions and other analyses. Jefferies examined the 42 transactions listed below, announced since January 1, 2005, that involved pipeline sales. Jefferies selected these transactions because they involved assets that are reasonably similar to the Laurel Mountain interest. The transactions considered and the month and year each transaction was announced were as follows:

 

Date Announced

  

Buyer

  

Seller

10/28/10

   Williams Partners LP    Williams Companies Inc

9/14/10

   Targa Resources Partners    Targa Resources Inc

9/3/10

   Enterprise Products Partners LP    Enterprise GP Holdings LP

8/9/10

   Regency Energy Partners LP    Zephyr Gas Services LP

8/9/10

   Targa Resources Partners    Targa Resources Inc

8/2/10

   Western Gas Partners    Anadarko Petroleum Corporation

7/28/10

   Enbridge Energy Partners    APL

4/13/10

   Kinder Morgan Energy Partners    Petrohawk Energy Corporation

3/31/10

   Targa Resources Partners    Targa Resources Inc

2/1/10

   Western Gas Partners    Anadarko Petroleum Corporation

9/24/09

   Global Infrastructure Partners    Chesapeake Energy Corporation

8/31/09

   Kinder Morgan Energy Partners    Crosstex Energy

7/14/09

   Western Gas Partners    Anadarko Petroleum Corporation

6/30/09

   Undisclosed    Chesapeake Energy Corporation

6/30/09

   8G Group plc    EXCO Resources Incorporated

6/10/09

   Southcross Energy    Crosstex Energy

5/8/09

   Undisclosed    SandRidge Energy Inc

4/9/09

   Spectra Energy Partners LP   

APL

11/12/08

   Western Gas Partners    Anadarko Petroleum Corporation

10/2/08

   DCP Midstream Partners    Undisclosed (two deals or parties)

9/17/08

   Eagle Rock Energy Partners    Millennium Midstream Partners

6/17/08

   Penn Virginia Resource Partners    Lone Star Gathering

12/11/07

   Regency Energy Partners    FrontStreet Partners

12/3/07

   Williams Partners    Williams Companies Inc

9/20/07

   Targa Resources Partners    Targa Resources Inc

9/4/07

   Copano Energy LLC    Metalmark Capital Holdings

5/24/07

   DCP Midstream Partners    OCP Midstream LLC

5/22/07

   OCP Midstream Partners    DCP Midstream LLC

5/22/07

   OCP Midstream LLC    Momentum Energy Group

4/2/07

   Eagle Rock Energy Partners    Laser Midstream Company

3/7/07

   DCP Midstream Partners    Anadarko Petroleum Corporation

7/13/06

   Regency Energy Partners    HM Capital Partners

7/12/06

   Enterprise Products Partners    Cerrito Gathering Company

5/2/06

   Crosstex Energy    Chief Oil & Gas

4/6/06

   Williams Partners    Williams Companies Inc

10/27/05

   Provident Energy Trust    EnCana Corporation

10/26/05

   TexStar Field Services    Enbridge Energy Partners

10/11/05

   Eagle Rock Energy Partners    ONEOK Inc

9/19/05

   MarkWest Energy Partners    El Paso Corporation

8/8/05

   Crosstex Energy    El Paso Corporation

6/20/05

   Copano Energy    ScissorTail Energy LLC

3/9/05

  

APL

   Energy Transfer Partners

 

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With respect to these asset transactions, using a multiple range of 12.0x to 19.0x, Jefferies calculated a value range for the Laurel Mountain interest of $101 million to $160 million.

Jefferies selected the asset transactions listed above because their profiles were reasonably similar to that of the Laurel Mountain interest. However, because of the inherent differences between the business, operations and prospects of Laurel Mountain and those of the selected asset transactions, Jefferies believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected precedent asset transactions analysis. Accordingly, Jefferies also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Laurel Mountain and the selected precedent asset transactions that could affect the values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degrees of operational risk between Laurel Mountain and the selected asset transactions included in the precedent asset transactions analysis.

No transaction utilized as a comparison in the precedent asset transactions analysis is identical to the Laurel Mountain acquisition. In evaluating the Laurel Mountain acquisition, Jefferies made numerous judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond Atlas Energy’s and Jefferies’ control. A purely mathematical analysis is not in itself a meaningful method of using comparative transaction data.

Asset-Level Discounted Cash Flow Analysis. Jefferies performed an asset-level discounted cash flow analysis of the Laurel Mountain interest. An asset-level discounted cash flow analysis is a traditional valuation methodology used to derive the valuation of an asset by calculating the sum of an asset’s unlevered free cash flows over a forecast period and the asset’s terminal or residual value at the end of the forecast period.

To calculate the estimated value of the applicable assets using the asset-level discounted cash flow analysis, Jefferies added (i) projected unlevered free cash flows for the fourth quarter of 2010 and fiscal years 2011 through 2017 based on the projected financial data provided by Atlas Energy management to Jefferies to (ii) the “terminal value” of the applicable asset as of 2017, and discounted such amounts to their present value using a range of selected discount rates. Specifically, Jefferies used a discount rate range of 13.5% to 14.5%. The discount rates were based on Jefferies’ professional judgment and its analysis of the weighted average cost of capital for a small cap oil and gas gathering and processing company based upon historical estimates of the weighted average cost of capital for such a company, as well as the weighted average cost of capital for companies with similar size and assets and with an oil and gas gathering and processing focus. In determining the weighted average cost of capital, Jefferies applied its professional judgment and its customary methodology for analyzing the weighted average cost of capital. That methodology uses the historical equity risk premium among other factors in determining the weighted average cost of capital. Jefferies’ analysis resulted in an implied weighted average cost of capital of 14.0%. The projected unlevered free cash flows were calculated by taking the EBITDA for the Laurel Mountain interest less depreciation and amortization, plus depreciation and amortization, less total capital expenditures and changes in working capital for such asset. The residual values of the Laurel Mountain interest at the end of the forecast period, or “terminal values,” were estimated by applying multiples to estimated 2017 EBITDA for the assets. For this purpose, Jefferies selected a multiple range of 6.5x to 9.5x for the applicable assets, which Jefferies deemed to be the most appropriate assumption in its professional judgment, based on its prior experience and knowledge in the oil and gas sector and its consideration of comparable assets. The selected comparative companies were the same as described under “Proposal 1: The Merger — Opinion of Jefferies — Jefferies’ Financial Analysis – Laurel Mountain Acquisition — Comparative Public Companies Analysis” above.

The value range for the applicable assets yielded by the asset-level discounted cash flow analysis implied a value range for the applicable assets of $318 million to $595 million as compared to the

 

17


proposed Laurel Mountain purchase price. Jefferies noted that the proposed Laurel Mountain purchase price was in line with the implied value range yielded by Jefferies’ asset-level discounted cash flow analysis.

Jefferies’ discounted cash flow analysis was subsequently revised as described in “Proposal 1: The Merger — Opinion of Jefferies — Further Analysis by Jefferies” below.

Further Analysis by Jefferies

In response to claims raised by the plaintiffs in certain litigation related to the merger, which is described below in “Proposal 1: The Merger — Litigation Concerning the Merger,” that Jefferies made two miscalculations and used an outdated equity risk premium to calculate the weighted average cost of capital, Jefferies recalculated its discount rates using an updated equity risk premium. Specifically, Jefferies had utilized the historical equity risk premium of 7.1% contained in the 2006 Ibbotson Yearbook, as opposed to the historical equity risk premium of 6.7% contained in the 2010 Ibbotson Yearbook. The miscalculations derived from a misplaced parenthesis in the cost of equity calculation (which resulted in including the small stock premium in the beta adjustment) and an incorrect input in the after-tax cost of debt calculation. Jefferies also noted an inconsistency relating to the debt/equity weighting in the weighted average cost of capital calculation in connection with the discount rates calculated for the AHD sale analyses. Jefferies did not apply the same capital structure in each of the weighted average cost of capital calculations when weighting the cost of equity versus the cost of debt.

Further details of Jefferies revised calculations are as follows:

Atlas Energy. For the discounted cash flow analysis for the merger opinion, the weighted average cost of capital was based on a calculated 15.8% cost of equity (using a levered beta of 1.80 (based on the two-year weekly historical adjusted beta from Bloomberg Information Services), an equity risk premium of 6.7% (reflecting the historical equity risk premium per the 2010 Ibbotson Associates Yearbook, as discussed above), an equity size premium of 1.2% (reflecting the 4th decile market capitalization risk premium per the 2010 Ibbotson Associates Yearbook) and a risk free rate of 2.6% (based on ten-year government bond yields as of November 8, 2010 from Bloomberg)), a pre-tax cost of debt of 6.4% and a tax rate of 40.0%. The resulting cost of equity of 15.8% and after tax cost of debt of 3.8% were weighted using a debt-to-capital weight of 20.6% and equity-to-capital weight of 79.4% to derive a weighted average cost of capital of 13.3%.

AHD sale. For the asset-level discounted cash flow analysis and the oil and gas production portion of the sum of parts discounted cash flow analysis for the AHD sale opinion, the weighted average cost of capital was based on a calculated 17.4% cost of equity (using a relevered beta of 1.79 (based on adjustments in their professional judgment to the levered two-year weekly historical adjusted betas from Bloomberg Information Services of the peer companies), an equity risk premium of 6.7% (reflecting the historical equity risk premium per the 2010 Ibbotson Yearbook, as discussed above), an equity size premium of 2.9% (reflecting the 9th decile market capitalization risk premium per the 2010 Ibbotson Yearbook) and a risk free rate of 2.5% (based on ten-year government bond yields as of November 5, 2010 from Bloomberg)), a pre-tax cost of debt of 8.0% and a tax rate of 0.0%. The resulting cost of equity of 17.4% and after tax cost of debt of 8.0% were weighted using a debt-to-capital weight of 25.0% and equity-to-capital weight of 75.0% to derive a weighted average cost of capital of 15.0%. The selected comparative public companies were as follows:

 

   

Clayton Williams Energy Inc.

 

   

Crimson Exploration

 

   

Gulfport Energy

 

   

Petroleum Development

 

   

PetroQuest Energy Inc.

 

   

Ram Energy

For the partnership management portion of the sum of parts discounted cash flow analysis for the AHD sale opinion, the weighted average cost of capital was based on a calculated 14.5% cost of equity

 

18


(using a relevered beta of 1.36 (based on adjustments in their professional judgment to the levered two-year weekly historical adjusted betas from Bloomberg Information Services of the peer companies), an equity risk premium of 6.7% (reflecting the historical equity risk premium per the 2010 Ibbotson Yearbook, as discussed above), an equity size premium of 2.9% (reflecting the 9th decile market capitalization risk premium per the 2010 Ibbotson Yearbook) and a risk free rate of 2.5% (based on ten-year government bond yields as of November 5, 2010 from Bloomberg)), a pre-tax cost of debt of 8.0% and a tax rate of 0.0%. The resulting cost of equity of 14.5% and after tax cost of debt of 8.0% were weighted using a debt-to-capital weight of 25.0% and equity-to-capital weight of 75.0% to derive a weighted average cost of capital of 12.9%. The selected comparative public companies were as follows:

 

   

Artio Global Investors Inc.

 

   

Calamos Asset Management, Inc.

 

   

Cohen & Steers, Inc.

 

   

Diamond Hill Investment Group, Inc.

 

   

GAMCO Investors, Inc.

 

   

Pzenza Investment Management, Inc.

 

   

Westwood Holdings Group, Inc.

For the Tennessee processing portion of the sum of parts discounted cash flow analysis for the AHD sale opinion, the weighted average cost of capital was based on a calculated 13.8% cost of equity (using a relevered beta of 1.26 (based on adjustments in their professional judgment to the levered two-year weekly historical adjusted betas from Bloomberg Information Services of the peer companies), an equity risk premium of 6.7% (reflecting the historical equity risk premium per the 2010 Ibbotson Yearbook, as discussed above), an equity size premium of 2.9% (reflecting the 9th decile market capitalization risk premium per the 2010 Ibbotson Yearbook) and a risk free rate of 2.5% (based on ten-year government bond yields as of November 5, 2010 from Bloomberg)), a pre-tax cost of debt of 8.0% and a tax rate of 0.0%. The resulting cost of equity of 13.8% and after tax cost of debt of 8.0% were weighted using a debt-to-capital weight of 25.0% and equity-to-capital weight of 75.0% to derive a weighted average cost of capital of 12.4%. The selected comparative public companies were as follows:

 

   

Chesapeake Midstream Partners

 

   

Copano Energy

 

   

Crestwood Midstream Partners

 

   

Crosstex Energy

 

   

DCP Midstream Partners

 

   

Eagle Rock Energy Partners

 

   

MarkWest Energy Partners

 

   

Regency Energy Partners

 

   

Targa Resources Partners

 

   

Western Gas Partners

Laurel Mountain acquisition. For the asset-level discounted cash flow analysis for the Laurel Mountain acquisition opinion, the weighted average cost of capital was based on a calculated 15.4% cost of equity (using a relevered beta of 1.26 (based on adjustments in their professional judgment to the levered two-year weekly historical adjusted betas from Bloomberg Information Services of the peer companies), an equity risk premium of 6.7% (reflecting the historical equity risk premium per the 2010

 

19


Ibbotson Yearbook, as discussed above), an equity size premium of 4.5% (reflecting the 10(a) decile market capitalization risk premium per the 2010 Ibbotson Yearbook) and a risk free rate of 2.5% (based on ten-year government bond yields as of November 5, 2010 from Bloomberg)), a pre-tax cost of debt of 8.0% and a tax rate of 0.0%. The resulting cost of equity of 15.4% and after tax cost of debt of 8.0% were weighted using a debt-to-capital weight of 33.5% and equity-to-capital weight of 66.5% to derive a weighted average cost of capital of 12.9%. The selected comparative public companies were as follows:

 

   

Chesapeake Midstream Partners

 

   

Copano Energy

 

   

Crestwood Midstream Partners

 

   

Crosstex Energy

 

   

DCP Midstream Partners

 

   

Eagle Rock Energy Partners

 

   

MarkWest Energy Partners

 

   

Regency Energy Partners

 

   

Targa Resources Partners

 

   

Western Gas Partners

After revising its calculations in light of the issues described above, and applying its professional judgment and customary methodology for calculating the weighted average cost of capital, the weighted average cost of capital used in each discounted cash flow analysis shifted as follows:

 

   

Merger with Chevron

 

   

Discounted Cash Flow Analysis: 13.3%

 

   

AHD sale

 

   

Asset-Level Discounted Cash Flow Analysis: 15.0%

 

   

Sum of Parts Discounted Cash Flow Analysis: 15.0%, 12.9% and 12.4% for each of the oil and gas production, partnership management and Tennessee processing assets, respectively

 

   

Laurel Mountain acquisition

 

   

Asset-Level Discounted Cash Flow Analysis: 12.9%

Applying discount rate ranges that were 50 basis points above and below the revised weighted average costs of capital and keeping all other factors constant with its prior analysis, Jefferies determined that the implied value ranges for each discounted cash flow analysis were as follows:

 

   

Merger with Chevron

 

   

Discounted Cash Flow Analysis: $34.02 to $49.47 per share

 

   

AHD sale

 

   

Asset-Level Discounted Cash Flow Analysis: $247 million to $287 million

 

   

Sum of Parts Discounted Cash Flow Analysis: $244 million to $295 million

 

   

Laurel Mountain acquisition

 

   

Asset-Level Discounted Cash Flow Analysis: $356 million to $653 million

 

20


Jefferies reviewed its revised analyses with its fairness committee and reaffirmed its opinion that (i) on November 8, 2010, from a financial point of view, the total per share consideration was fair to the Atlas Energy stockholders, (ii) on November 7, 2010, the consideration to be received by ATN pursuant to the AHD sale was fair, from a financial point of view, to ATN and (iii) on November 7, 2010, the Laurel Mountain purchase price to be paid by ATN, or if Atlas Energy is the purchaser, Atlas Energy, pursuant to the Laurel Mountain purchase agreement was fair, from a financial point of view, to ATN, or if Atlas Energy is the purchaser, Atlas Energy.”

 

  (J) The second paragraph (such paragraph beginning with “Jefferies is acting . . .”) of the section entitled “Additional Information Relating to Jefferies” is hereby amended and restated to read as follows:

“Jefferies is acting as financial advisor to Atlas Energy in connection with the proposed merger. The terms of the merger were determined through negotiations between Atlas Energy and Chevron and were approved by the Atlas Energy board of directors. As compensation for its services in connection with the proposed merger, Jefferies will receive a total fee of approximately $20.79 million, a portion of which amount (approximately $17.79 million) is contingent upon the consummation of the merger and the remainder of which amount became payable upon the rendering of its opinions. In addition, Atlas Energy has agreed to reimburse Jefferies for all reasonable out-of-pocket expenses incurred in connection with the proposed merger (subject to a cap) and to indemnify Jefferies for certain liabilities that may arise out of its engagement by Atlas Energy and the rendering of Jefferies’ opinions. In the past two years, Jefferies advised ATN in conjunction with the formation of a joint venture with an affiliate of Reliance Industries Limited, for which Jefferies received a fee of approximately $16 million. Aside from its fee in connection with the proposed merger and in connection with the formation of such joint venture, Jefferies has not received any compensation from Atlas Energy, AHD, APL or their respective affiliates in the past four years. Chevron paid to Jefferies or its affiliates $1,785,000 in September 2008 and $386,400 in 2007 for financial advisory or financing-related services. In the past two years, Chevron has not paid Jefferies or its affiliates any compensation with respect to financial advisory or financing-related activities. Jefferies may perform investment banking and financial services for Atlas Energy, AHD, APL, Chevron and their respective affiliates in the future and expects to receive customary fees for such services.”

 

(3) The section of the proxy statement entitled “Proposal 1: The Merger — Opinion of Deutsche Bank” is hereby supplemented as follows:

 

  (A) The second bullet in the second paragraph (such paragraph beginning with “To calculate the trading multiples . . .”) of the section entitled “Deutsche Bank’s Financial Analysis — Analysis of Selected Publicly Traded Companies” is hereby amended and restated to read as follows:

“the ratio (which we refer to as the “reserve value to 2011E production”) of enterprise value adjusted to exclude the value attributable to certain non-oil and gas production assets derived by Deutsche Bank using its professional judgment and publicly available information (which we refer to as the “reserve value”) to the value of estimated 2011 Mcfe of daily production (which we refer to as “Mcfe/d,” and which value of estimated 2011 Mcfe of daily production we refer to as the “2011E production”); and”

 

  (B) The first paragraph of the section entitled “Deutsche Bank’s Financial Analysis — Analysis of Net Asset Value” is hereby amended and restated to read as follows:

Analysis of Net Asset Value. Based on Atlas Energy forecasts and sensitivities thereon, Deutsche Bank calculated a range of implied net asset value output per share of Atlas Energy common stock. The net asset valuation analysis, which is a form of discounted cash flow analysis, was performed under five scenarios: Atlas Energy management’s corporate development model (which we refer to as “Case I”), Case I adjusted for lower well count (which we refer to as “Case II”), Case I adjusted for lower recoverable reserves per well (which we refer to as “Case III”), Case I adjusted for higher costs (which we refer to as “Case IV”) and Case I adjusted to include annual fundraising within the investment partnership business (which we refer to as “Case V”). For each case, Deutsche Bank calculated

 

21


indications of unlevered free cash flow for the years 2011 through 2044 using estimated future production and capital costs for the years 2011 through 2044. To calculate the future unlevered free cash flows, Deutsche Bank utilized long-term gas prices for 2015 and beyond ranging from $5.50 to $6.50. The gas prices from 2011 to 2014 were determined based on New York Mercantile Exchange (which we refer to as “NYMEX”) futures gas pricing. These calculated values were then discounted to September 30, 2010 using discount rates ranging from 11.5% to 13.5%, derived by calculating the weighted average cost of capital for Atlas Energy using the capital asset pricing model methodology customarily utilized by Deutsche Bank, which takes into account Deutsche Bank’s professional judgment and a variety of market factors, including the historical equity risk premium contained in the 2010 Ibbotson Yearbook. This analysis resulted in a range of implied equity value per share of Atlas Energy common stock as follows:”

 

  (C) The fourth paragraph (such paragraph beginning with “For each of the E&P MLP peers . . .”) of the section entitled “Deutsche Bank’s Financial Analysis — Pro Forma AHD Analysis” is hereby amended and restated to read as follows:

“For each of the E&P MLP peers, based on Wall Street research, Deutsche Bank calculated estimated 2011 distribution per unit to price (which we refer to as the “2011E yield”), reserve value to 2011E production and enterprise value to 2011E EBITDA. For each of the GP MLP peers, Deutsche Bank calculated 2011E yield. Using its professional judgment and experience in the oil and gas sector, Deutsche Bank selected a 2011E yield range of 9.00% to 8.00%, a reserve value to 2011E production range of $18,000 to $22,000/Mcfe/d and an enterprise value to 2011E EBITDA range of 8.25x to 9.25x for the E&P MLP peers and a 2011E yield range of 6.00% to 5.00% for the GP MLP peers. Deutsche Bank applied these selected peer company ranges to the corresponding AHD pro forma financial projections, at the direction of Atlas Energy management. This analysis resulted in ranges of implied price per AHD common unit and implied distribution per AHD common unit as follows:

 

     Implied Price Per AHD
Common Unit
   Implied Distribution per AHD
Common Unit

Based on E&P MLP Peers

   $7.92 – $12.82    $4.16 – $6.74

Based on GP MLP Peers

   $13.88 – $17.33    $7.29 – $9.11

Based on November 8, 2010 closing price for AHD common units

   $9.69    $5.09

 

  (D) The section entitled “Additional Information Relating to Deutsche Bank” is hereby amended and restated to read as follows:

“The Atlas Energy board of directors selected Deutsche Bank as financial advisor in connection with the merger based on Deutsche Bank’s qualifications, expertise, reputation and experience in mergers and acquisitions. Atlas Energy has retained Deutsche Bank pursuant to a letter agreement dated October 26, 2010 (which we refer to as the “Deutsche Bank engagement letter”). As compensation for Deutsche Bank’s services in connection with the merger, Atlas Energy has agreed to pay Deutsche Bank $4,000,000, a portion of which was paid upon execution of the Deutsche Bank engagement letter and the remainder of which became payable upon delivery of its opinion (or would have become payable upon Deutsche Bank advising Atlas Energy that it was unable to render an opinion). No portion of the compensation for Deutsche Bank’s services is contingent upon the consummation of the merger. Regardless of whether the merger is consummated, Atlas Energy has agreed to reimburse Deutsche Bank for reasonable fees, expenses and disbursements of Deutsche Bank’s counsel and all of Deutsche Bank’s reasonable travel and other out-of-pocket expenses incurred in connection with the merger or otherwise arising out of the engagement of Deutsche Bank under the Deutsche Bank engagement letter. Atlas Energy has also agreed to indemnify Deutsche Bank and certain related persons to the full extent lawful against certain liabilities, including certain liabilities under the federal securities laws arising out of its engagement or the merger. Aside from such amounts, Deutsche Bank has not received any compensation from Atlas Energy, AHD, APL or their respective affiliates in the past four years.

 

22


Deutsche Bank is an internationally recognized investment banking firm experienced in providing advice in connection with mergers and acquisitions and related transactions. Deutsche Bank is an affiliate of Deutsche Bank AG (which, together with its affiliates, we refer to as the “DB group”). In the past four years, one or more members of the DB group provided, from time to time, investment banking, commercial banking (including extension of credit) and other financial services to Chevron and its affiliates for which the DB group received aggregate compensation of approximately $3,400,000. Chevron has an ongoing engagement with the DB group, pursuant to which the DB group has not yet received any fees. The DB group may receive success fees from Chevron in connection with this engagement in the future. The DB group may also provide investment and commercial banking services to Chevron, Atlas Energy, AHD and APL and their respective affiliates in the future, for which the DB group would expect to receive compensation. In the ordinary course of its business, members of the DB Group may actively trade in the securities and other instruments and obligations of Chevron, Atlas Energy, AHD and APL for their own accounts and for the accounts of their customers. Accordingly, the DB Group may at any time hold a long or short position in these securities, instruments and obligations.”

 

(4) The section of the proxy statement entitled “Proposal 1: The Merger — Atlas Energy Unaudited Prospective Financial Information” is hereby supplemented as follows:

 

  (A) The seventh paragraph (such paragraph beginning with “The following table presents . . .”) of such section and the table following such paragraph are hereby amended and restated to read as follows:

“The following table presents selected unaudited prospective financial data for the fiscal years ending 2011 through 2019 which is included in the corporate development forecast:

 

          For the Fiscal Year Ending December 31,  
    Q4 2010     2011     2012     2013     2014     2015     2016     2017     2018     2019  

Average Daily Production (Mcfe/d)

    103,596        152,249        265,528        390,885        588,630        706,109        732,403        773,502        818,388        862,985   

EBITDA
($ in millions)

  $ 42.4      $ 190.6      $ 352.9      $ 547.5      $ 890.5      $ 1,111.2      $ 1,184.2      $ 1,282.2      $ 1,390.0      $ 1,499.4   

Capital Expenditures
($ in millions)

  $ (22.2   $ (137.5   $ (160.4   $ (231.8   $ (828.0   $ (873.0   $ (873.0   $ (873.0   $ (873.0   $ (873.0

Free Cash Flow
($ in millions)

  $ (30.8   $ (100.0   $ 84.5      $ 177.7      $ (73.6   $ 70.9      $ 130.1      $ 189.1      $ 256.1      $ 325.8   

Unlevered Free Cash Flow ($ in millions)

  $ (13.0   $ (27.5   $ 140.3      $ 169.0      $ (30.6   $ 114.0      $ 173.0      $ 232.1      $ 299.0      $ 368.7   

Certain Assumptions:

                   

Marcellus shale corporate wells drilled

    16        108        171        300        300        300        300        300        300        300   

Other corporate wells drilled

    0        45        0        0        0        0        0        0        0        0   

NYMEX natural gas price ($/MMBtu)

  $ 3.81      $ 4.31      $ 4.99      $ 5.32      $ 5.50      $ 5.64      $ 5.79      $ 5.93      $ 6.06      $ 6.20   

 

23


  (B) The following is hereby inserted immediately following the table following the seventh paragraph (such paragraph beginning with “The following table presents . . .”) of such section:

“The following table presents selected unaudited prospective financial data for the fiscal years ending 2011 through 2017 which is included in the total partnership business forecast:

 

           For the Fiscal Year Ending December 31,  
     Q4 2010     2011     2012     2013      2014      2015      2016      2017  

Total Net Production
(Mcfe/d)

     31,648        32,705        28,029        30,633         27,611         25,333         23,506         21,933   

Adjusted EBITDA

    ($ in millions)

   $ 9.9      $ 40.8      $ 41.9      $ 46.5       $ 44.6       $ 46.0       $ 41.0       $ 38.8   

Capital Expenditures
($ in millions)

   $ (3.1   $ (6.1   $ (1.2     —           —           —           —           —     

Unlevered Free Cash Flow
($ in millions)

   $ (9.5   $ 25.4      $ 41.7      $ 45.5       $ 45.0       $ 46.3       $ 41.2       $ 39.0   

Certain Assumptions:

                    

NYMEX natural gas price
($/MMBtu)

   $ 3.81      $ 4.31      $ 4.99      $ 5.32       $ 5.50       $ 5.64       $ 5.79       $ 5.93   

The following table presents selected unaudited prospective financial data for the fiscal years ending 2011 through 2017 which is included in the Laurel Mountain forecast:

 

          For the Fiscal Year Ending December 31,  
    Q4 2010     2011     2012     2013     2014     2015     2016     2017  

Projected Volume
(Mcfe/d)

    146,554        232,321        418,765        666,346        1,051,489        1,200,438        1,277,083        1,373,207   

EBITDA
($ in millions)

  $ 0.9      $ 9.4      $ 39.6      $ 78.5      $ 139.5      $ 165.2      $ 181.4      $ 201.0   

Capital Expenditures
($ in millions)

  $ (23.8   $ (221.7   $ (131.9   $ (117.5   $ (68.6   $ (131.9   $ (117.5   $ (68.6

Unlevered Free Cash Flow
($ in millions)

  $ (23.0   $ (212.3   $ (92.3   $ (39.0   $ 70.9      $ 33.3      $ 63.9      $ 132.4   

Certain Assumptions:

               

NYMEX natural gas price ($/MMBtu)

  $ 3.81      $ 4.31      $ 4.99      $ 5.32      $ 5.50      $ 5.64      $ 5.79      $ 5.93   

 

(5) The section of the proxy statement entitled “Information about AHD — Financial Information of AHD” is hereby amended as follows:

 

  (A) The table setting forth the Pro Forma Condensed Consolidated Balance Sheet (Unaudited) as of September 30, 2010 is hereby replaced with the following table:

 

24


ATLAS PIPELINE HOLDINGS, L.P. AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

SEPTEMBER 30, 2010

(in thousands)

 

    Historical     AHD Sale     AHD Sale
Adjustments
    Laurel
Mountain
Acquisition
    Laurel
Mountain
Acquisition
Adjustments
    Pro
Forma
 

ASSETS

           

CURRENT ASSETS:

           

Cash and cash equivalents

  $ 215      $ —        $  69,768 (a)    $ —        $  397,775 (e)    $ 574,070   
        (34,383 )(a)        (12,000 )(f)   
        (30,000 )(b)       
        (5,385 )(b)       
        188,080 (b)       
        97,732 (c)       
        (74,156 )(d)       
        (23,576 )(d)       

Accounts receivable

    59,421        26,812        —          —          —          86,233   

Current portion of derivative asset

    3,611        51,730        (51,730 )(c)      —          —          3,611   

Current portion of derivative receivable from investment partnerships

    —          55        (55 )(d)      —          —          —     

Prepaid expenses and other

    14,883        8,477        —          —          —          23,360   
                                               

Total current assets

    78,130        87,074        136,295        —          385,775        687,274   

PROPERTY, PLANT AND EQUIPMENT, NET

    1,339,730        510,488        —          —          —          1,850,218   

INTANGIBLE ASSETS, NET

    132,154        2,341        —          —          —          134,495   

GOODWILL, NET

    —          31,784        —          —          —          31,784   

INVESTMENT IN JOINT VENTURE

    135,765        —          —          (135,765     —          —     

LONG-TERM PORTION OF DERIVATIVE ASSET

    —          55,288        (55,288 )(c)      —          —          —     

LONG-TERM DERIVATIVE RECEIVABLE FROM INVESTMENT PARTNERSHIPS

    —          5,481        (5,481 )(d)      —          —          —     

OTHER ASSETS, NET

    23,564        21,039        —          —          —          44,603   
                                               
  $ 1,709,343      $ 713,495      $ 75,526      $ (135,765   $ 385,775      $ 2,748,374   
                                               

LIABILITIES AND EQUITY

           

CURRENT LIABILITIES:

           

Current portion of long-term debt

  $ 34,589      $ —        $ 69,768 (a)    $ —        $ —        $ 69,974   
        (34,383 )(a)       

Accounts payable — affiliates

    10,708        —          —          —          —          10,708   

Accounts payable

    9,919        56,226        —          —          —          66,145   

Liabilities associated with drilling contracts

    —          95,189        —          —          —          95,189   

Accrued producer liabilities

    58,143        —          —          —          —          58,143   

Current portion of derivative payable to investment partnerships

    —          36,637        (36,637 )(d)      —          —          —     

Current portion of derivative liability

    1,511        245        (245     —          —          1,511   

Accrued interest payable

    12,340        —          —          —          —          12,340   

Accrued well drilling and completion costs

    —          49,494        —          —          —          49,494   

Accrued liabilities

    32,516        11,814        —          —          —          44,330   
                                               

Total current liabilities

    159,726        249,605        (1,497     —          —          407,834   

LONG-TERM DEBT, LESS CURRENT PORTION

    507,676        —          —          —          (12,000 )(f)      495,676   

LONG-TERM PORTION OF DERIVATIVE PAYABLE TO INVESTMENT PARTNERSHIPS

    —          43,055        (43,055 )(d)      —          —          —     

LONG-TERM PORTION OF DERIVATIVE LIABILITY

    5,770        9,041        (9,041 )(c)      —          —          5,770   

OTHER LONG-TERM LIABILITIES

    266        33,465        —          —          —          33,731   

EQUITY:

           

Common limited partners’ interests

    22,840        —          341,339 (b)      —          33,493 (e)      563,781   
        (5,385 )(b)       
        195,070 (b)       
        (23,576 )(d)       

Equity

    —          378,329        (378,329 )(b)      (135,765     135,765 (e)      —     

Accumulated other comprehensive loss

    (1,693     —          —          —          —          (1,693
                                               
    21,147        378,329        129,119        (135,765     169,258        562,088   

Non-controlling interests

    (31,712     —          —          —          —          (31,712

Non-controlling interest in Atlas Pipeline Partners, L.P.

    1,046,470        —          —          —          228,517 (e)      1,274,987   
                                               

Total equity

    1,035,905        378,329        129,119        (135,765     397,775        1,805,363   
                                               
  $ 1,709,343      $ 713,495      $ 75,526      $ (135,765   $ 385,775      $ 2,748,374   
                                               

See accompanying notes to unaudited pro forma consolidated financial statements.

 

25


  (B) The notes to the unaudited pro forma financial statements in such section are amended as follows:

 

  (i) The second sentence of note (b) is hereby replaced with the following:

“In addition, the entry reflects an adjustment of $195.1 million to common limited partners’ interests for the remaining difference between the value of the AHD sale consideration and the book value of the assets acquired and liabilities assumed due to the related-party relationship between the parties.”

 

  (ii) Note (d) is hereby replaced with the following:

“To reflect the payment of the $74.2 million of net proceeds attributable to third-party limited partners in the investment partnerships from the monetization of the derivative contracts associated with the transferred business, noted in (c) above, to the third-party limited partners of the investment partnerships, and the payment of $23.6 million of net proceeds to Atlas Energy pursuant to the AHD transaction agreement.”

 

(6) The section of the proxy statement entitled “Where You Can Find More Information — Atlas Pipeline Holdings, L.P. and Atlas Pipeline Partners, L.P.” is hereby amended as follows:

(A) The following sentence is hereby inserted immediately following the first sentence of the first paragraph of such section:

“AHD also has filed a definitive information statement on Schedule 14C, which includes additional information about the AHD transactions, with the SEC.”

 

(7) The proxy statement is hereby supplemented by adding the following letters as Annexes E and F, respectively:

 

26


Annex E

 

  LOGO

CONFIDENTIAL

November 8, 2010

The Board of Directors

Atlas Energy, Inc.

1550 Coraopolis Heights Road

Moon Township, Pennsylvania

Atlas Energy Resources, LLC

1550 Coraopolis Heights Road

Moon Township, Pennsylvania

Members of the Board and Atlas Energy Resources, LLC:

We understand that Atlas Energy, Inc., a Delaware corporation (the “Company”), Atlas Energy Resources, LLC (“ATN”), Atlas Pipeline Holdings, L.P., a Delaware limited partnership (“AHD”), and Atlas Pipeline Holdings GP, LLC, a Delaware limited liability company and the general partner of AHD, propose to enter into a Transaction Agreement (the “Transaction Agreement”), pursuant to which, among other actions, the Company shall, and shall cause its applicable subsidiaries (the “Atlas Subsidiaries”) to, sell, transfer, convey, assign and deliver to AHD all of their right, title and ownership interest in the Purchased Equity Interests (as defined in the Transaction Agreement) and the Purchased Assets (as defined in the Transaction Agreement) (collectively, the “Sale”), in exchange for $220,000,000 worth of common units (the “Unit Consideration”) representing limited partner interests in AHD (the “AHD Common Units”) and $30,000,000 in cash, subject to substitution as specified in Section 2.10 of the Transaction Agreement (the “Cash Consideration”), and the assumption by AHD of the Assumed Liabilities (as defined in the Transaction Agreement) (collectively with the Unit Consideration and Cash Consideration, the “Consideration”). The terms and conditions of the Sale are more fully set forth in the Transaction Agreement.

You have asked for our opinion as to whether the Consideration to be received by ATN pursuant to the Sale is fair, from a financial point of view, to ATN.

In arriving at our opinion, we have, among other things:

 

  (i) reviewed a draft dated November 7, 2010 of the Transaction Agreement;

 

  (ii) reviewed certain publicly available financial and other information about the Company and AHD;

 

 

27


LOGO

 

  (iii) reviewed certain information furnished to us by the Company’s, ATN’s and AHD’s managements, including financial forecasts and analyses, relating to the business, operations and prospects of the Company, ATN, the Atlas Subsidiaries and AHD;

 

  (iv) held discussions with members of senior managements of the Company, ATN and AHD concerning the matters described in clauses (ii) and (iii) above;

 

  (v) reviewed the share trading price history and valuation multiples for the AHD Common Units and compared them with those of certain publicly traded companies that we deemed relevant;

 

  (vi) compared the proposed financial terms of the Sale with the financial terms of certain other transactions that we deemed relevant;

 

  (vii) considered the potential pro forma impact of the Sale; and

 

  (viii) conducted such other financial studies, analyses and investigations as we deemed appropriate.

In our review and analysis and in rendering this opinion, we have assumed and relied upon, but have not assumed any responsibility to independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by the Company, ATN and AHD or that was publicly available to us (including, without limitation, the information described above), or that was otherwise reviewed by us. We have relied on assurances of the managements of the Company, ATN and AHD that they are not aware of any facts or circumstances that would make such information inaccurate or misleading. In our review, we did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did we conduct a physical inspection of any of the properties or facilities of, the Company, ATN, the Atlas Subsidiaries or AHD, nor have we been furnished with any such evaluations or appraisals of such physical inspections, nor do we assume any responsibility to obtain any such evaluations or appraisals.

With respect to the financial forecasts provided to and examined by us, we note that projecting future results of any company is inherently subject to uncertainty. The Company, ATN and AHD have informed us, however, and we have assumed that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the managements of the Company, ATN and AHD as to the future financial performance of the Company, ATN, the Atlas Subsidiaries and AHD. We express no opinion as to the Company’s, ATN’s, the Atlas Subsidiaries’ or AHD’s financial forecasts or the assumptions on which they are made.

Our opinion is based on economic, monetary, regulatory, market and other conditions existing and which can be evaluated as of the date hereof. We expressly disclaim any undertaking or obligation to advise any person of any change in any fact or matter affecting our opinion of which we become aware after the date hereof.

 

 

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We have made no independent investigation of any legal or accounting matters affecting the Company, ATN, the Atlas Subsidiaries or AHD, and we have assumed the correctness in all respects material to our analysis of all legal and accounting advice given to the Company and its Board of Directors and ATN, including, without limitation, advice as to the legal, accounting and tax consequences of the terms of, and transactions contemplated by, the Transaction Agreement to the Company and ATN and its stockholders and equityholders, respectively. In addition, in preparing this opinion, we have not taken into account any tax consequences of the Sale. We have assumed that the final form of the Transaction Agreement will be substantially similar to the last draft reviewed by us. We have also assumed that in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the Sale, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on the Company, ATN, the Atlas Subsidiaries, AHD or the contemplated benefits of the Sale.

It is understood that our opinion is solely for the use and benefit of the Board of Directors of the Company and ATN in their consideration of the Sale, and our opinion does not address the relative merits of the transactions contemplated by the Transaction Agreement as compared to any alternative transaction or opportunity that might be available to the Company or ATN, nor does it address the underlying business decision by the Company or ATN to engage in the Sale or the terms of the Transaction Agreement or the documents referred to therein. In addition, you have not asked us to address, and this opinion does not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of the Company or ATN. We express no opinion as to the price at which the AHD Common Units will trade at any time. Furthermore, we do not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation, if any, payable or to be received by any of the Company’s, ATN’s or AHD’s officers, directors or employees, or any class of such persons, in connection with the Sale relative to the Consideration to be received by ATN. Our opinion has been authorized by the Fairness Committee of Jefferies & Company, Inc.

We have been engaged by the Company to act as financial advisor to the Company in connection with the Sale and will receive a customary fee for our services, which is payable upon delivery of this opinion. We also will be reimbursed for expenses incurred. The Company has agreed to indemnify us against liabilities arising out of or in connection with the services rendered and to be rendered by us under such engagement. We have, in the past, provided financial advisory and financing services to ATN, including advising ATN in conjunction with the formation of a joint venture with Reliance Industries Limited, and may continue to do so and have received, and may receive, fees for the rendering of such services. In the ordinary course of our business, we and our affiliates may trade or hold securities of the Company or AHD and/or their respective affiliates for our own account and for the accounts of our customers and, accordingly, may at any time hold long or short positions in those securities. In addition, we may seek to, in the future, provide financial advisory and financing services to the Company, AHD or entities that are affiliated with the Company or AHD, for which we would expect to receive compensation. Except as otherwise expressly provided in our engagement letter with the Company, our opinion may not be used or referred to by the Company or ATN, or quoted or disclosed to any person in any matter, without our prior written consent.

 

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LOGO

 

Based upon and subject to the foregoing, we are of the opinion that, as of the date hereof, the Consideration to be received by ATN pursuant to the Sale is fair, from a financial point of view, to ATN.

Very truly yours,

LOGO

JEFFERIES & COMPANY, INC.

 

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Annex F

 

  LOGO

CONFIDENTIAL

November 8, 2010

The Board of Directors

Atlas Energy, Inc.

1550 Coraopolis Heights Road

Moon Township, Pennsylvania

Atlas Energy Resources, LLC

1550 Coraopolis Heights Road

Moon Township, Pennsylvania

Members of the Board and Atlas Energy Resources, LLC:

We understand that Atlas Pipeline Partners, L.P., a Delaware limited partnership (“APL”), APL Laurel Mountain, LLC, a Delaware limited liability company (“APL Sub”), Atlas Energy, Inc., a Delaware corporation (the “Company”), and Atlas Energy Resources, LLC, a Delaware limited liability company (“ATN”), propose to enter into a Purchase and Sale Agreement (the “Purchase Agreement”) pursuant to which APL Sub will sell, transfer, convey, assign and deliver to ATN (the “Sale”) all its membership interest in Laurel Mountain Midstream, LLC, a Delaware limited liability company, excluding certain preferred distribution rights and any profits, losses, allocations or distribution with respect to such preferred distribution rights, in exchange for $403,000,000 in cash payable by ATN, or if the Company is the purchaser, the Company, to APL Sub, (the “Purchase Price”), subject to adjustment as set forth in the Purchase Agreement. The terms and conditions of the Sale are more fully set forth in the Purchase Agreement.

You have asked for our opinion as to whether the Purchase Price to be paid by ATN, or if the Company is the purchaser, the Company, pursuant to the Purchase Agreement is fair, from a financial point of view, to ATN, or if the Company is the purchaser, the Company.

In arriving at our opinion, we have, among other things:

 

  (i) reviewed a draft dated November 7, 2010, of the Purchase Agreement;

 

  (ii) reviewed certain publicly available financial and other information about the Company and APL;

 

 

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  (iii) reviewed certain information furnished to us by APL’s management, including financial forecasts and analyses, relating to the business, operations and prospects of APL Sub;

 

  (iv) held discussions with members of senior management of APL concerning the matters described in clauses (ii) and (iii) above;

 

  (v) compared the proposed financial terms of the Sale with the financial terms of certain other transactions that we deemed relevant;

 

  (vi) considered the potential pro forma impact of the Sale; and

 

  (vii) conducted such other financial studies, analyses and investigations as we deemed appropriate.

In our review and analysis and in rendering this opinion, we have assumed and relied upon, but have not assumed any responsibility to independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by the Company and APL or that was publicly available to us (including, without limitation, the information described above), or that was otherwise reviewed by us. We have relied on assurances of the managements of the Company and APL that they are not aware of any facts or circumstances that would make such information in inaccurate or misleading. In our review, we did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did we conduct a physical inspection of any of the properties or facilities of, the Company and APL, nor have we been furnished with any such evaluations or appraisals of such physical inspections, nor do we assume any responsibility to obtain any such evaluations or appraisals.

With respect to the financial forecasts provided to and examined by us, we note that projecting future results of any company is inherently subject to uncertainty. APL has informed us, however, and we have assumed that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of APL as to the future financial performance of APL Sub. We express no opinion as to the APL Sub’s financial forecasts or the assumptions on which they are made.

Our opinion is based on economic, monetary, regulatory, market and other conditions existing and which can be evaluated as of the date hereof. We expressly disclaim any undertaking or obligation to advise any person of any change in any fact or matter affecting our opinion of which we become aware after the date hereof.

We have made no independent investigation of any legal or accounting matters affecting the Company and ATN, and we have assumed the correctness in all respects material to our analysis of all legal and accounting advice given to the Company and its Board of Directors and ATN, including, without limitation, advice as to the legal, accounting and tax consequences of the terms of, and transactions contemplated by, the Purchase Agreement to the Company and ATN and its stockholders and equityholders, respectively. In addition, in preparing this opinion, we have not taken into account any tax consequences of the Sale. We have assumed that the final form of the Purchase Agreement will be substantially similar to the last draft reviewed by us. We have also assumed that in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the Sale, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on the Company, ATN or the contemplated benefits of the Sale.

 

 

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It is understood that our opinion is solely for the use and benefit of the Board of Directors of the Company and ATN in their consideration of the Sale, and our opinion does not address the relative merits of the transactions contemplated by the Purchase Agreement as compared to any alternative transaction or opportunity that might be available to the Company or ATN, nor does it address the underlying business decision by the Company or ATN to engage in the Sale or the terms of the Purchase Agreement or the documents referred to therein. In addition, you have not asked us to address, and this opinion does not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of the Company or ATN. Furthermore, we do not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation, if any, payable or to be received by any of the Company’s or ATN’s officers, directors or employees, or any class of such persons, in connection with the Sale relative to the Purchase Price to be paid by ATN, or if the Company is the purchaser, the Company. Our opinion has been authorized by the Fairness Committee of Jefferies & Company, Inc.

We have been engaged by the Company to act as financial advisor to the Company in connection with the Sale and will receive a customary fee for our services, which is payable upon delivery of this opinion. We also will be reimbursed for expenses incurred. The Company has agreed to indemnify us against liabilities arising out of or in connection with the services rendered and to be rendered by us under such engagement. We have, in the past, provided financial advisory and financing services to ATN, including advising ATN in conjunction with the formation of a joint venture with Reliance Industries Limited, and may continue to do so and have received, and may receive, fees for the rendering of such services. In the ordinary course of our business, we and our affiliates may trade or hold securities of the Company and APL and/or their respective affiliates for our own account and for the accounts of our customers and, accordingly, may at any time hold long or short positions in those securities. In addition, we may seek to, in the future, provide financial advisory and financing services to the Company, APL or entities that are affiliated with the Company or APL, for which we would expect to receive compensation. Except as otherwise expressly provided in our engagement letter with the Company, our opinion may not be used or referred to by the Company or ATN, or quoted or disclosed to any person in any matter, without our prior written consent.

 

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LOGO

 

Based upon and subject to the foregoing, we are of the opinion that, as of the date hereof, the Purchase Price to be paid by ATN, or if the Company is the purchaser, the Company, pursuant to the Purchase Agreement is fair, from a financial point of view, to ATN, or if the Company is the purchaser, the Company.

Very truly yours,

LOGO

JEFFERIES & COMPANY, INC.

 

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Safe Harbor for Forward-Looking Statements

This document contains forward-looking statements that involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. Atlas Energy cautions readers that any forward-looking information is not a guarantee of future performance. Such forward-looking statements include, but are not limited to, statements about the proposed merger of Atlas Energy and a wholly owned subsidiary of Chevron Corporation or any related transactions, including Atlas Energy’s potential acquisition of an ownership interest in Laurel Mountain Midstream, LLC from Atlas Pipeline Partners, L.P. (“APL”), the potential separation of Atlas Pipeline Holdings, L.P. (“AHD”) from Atlas Energy, the potential sale of Atlas Energy’s investment partnership business and other assets to AHD, future financial and operating results, resource potential and Atlas Energy’s plans, objectives, expectations and intentions and other statements that are not historical facts. Although Atlas Energy believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will be attained or that the transactions will be completed, and it is possible that our actual circumstances and results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. The completion of and benefits from the transactions are subject to certain risks and uncertainties, including whether the merger agreement will be adopted by Atlas Energy’s stockholders, whether the other conditions to the completion of the merger and the related transactions will be satisfied and other risk factors relating to Atlas Energy’s business and its industry as detailed from time to time in Atlas Energy’s reports filed with the U.S. Securities and Exchange Commission. Atlas Energy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The reader is directed to Atlas Energy’s filings with the U.S. Securities and Exchange Commission, including quarterly reports on Form 10-Q, reports on Form 8-K and its annual reports on Form 10-K, for a discussion of such risks and uncertainties.

Important Additional Information About this Transaction

Atlas Energy has filed a proxy statement/information statement with the U.S. Securities and Exchange Commission in connection with the proposed merger of Atlas Energy and a wholly owned subsidiary of Chevron Corporation. Stockholders of Atlas Energy are urged to read the proxy statement/information statement, because it contains important information. Stockholders may obtain a free copy of the proxy statement/information statement, as well as other filings containing information about Atlas Energy and the merger without charge, at the U.S. Securities and Exchange Commission’s Internet site (www.sec.gov). In addition, copies of the proxy statement/information statement and other filings containing information about Atlas Energy and the proposed merger can be obtained, without charge, by directing a request to Atlas Energy, Attention: Investor Relations, Westpointe Corporate Center One, 1550 Coraopolis Heights Road, 2nd Floor, Moon Township, PA 15108, by telephone at (412) 262-2830 or on Atlas Energy’s Internet site at www.atlasenergy.com.

Atlas Energy and its directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from Atlas Energy stockholders in respect of the proposed merger. In addition, because Atlas Energy controls the general partnership interest in AHD, which itself controls the general partnership interest in APL, directors and executive officers and other members of management and employees of AHD, APL and their respective general partner may be deemed to be participants in the solicitation of proxies from Atlas Energy stockholders in respect of the proposed merger. You can find information about Atlas Energy’s executive officers and directors in Atlas Energy’s definitive annual proxy statement filed with the SEC on April 13, 2010, information about the executive officers and directors of the general partner of AHD in the annual report on Form 10-K for AHD filed with the SEC on March 5, 2010 and information about the executive officers and directors of the general partner of APL in the annual report on Form 10-K for APL filed with the SEC on March 5, 2010. Additional information regarding the interests of such potential participants is included in the proxy statement/information statement in connection with the proposed merger and the other relevant documents filed with the SEC. You can obtain free copies of Atlas Energy’s annual proxy statement and Atlas Energy’s proxy statement/information statement in connection with the proposed merger by contacting

 

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Atlas Energy’s investor relations department. Additional information about the proposed transactions with AHD is included in the information statement filed by AHD with the U.S. Securities and Exchange Commission. You can obtain free copies of AHD’s annual report and the information statement and APL’s annual report by contacting the investor relations department of AHD and APL, respectively.

This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.

 

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EXHIBIT B


IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE ATLAS ENERGY, INC.    )    CONSOLIDATED
SHAREHOLDERS LITIGATION    )    C.A. No. 5990-VCL

PLAINTIFFS’ OPENING BRIEF IN SUPPORT OF

THEIR MOTION FOR A PRELIMINARY INJUNCTION

 

 

RIGRODSKY & LONG, P.A.

Seth D. Rigrodsky (Del. Bar No. 3147)

Brian D. Long (Del. Bar No. 4347)

919 North Market Street, Suite 980

Wilmington, DE 19801

(302) 295-5310

  BIGGS AND BATTAGLIA
OF COUNSEL:   Robert Goldberg (Del. Bar No. 631)
  921 North Orange Street, P.O. Box 1489
BERNSTEIN LIEBHARD LLP   Wilmington, DE 19899

U. Seth Ottensoser

Joseph Beige

Jeffrey Lerner

10 East 40th Street, 22nd Floor

New York, NY 10016

(212) 779-1414

 

(302) 655-9677

 

Liaison Counsel for Plaintiffs

THE WEISER LAW FIRM, P.C.  
Patricia C. Weiser  
Henry J. Young  
Loren R. Ungar  
121 N. Wayne Avenue, Suite 100  
Wayne, PA 19087  
(610) 225-2677  
Co-Lead Counsel for Plaintiffs  

 

THIS DOCUMENT IS CONFIDENTIAL AND FILED UNDER SEAL. REVIEW AND ACCESS TO

THIS DOCUMENT IS PROHIBITED EXCEPT BY PRIOR COURT ORDER.


In this regard, an examination of Jefferies’ calculation of Atlas’ discount rate appears to be flawed in at least two respects. These flaws are only evident when looking at the detail contained in the November 8, 2010 Jefferies’ Bankers Book. Long Aff. Ex. 22 at ALTSCVX0000157. Both of these apparent errors cause Jefferies to overstate the discount rate used in its Atlas’ DCF analysis. This overstatement of the discount rate, in turn, causes Jefferies’ DCF to produce an unreasonably low range of price indications.

The first, and more substantial, apparent error relates to the market risk premium used in the WACC calculation. Jefferies purports to have used Ibbotson Associates as the source for its market risk premium assumption of 7.1%. Id. However, the Ibbotson SBBI 2010 Valuation Yearbook offers two alternatives for the market risk premium, neither of which corresponds to the 7.1% used by Jefferies. The “historical” premium was determined by Ibbotson to be 6.7%, while the “supply-side” premium was 5.2%. Thus, the 7.1% number appears to come out of “thin air.” Importantly, this Court, in a detailed and reasoned opinion, has recently indicated its preference for the lower supply-side premium (the 5.2% number). See Global GT LP v. Golden Telecom, Inc., 993 A.2d 497 (Del. Ch. 2010).50

Correcting only the choice of equity risk premium to reflect Ibbotson’s 2010 supply-side premium of 5.2%, and excluding the beta-adjustment correction that also needs to be made

 

 

50

Perhaps Jefferies took the 7.1% from the now-outdated 2008 Ibbotson book which, interestingly, is the precise number rejected by Vice Chancellor Strine in the Global case. Moreover, the Atlas Transaction was agreed to in 2010, and Jefferies’ fairness opinion was issued in 2010, yet Jefferies, who is being paid tens of millions of dollars for its expert analysis, not only inexcusably relied on obsolete key inputs from 2008, but specifically relied on those inputs already rules to have run afoul of recent Delaware jurisprudence.

 

 

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THIS DOCUMENT IS CONFIDENTIAL AND FILED UNDER SEAL. REVIEW AND ACCESS TO

THIS DOCUMENT IS PROHIBITED EXCEPT BY PRIOR COURT ORDER.


(apparently, Jefferies also inappropriately included the small-cap stock premium in the beta adjustment), results in an indicated cost of equity of 14.03%. Correcting both apparent errors results in an indicated cost of equity of 13.11%.

Recalculating Atlas’ WACC using a 13.11% cost of equity, rather than the 17.4% figure used by Jefferies, results in a discount rate of 11.25%. Using discount rates ranging from 10.75% to 11.75% (a difference of 100 basis points, corresponding to the 100-basis-point difference in the 14.0% to 15.0% range of discount rates used by Jefferies), coupled with Jefferies assumed terminal EBITDA multiples of 6.0× to 8.0×, results in indicated share prices of $39.52 to $57.20, which is well-above the incorrect range of $31.13 to $45.42, as calculated by Jefferies and reported in the Proxy. Using a 7.0x multiple, as per the Proxy, yields a price of $48.10.

 

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THIS DOCUMENT IS CONFIDENTIAL AND FILED UNDER SEAL. REVIEW AND ACCESS TO

THIS DOCUMENT IS PROHIBITED EXCEPT BY PRIOR COURT ORDER.