<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 2000
REGISTRATION NO. 333-31060
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
EL PASO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 4922 76-0568816
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
---------------------
<TABLE>
<S> <C>
BRITTON WHITE JR., ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
EL PASO ENERGY CORPORATION EL PASO ENERGY CORPORATION
EL PASO ENERGY BUILDING EL PASO ENERGY BUILDING
1001 LOUISIANA STREET 1001 LOUISIANA STREET
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 420-2131 (713) 420-2131
(Address, including zip code, and telephone (Name and address, including zip code, and
number, telephone
including area code, of registrant's principal number, including area code, of agent for
executive offices) service)
</TABLE>
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COPIES TO:
<TABLE>
<S> <C> <C>
GARY P. COOPERSTEIN, ESQ. AUSTIN M. O'TOOLE, ESQ. BLAINE V. FOGG, ESQ.
WARREN DE WIED, ESQ. SENIOR VICE PRESIDENT AND SKADDEN, ARPS, SLATE, MEAGHER &
FRIED, FRANK, HARRIS, SHRIVER & SECRETARY FLOM LLP
JACOBSON THE COASTAL CORPORATION FOUR TIMES SQUARE
ONE NEW YORK PLAZA COASTAL TOWER NEW YORK, NEW YORK 10036-6522
NEW YORK, NEW YORK 10004 NINE GREENWAY PLAZA (212) 735-3000
(212) 859-8000 HOUSTON, TEXAS 77046
(713) 877-1400
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
[EL PASO ENERGY LOGO] [THE COASTAL CORPORATION LOGO]
JOINT PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The boards of directors of El Paso Energy Corporation and The Coastal
Corporation have approved a merger agreement that will result in a combination
of our two companies. If we complete the merger, Coastal stockholders will
receive 1.23 shares of El Paso common stock for each share of Coastal common
stock and for each share of Coastal Class A common stock they own, and each
holder of Coastal convertible preferred stock will receive the number of shares
of El Paso common stock specified in this document. El Paso stockholders will
continue to own their existing shares after the merger. We estimate that in
connection with the merger El Paso will issue approximately 269 million shares
of El Paso common stock to Coastal stockholders and optionholders. Those shares
will represent approximately 54% of the outstanding shares of El Paso common
stock after the merger. The El Paso common stock is listed on the New York Stock
Exchange under the symbol "EPG."
The merger will bring together El Paso's and Coastal's highly complementary
assets and operations and create the leading integrated natural gas and power
company in North America. This combined company will be among the top five
companies in every sector of the natural gas and power industries. Our combined
coast-to-coast natural gas transmission system will consist of over 58,000 miles
of pipeline reaching all major growth areas in the United States, have access to
every key natural gas supply source in North America and transport 20.7 billion
cubic feet of gas per day, more than any other energy company in the world. We
will also be the third largest producer of natural gas in the United States, the
second largest gatherer and processor of natural gas in the United States and
will have a net ownership interest in approximately 8,000 megawatts of power
generation worldwide.
We cannot complete the merger unless El Paso stockholders approve the
issuance of El Paso shares in connection with the merger and Coastal
stockholders approve the merger agreement. We have each scheduled special
meetings for our stockholders to vote on these important matters. This document
provides information about the dates, times and places of the special meetings.
YOUR VOTE IS VERY IMPORTANT. Please take the time to vote by completing the
enclosed proxy card and returning it in the return envelope provided, even if
you plan to attend your special meeting. You may also vote by telephone or if
you are a Coastal stockholder over the Internet by following the instructions on
your proxy card. If you hold your shares in the name of a bank or broker, you
should follow the instructions on the form you receive from your bank or broker.
This document contains detailed information about the meetings and the
proposed merger. We encourage you to read this document carefully. IN
PARTICULAR, YOU SHOULD READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 19 FOR
A DESCRIPTION OF VARIOUS RISKS YOU SHOULD CONSIDER IN EVALUATING THE MERGER.
We are very enthusiastic about this transaction and the strength and
opportunities of the combined company. We join all the other members of our two
companies' boards of directors in recommending that you vote in favor of the
matter presented at your special meeting.
<TABLE>
<S> <C>
/s/ WILLIAM A. WISE /s/ DAVID A. ARLEDGE
William A. Wise David A. Arledge
President and Chief Executive Officer Chairman, President and Chief Executive Officer
El Paso Energy Corporation The Coastal Corporation
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE EL PASO
COMMON STOCK TO BE ISSUED UNDER THIS JOINT PROXY STATEMENT/PROSPECTUS OR
DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS MARCH 17, 2000.
AND IT IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT MARCH 31, 2000.
<PAGE> 3
[Map of the Combined North American Gas and Power Operations]
(ii)
<PAGE> 4
[EL PASO LOGO]
---------------------
NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 5, 2000
---------------------
To the Stockholders of El Paso Energy Corporation:
A special meeting of the stockholders of El Paso Energy Corporation will be
held at The Westin Galleria, located at 5060 W. Alabama, Houston, Texas 77056,
at 9:00 a.m., local time, on Friday, May 5, 2000, for the following purposes:
1. To consider and vote on a proposal to approve the issuance of
shares of El Paso common stock to stockholders and optionholders of The
Coastal Corporation in connection with the proposed merger of a wholly
owned subsidiary of El Paso into Coastal, as a result of which Coastal will
become a wholly owned subsidiary of El Paso.
2. To act on any other matters that may properly be brought before the
special meeting or any adjournment or postponement of the special meeting.
Only stockholders of record at the close of business on March 17, 2000, are
entitled to notice of and to vote at the special meeting or any adjournment or
postponement of the special meeting.
THE BOARD OF DIRECTORS OF EL PASO UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THE APPROVAL OF THE ISSUANCE OF SHARES OF EL PASO COMMON STOCK IN CONNECTION
WITH THE PROPOSED MERGER.
You are cordially invited to attend the special meeting. Your vote is very
important to us. Whether or not you plan to attend, please act promptly to vote
your shares on the proposal described above. You may vote your shares by
completing the enclosed proxy and returning it in the return envelope provided,
which requires no postage if mailed in the United States. You may also vote your
shares by telephone or through the Internet by following the instructions we
have provided on the enclosed proxy card. If you attend the special meeting, you
may vote your shares in person, even if you have previously submitted a proxy in
writing, by telephone or through the Internet.
By Order of the Board of Directors,
[David L. Siddall sig]
David L. Siddall
Corporate Secretary
Houston, Texas
March 17, 2000
<PAGE> 5
[THE COASTAL CORPORATION LOGO]
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 5, 2000
---------------------
To the Stockholders of The Coastal Corporation:
A special meeting of the stockholders of The Coastal Corporation will be
held at the Renaissance Houston Hotel, located at 6 Greenway Plaza East,
Houston, Texas 77046, at 9:00 a.m., local time, on Friday, May 5, 2000, for the
following purposes:
1. To consider and vote on a proposal to approve and adopt the merger
agreement, dated as of January 17, 2000, by and between El Paso Energy
Corporation, El Paso Merger Company, a subsidiary of El Paso, and Coastal
under which, among other things, El Paso Merger Company will merge into
Coastal, and El Paso will issue shares of El Paso common stock to Coastal
stockholders and optionholders as follows:
- 1.23 shares for each share of common stock and for each share of Class
A common stock;
- 9.133 shares for each share of $1.19 Series A convertible preferred
stock and for each share of $1.83 Series B convertible preferred
stock;
- 17.980 shares for each share of $5.00 Series C convertible preferred
stock; and
- for each outstanding Coastal option, shares of El Paso common stock
having a market value equal to the value of the Coastal option based
on an agreed valuation methodology.
2. To act on any other matters that may properly be brought before the
special meeting or any adjournment or postponement of the special meeting.
Only record holders of shares of common stock, Class A common stock, $1.19
Series A convertible preferred stock, $1.83 Series B convertible preferred
stock, and $5.00 Series C convertible preferred stock at the close of business
on March 17, 2000 are entitled to notice of and to vote at the special meeting
or any adjournment or postponement of the special meeting.
THE BOARD OF DIRECTORS OF COASTAL UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
You are cordially invited to attend the special meeting. Your vote is very
important to us. Whether or not you plan to attend, please act promptly to vote
your shares with respect to the proposal described above. You may vote your
shares by completing the enclosed proxy and returning it in the return envelope
provided, which requires no postage if mailed in the United States. You may also
vote your shares by telephone or through the Internet by following the
instructions we have provided on the enclosed proxy card. If you attend the
special meeting, you may vote your shares in person, even if you have previously
submitted a proxy in writing, by telephone or through the Internet.
By Order of the Board of Directors,
/s/ AUSTIN M. O'TOOLE
Austin M. O'Toole
Senior Vice President and Secretary
Houston, Texas
March 17, 2000
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY..................................................... 5
The Companies............................................. 5
Our Reasons for the Merger................................ 5
Our Recommendation to Stockholders........................ 5
Record Date; Stock Entitled to Vote....................... 5
Votes Required............................................ 6
Share Ownership and Voting Power of Management............ 6
What Stockholders and Optionholders Will Receive in the
Merger................................................. 6
Board of Directors of the Combined Company After the
Merger and Related Matters............................. 7
By-laws of the Combined Company........................... 7
Opinions of Financial Advisors............................ 7
Accounting Treatment...................................... 7
Material Terms of the Merger Agreement.................... 7
Stock Option Agreements................................... 9
Listing of El Paso Stock.................................. 9
Regulatory Approvals Required for the Merger.............. 9
Interests of Certain Persons in the Merger................ 10
Comparative Market Prices................................. 11
El Paso Selected Historical Financial Data................ 12
Coastal Selected Historical Financial Data................ 14
Selected Pro Forma Combined Financial Data................ 15
Comparative Per Share Data................................ 17
RISK FACTORS................................................ 19
We will be operating in highly competitive industries..... 19
The revenues of our pipeline businesses are generated
under contracts that must be renegotiated
periodically........................................... 19
Fluctuations in energy commodity prices could adversely
affect our business.................................... 19
The rates we are able to charge our customers may be
reduced by governmental authorities.................... 20
The success of our oil and gas exploration and production
businesses is dependent on factors which cannot be
predicted with certainty............................... 20
Estimates of oil and gas reserves may change.............. 20
Our use of derivative financial instruments could result
in financial losses.................................... 21
The success of our power generation and marketing
activities depends on many factors, some of which may
be beyond our control.................................. 21
Our telecommunications business strategy is unproven...... 21
Our foreign investments involve special risks............. 22
Costs of environmental liabilities, regulation and
litigation could exceed our estimates.................. 22
Our operations are subject to operational hazards and
uninsured risks........................................ 22
El Paso's senior management has limited experience
operating refineries and chemical plants and in the
coal production business and key Coastal personnel
necessary to operate these businesses could terminate
their employment with the combined company............. 22
We cannot assure you that our two companies will be
successfully combined into a single entity............. 23
Since the market price of El Paso shares will vary,
Coastal stockholders cannot be sure of the value of the
consideration they will receive in the merger.......... 23
The companies could be required to effect significant
divestitures or comply with other regulatory
requirements........................................... 23
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 24
THE MERGER.................................................. 26
Background of the Merger.................................. 26
Our Reasons for the Merger................................ 28
</TABLE>
(i)
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Factors Considered by, and Recommendation of, the Board of
Directors of El Paso................................... 29
Factors Considered by, and Recommendation of, the Board of
Directors of Coastal................................... 32
Accounting Treatment...................................... 34
Description of Material United States Federal Income Tax
Consequences of the Merger............................. 34
Regulatory Approvals Required for the Merger.............. 36
Appraisal Rights.......................................... 37
Federal Securities Laws Consequences; Stock Transfer
Restrictions........................................... 38
By-Laws of the Combined Company........................... 39
OPINIONS OF FINANCIAL ADVISORS.............................. 41
Opinion of Financial Advisor to El Paso................... 41
Opinion of Financial Advisor to Coastal................... 47
MATERIAL TERMS OF THE MERGER AGREEMENT...................... 55
Structure of the Merger................................... 55
Closing; Effective Time................................... 55
Consideration to be Received in the Merger................ 55
Procedures for Surrender of Certificates; Fractional
Shares................................................. 55
Board of Directors; Nominating Committees; Officers....... 56
Representations and Warranties............................ 57
Covenants................................................. 58
Additional Agreements..................................... 61
Conditions to the Completion of the Merger................ 64
Termination............................................... 64
Amendments................................................ 66
MATERIAL TERMS OF THE STOCK OPTION AGREEMENTS............... 67
Terms of the Options...................................... 67
Substitute Option......................................... 67
Exchange Option........................................... 67
Limitation of Profit...................................... 68
Effect of Stock Option Agreements......................... 68
THE SPECIAL MEETINGS........................................ 69
Dates, Times and Places................................... 69
Matters to be Considered at the Special Meetings.......... 69
Record Date; Stock Entitled to Vote; Quorum............... 69
Votes Required............................................ 70
Share Ownership and Voting Power of Management............ 70
Voting of Proxies; Shares Held in "Street Name"........... 70
FINANCIAL INFORMATION....................................... 73
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION............................................... 79
DIRECTORS OF THE COMBINED COMPANY AFTER THE MERGER.......... 80
INTERESTS OF CERTAIN PERSONS IN THE MERGER.................. 80
COMPARISON OF STOCKHOLDER RIGHTS............................ 82
WHERE YOU CAN FIND MORE INFORMATION......................... 89
EXPERTS..................................................... 91
LEGAL MATTERS............................................... 91
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 91
SUBMISSION OF STOCKHOLDER PROPOSALS......................... 91
OTHER MATTERS............................................... 92
</TABLE>
(ii)
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFORMATION REGARDING EL PASO AND COASTAL DIRECTORS......... 92
El Paso Directors......................................... 92
Coastal Directors......................................... 93
</TABLE>
<TABLE>
<S> <C>
LIST OF ANNEXES
Annex A -- Agreement and Plan of Merger
-- Stock Option Agreement for Option Granted by Coastal to
Annex B El Paso
-- Stock Option Agreement for Option Granted by El Paso to
Annex C Coastal
-- Opinion of Donaldson, Lufkin & Jenrette Securities
Annex D Corporation
-- Opinion of Merrill Lynch, Pierce, Fenner & Smith
Annex E Incorporated
-- Section 262 of the Delaware General Corporation Law
Annex F (Appraisal Rights)
</TABLE>
(iii)
<PAGE> 9
This document incorporates important business and financial information
about our companies from documents we have filed with the SEC that we have not
included in or delivered with this document. El Paso will provide you with
copies of this information relating to El Paso, without charge, upon written or
oral request to:
El Paso Energy Corporation
El Paso Energy Building
1001 Louisiana Street
Houston, Texas 77002
Attention: Office of Corporate Secretary
Telephone Number: (713) 420-6195
Coastal will provide you with copies of this information relating to
Coastal, without charge, upon written or oral request to:
The Coastal Corporation
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046-0995
Attention: Office of Corporate Secretary
Telephone Number: (713) 877-6821
In order to receive timely delivery of the documents in advance of our
special stockholders' meetings, you should make your request no later than April
28, 2000.
For more information on the matters incorporated by reference in this
document, see "Where You Can Find More Information" beginning on page 89.
1
<PAGE> 10
QUESTIONS AND ANSWERS ABOUT THE EL PASO/COASTAL MERGER
Q. WHAT DO I NEED TO DO NOW?
A. After you have carefully read this document, please
vote your shares as soon as possible:
- by completing and signing the enclosed proxy card and returning it in the
prepaid return envelope provided; or
- by telephone or, if you are a Coastal stockholder, through the Internet
by following the instructions provided on your proxy card.
Q. WHAT DO I DO IF I WANT TO REVOKE OR CHANGE MY VOTE?
A. You may revoke or change your vote:
- by sending a written notice to the corporate secretary of your company
before your special meeting stating that you would like to revoke your
proxy;
- by completing and signing another proxy card and returning it by mail
prior to your special meeting;
- by telephone or, if you are a Coastal stockholder, through the Internet
by following the instructions provided on your proxy card; or
- by attending your special meeting and voting in person.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES AT THIS TIME?
A: No. If we complete the merger, El Paso will send
Coastal stockholders written instructions for exchanging their Coastal
stock certificates for stock certificates representing El Paso common
stock. Stock certificates held by El Paso stockholders will continue to
represent an identical number of shares of El Paso common stock after the
merger is completed.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BANK
OR BROKER, WILL MY BANK OR BROKER VOTE MY SHARES FOR ME?
A: Your bank or broker will vote your shares only if you
provide it with instructions on how to vote. Your bank or broker will
contact you regarding the procedures necessary for it to vote your shares.
Please tell your bank or broker how you would like it to vote your shares.
If you do not tell your bank or broker how to vote, your shares will not be
voted.
Q: IS THE MERGER TAXABLE?
A: We anticipate that the merger, as it has been
structured, will constitute a reorganization for United States federal income
tax purposes. Neither of us will be obligated to complete the merger unless
we receive legal opinions to that effect. We may not waive this condition
unless we first obtain Coastal stockholder approval. Assuming the merger
qualifies as a reorganization, Coastal stockholders who exchange their
Coastal common stock, Class A common stock, $1.19 Series A convertible
preferred stock, $1.83 Series B convertible preferred stock or $5.00 Series
C convertible preferred stock solely for El Paso common stock in the merger
generally will not recognize gain or loss for United States federal income
tax purposes, except for gain or loss recognized because of cash received
instead of fractional shares.
We describe material United States federal income tax consequences of the
merger in more detail beginning on page 34. The tax consequences to you
will depend on the facts and circumstances of your own situation. Please
consult your tax advisor for a full understanding of the tax consequences
to you.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We are working toward completing the merger as
quickly as possible. We must first obtain the necessary regulatory
clearance and the approvals of our stockholders at the special meetings. We
plan to complete the merger in the fourth quarter of 2000. However, we
cannot assure you as to when or if the merger will occur.
Q: WILL THERE BE ANY CHANGES TO THE AMOUNT OF
DIVIDENDS I RECEIVE?
A: We expect no changes in the dividend policies of
El Paso or Coastal before we complete the merger. After the merger, we
expect that El Paso's dividend rate, currently $.206 per share per quarter,
will initially be the dividend rate applicable to the combined company's
common stock. In its decision to declare future dividends, the combined
company's board of directors will consider business conditions and the
earnings and financial condition of the combined company and its
subsidiaries.
2
<PAGE> 11
Q: WILL I HAVE THE RIGHT TO HAVE MY SHARES APPRAISED IF I
DISSENT FROM THE MERGER?
A: Both El Paso and Coastal are organized under
Delaware law. Under Delaware law, unless you hold shares of Coastal's $5.00
Series C convertible preferred stock, you will not have the right to
dissent and receive the appraised value of your shares in connection with
the merger. Holders of shares of Coastal's $5.00 Series C convertible
preferred stock will be entitled to appraisal rights in respect of those
shares if they comply with the requirements of Section 262 of the Delaware
General Corporation Law as described under "The Merger -- Appraisal Rights"
beginning on page 37.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE
COMPANIES?
A: Both companies file reports and other information
with the SEC. You may read and copy this information at the SEC's public
reference facilities. Please call the SEC at 1-800-SEC-0330 for information
about these facilities. This information is also available at the Internet
site the SEC maintains at http://www.sec.gov and at the offices of the New
York Stock Exchange. You can also request copies of these documents from
us. In addition, you can get information about our companies from our
Internet sites located at http://www.epenergy.com and
http://www.coastalcorp.com. The information on our Internet sites is not a
part of, and is not being incorporated by reference into, this joint proxy
statement/prospectus. For more information, please see "Where You Can Find
More Information," beginning on page 89.
3
<PAGE> 12
WHO CAN ANSWER YOUR QUESTIONS
If you have additional questions, you should contact:
EL PASO STOCKHOLDERS:
El Paso Energy Corporation
El Paso Energy Building
1001 Louisiana Street
Houston, Texas 77002
Attention: Bruce Connery, Office of Investor Relations
Telephone Number: (713) 420-5855
COASTAL STOCKHOLDERS:
The Coastal Corporation
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046-0995
Attention: Office of Shareholder Relations
Telephone Number: (713) 877-6821
---------------------
If you would like additional copies of this
joint proxy statement/prospectus, or if you
have questions about the merger, you may also contact:
EL PASO STOCKHOLDERS:
[GEORGESON LOGO]
17 State Street, 10th Floor
New York, New York 10004
BANKS AND BROKERS CALL COLLECT: (212) 440-9800
ALL OTHERS CALL TOLL FREE: 1-800-223-2064
COASTAL STOCKHOLDERS:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
BANKS AND BROKERS CALL COLLECT: (212) 269-5550
ALL OTHERS CALL TOLL FREE: 1-800-769-6414
4
<PAGE> 13
SUMMARY
This summary highlights selected information from this joint proxy
statement/prospectus. This summary may not include all of the information that
is important to you. To understand the proposed transactions fully and for a
more detailed description of the legal terms of the transactions, we urge you to
read carefully this entire joint proxy statement/prospectus and the documents we
refer to in this document. See "Where You Can Find More Information" beginning
on page 89. We have included page references directing you to a more complete
description of each item presented in this summary. In this document we often
refer to the "combined company," which means, following the merger, El Paso and
its subsidiaries, including Coastal.
THE COMPANIES
EL PASO ENERGY CORPORATION
El Paso Energy Building
1001 Louisiana Street
Houston, Texas 77002
(713) 420-2131
El Paso is a diversified energy holding company that provides comprehensive
energy solutions through its strategic business units. It has operations in
natural gas transportation, storage, gathering and processing, power generation,
merchant energy services, natural gas and oil production and international
project development. El Paso owns the only integrated coast-to-coast natural gas
pipeline system in the United States.
El Paso has approximately 4,700 full-time employees.
THE COASTAL CORPORATION
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046
(713) 877-1400
Coastal is a diversified energy holding company with operations in natural
gas transmission, storage, gathering and processing and marketing; oil and gas
exploration and production; petroleum refining, marketing and distribution;
chemicals; power production; and coal.
Coastal has approximately 13,200 full-time employees.
OUR REASONS FOR THE MERGER (SEE PAGES 28 THROUGH 29)
We believe that by combining the highly complementary assets and operations
of El Paso and Coastal, we will create a company that will be the leading
integrated natural gas and power company in North America and will have
tremendous opportunities for growth and creation of stockholder value. In
particular, the combined company:
- - will be the only company ranked among the top five companies in each sector of
the natural gas and power industries: natural gas transmission, natural gas
storage, merchant energy and power, international, field services, and
exploration and production;
- - will be uniquely positioned to take advantage of new opportunities that arise
as a result of the continuing convergence of the natural gas and power
industries;
- - will be able to utilize its combined 58,000 mile, coast-to-coast, natural gas
pipeline system, which reaches approximately 70% of the U.S. population, to
take advantage of opportunities in the telecommunications and electric power
transmission areas; and
- - will have the opportunity to realize pre-tax annual cost savings of at least
$200 million beginning in the first full year of operations after the
completion of the merger.
OUR RECOMMENDATION TO STOCKHOLDERS (SEE PAGES 29 THROUGH 34)
El Paso. The El Paso board believes that the merger agreement, the merger
and the related transactions, including the issuance of El Paso common stock in
connection with the merger, are fair to and in the best interests of El Paso and
its stockholders and unanimously recommends that you vote FOR the approval of
the issuance of shares of El Paso common stock in connection with the proposed
merger.
Coastal. The Coastal board believes that the merger agreement, the merger
and the related transactions are fair to and in the best interests of Coastal
and its stockholders and unanimously recommends that you vote FOR the approval
and adoption of the merger agreement.
RECORD DATE; STOCK ENTITLED TO VOTE (SEE PAGES 69 THROUGH 70)
El Paso. You may vote at the El Paso special meeting if you owned shares of
El Paso common stock at the close of business on March 17, 2000. At El Paso's
special meeting, you will be entitled to cast one vote for each share of El Paso
common stock that you owned at the close of business on March 17, 2000. As of
the close of business on March 14, 2000, there
5
<PAGE> 14
were 236,505,461 shares of El Paso common stock outstanding.
Coastal. You may vote at the Coastal special meeting if you owned shares of
Coastal common stock, Class A common stock, $1.19 Series A convertible preferred
stock, $1.83 Series B convertible preferred stock, and/or $5.00 Series C
convertible preferred stock at the close of business on March 17, 2000. At
Coastal's special meeting, you will be entitled to one vote for each share of
common stock, $1.19 Series A convertible preferred stock, $1.83 Series B
convertible preferred stock, and $5.00 Series C convertible preferred stock you
owned at the close of business on March 17, 2000 and 100 votes for each share of
Class A common stock you owned on that date. As of the close of business on
March 14, 2000, there were 213,369,398 shares of Coastal common stock, 343,226
shares of Class A common stock, 52,709 shares of $1.19 Series A convertible
preferred stock, 57,555 shares of $1.83 Series B convertible preferred stock and
26,680 shares of $5.00 Series C convertible preferred stock outstanding.
VOTES REQUIRED (SEE PAGE 70)
El Paso. To approve the issuance of shares of El Paso common stock in
connection with the merger, El Paso stockholders must vote at least a majority
of all shares voted by all El Paso stockholders at the special meeting in favor
of the proposal for the issuance of those shares. At the special meeting, El
Paso stockholders will be entitled to vote a total of approximately 236,505,461
shares of El Paso common stock.
Coastal. To approve and adopt the merger agreement, Coastal stockholders
must cast a majority of the total number of votes entitled to be cast at the
special meeting in favor of the proposal to approve and adopt the merger
agreement. Accordingly, if a Coastal stockholder fails to vote any of his or her
Coastal stock it will have the same effect as a vote against the merger
agreement. At the special meeting Coastal stockholders will be entitled to cast
a total of approximately 247,828,942 votes.
SHARE OWNERSHIP AND VOTING POWER OF MANAGEMENT (SEE PAGE 70)
El Paso. As of the close of business on March 14, 2000, the directors and
executive officers of El Paso held, and they will be entitled to vote at the
special meeting, approximately 18.8 million shares of El Paso common stock.
These shares represent approximately 7.9% of the total number of shares of El
Paso common stock then outstanding. All of the directors and executive officers
of El Paso have indicated to us that they intend to vote their shares in favor
of the issuance of El Paso common stock in connection with the merger.
Coastal. As of the close of business on March 14, 2000, the directors and
executive officers of Coastal held approximately 5,652,180 shares of Coastal
common stock and 183,966 shares of Class A common stock. They will be entitled
to cast a total of approximately 24,048,780 votes at the special meeting,
representing approximately 9.7% of the total number of votes Coastal
stockholders will be entitled to cast at that meeting. All of the directors and
executive officers of Coastal have indicated to us that they intend to vote
their shares in favor of the approval and adoption of the merger agreement.
WHAT STOCKHOLDERS AND OPTIONHOLDERS WILL RECEIVE IN THE MERGER (SEE PAGES 55 AND
61)
Coastal. If we complete the merger, you will receive:
- - 1.23 shares of El Paso common stock for each share of Coastal common stock and
for each share of Class A common stock you own;
- - 9.133 shares of El Paso common stock for each share of $1.19 Series A
convertible preferred stock and for each share of $1.83 Series B convertible
preferred stock;
- - 17.980 shares of El Paso common stock for each share of $5.00 Series C
convertible preferred stock; and
- - for each outstanding Coastal option, shares of El Paso common stock having a
market value equal to the value of the Coastal option based on an agreed
valuation methodology.
These exchange ratios will not change if the market price of El Paso or Coastal
stock increases or decreases between now and the date of the merger.
You will not receive a fractional share of El Paso common stock. Instead,
you will receive a cash payment for any fractional share based on the market
value of the El Paso common stock.
El Paso. You will not receive any new shares in the merger. You will
continue to own your shares of El Paso common stock after the merger.
6
<PAGE> 15
BOARD OF DIRECTORS OF THE COMBINED COMPANY
AFTER THE MERGER AND RELATED MATTERS (SEE PAGES 56 THROUGH 57)
Following the merger:
- - the board of the combined company will consist of 12 members, seven of whom
will be designated by El Paso from among its directors and five of whom will
be persons designated by Coastal from among its directors;
- - Ronald L. Kuehn, Jr., currently the Chairman of El Paso, will continue as
Chairman of the combined company until December 31, 2000;
- - when Mr. Kuehn steps down, William A. Wise, currently the President and Chief
Executive Officer of El Paso, will become Chairman, President and Chief
Executive Officer of the combined company; and
- - David A. Arledge, currently Chairman, President and Chief Executive Officer of
Coastal, will become Vice Chairman of the board of the combined company and
will oversee the non-regulated businesses of the combined company.
BY-LAWS OF THE COMBINED COMPANY (SEE PAGES 39
THROUGH 40)
The by-laws of the combined company will provide, among other things, that
until December 31, 2002:
- - unless expanded in connection with a future business combination transaction,
the combined company's board of directors will have 12 members;
- - the seven directors designated by El Paso and their designated successors will
have the authority to recommend seven candidates for nomination at each annual
stockholders' meeting and to designate persons to replace any of those
directors who may resign before the end of his or her term;
- - the five directors designated by Coastal and their designated successors will
have the authority to recommend five candidates for nomination at each annual
stockholder's meeting and to designate persons to replace any of those
directors who may resign before the end of his or her term;
- - William A. Wise will hold the position of Chairman of the combined company's
board after December 31, 2000 and will also hold the positions of President
and Chief Executive Officer of the combined company;
- - David A. Arledge will hold the position of Vice Chairman of the board of the
combined company; and
- - the board of the combined company will not be permitted to take action
inconsistent with the by-laws, including removing Mr. Wise or Mr. Arledge from
their respective offices, unless the action is approved by two-thirds of the
directors designated by El Paso and Coastal under the merger agreement and
their designated successors.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 41 THROUGH 54)
El Paso. In deciding to approve the merger, the El Paso board considered
the opinion of its financial advisor, Donaldson, Lufkin & Jenrette Securities
Corporation, that the 1.23 exchange ratio applicable to the shares of Coastal
common stock and Class A common stock was fair to El Paso from a financial point
of view. We have attached this opinion as Annex D to this joint proxy
statement/prospectus and encourage you to read it.
Coastal. In deciding to approve the merger, the Coastal board considered
the opinion of its financial advisor, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, that the exchange ratios applicable to the shares of Coastal
common stock, Class A common stock, $1.19 Series A convertible preferred stock,
$1.83 Series B convertible preferred stock and $5.00 Series C convertible
preferred stock were fair from a financial point of view to the holders of those
shares. We have attached this opinion as Annex E to this joint proxy
statement/prospectus and encourage you to read it.
ACCOUNTING TREATMENT (SEE PAGE 34)
We expect that the merger will be accounted for as a pooling of interests,
which means that we will treat our companies as if they had always been combined
for accounting and financial reporting purposes.
MATERIAL TERMS OF THE MERGER AGREEMENT (SEE PAGES 55 THROUGH 66)
We have attached the merger agreement as Annex A to this joint proxy
statement/prospectus. We encourage you to read the merger agreement as it is the
legal document that governs the merger.
Conditions to Completion of the Merger (see page 64)
Our respective obligations to complete the merger are subject to a number
of conditions. These include:
7
<PAGE> 16
- - Coastal stockholders approving and adopting the merger agreement;
- - El Paso stockholders approving the issuance of shares of El Paso common stock
in connection with the merger;
- - the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, or the HSR Act,
applicable to the merger;
- - all other regulatory approvals, including approval of the Federal Energy
Regulatory Commission, or FERC, having been obtained without the imposition of
conditions that would be materially adverse to El Paso's and Coastal's
combined businesses, financial condition or results of operations;
- - our respective independent public accountants concurring that the merger will
qualify for pooling of interests accounting treatment; and
- - our receiving legal opinions from our respective counsel that the merger will
qualify as a reorganization under the Internal Revenue Code.
Withdrawal of Recommendation of Boards of Directors (see page 61)
The El Paso and Coastal boards cannot withdraw their recommendations in
support of the proposed transaction except:
- - if the board receives a proposal for another transaction that is more
favorable to its stockholders than our proposed merger; or
- - if the board determines in good faith that as a result of adverse developments
affecting the other company, the merger is contrary to its stockholders' best
interests.
Termination of the Merger Agreement (pages 64 through 65)
El Paso and Coastal can jointly agree to terminate the merger agreement at
any time without completing the merger. In addition, either company can
terminate the merger agreement if:
- - we do not complete the merger by the "drop-dead date," which is January 17,
2001, but will be extended to April 17, 2001 if the only reason the merger has
not been completed by January 17, 2001 is because of the failure to obtain the
necessary regulatory approvals;
- - the Coastal stockholders do not approve and adopt the merger agreement;
- - the El Paso stockholders do not approve the issuance of El Paso common stock
in connection with the merger; or
- - a governmental authority permanently prohibits the merger.
Either company can also terminate the merger agreement if:
- - the other company's representations in the merger agreement were untrue, and
the untrue representations are so significant that as a result the
representing company's business, financial condition or results of operations
are materially and adversely affected;
- - the other company does not materially comply with its obligations under the
merger agreement; or
- - the other company's board of directors no longer recommends that its
stockholders vote to adopt the merger agreement or the issuance of common
stock, as the case may be, or recommends that its stockholders accept a
proposal from a third party for a takeover transaction for at least 25% of its
common stock or assets.
Finally, either Coastal or El Paso may terminate the agreement if it
receives, before its special meeting, an unsolicited proposal to acquire in a
tender offer, merger or otherwise 50% or more of its common stock or assets,
and:
- - the board of directors of the company receiving the proposal believes that its
legal duties require that it consider the new proposal;
- - after considering the new proposal, that board of directors concludes that the
new proposal is more favorable to its stockholders than our proposed merger;
- - the company that received the proposal gives the other company five business
days to respond to the new proposal; and
- - the company that received the proposal pays the other company a termination
fee of $300 million.
8
<PAGE> 17
Termination Fees (see page 65)
El Paso and Coastal have each agreed to pay to the other company a
termination fee of $300 million and reimburse up to $10 million of the other
company's expenses if:
- - (1) any person makes a takeover proposal to the paying company, and then
either company terminates the merger agreement because of the occurrence of
the drop-dead date or because the paying company's stockholders fail to
approve the transaction, and (2) within 12 months after termination, the
paying company enters into or completes another transaction;
- - any person makes a takeover proposal to the paying company and the other
company terminates the merger agreement because the paying company's board has
withdrawn or modified its approval or recommendation of the transaction;
- - (1) no takeover proposal has been made to the paying company but the other
company nonetheless terminates the merger agreement because the paying
company's board has withdrawn or modified its approval or recommendation of
the transaction, and (2) within three months after termination, the paying
company enters into or completes another transaction; or
- - the paying company terminates the merger agreement, because it receives a
proposal more favorable to its stockholders as described above.
In addition, El Paso and Coastal have each agreed to reimburse the other
for up to $10 million of its expenses if the transaction is not approved by
either of their respective stockholders, even if no takeover proposal has been
previously made.
STOCK OPTION AGREEMENTS (SEE PAGES 67 THROUGH 68)
In connection with the merger agreement, Coastal entered into a stock
option agreement in which it granted El Paso an option to purchase up to
31,834,515 shares of Coastal common stock for $34.14375 per share.
In connection with the merger agreement, El Paso entered into a similar
stock option agreement in which it granted Coastal an option to purchase up to
35,080,566 shares of El Paso common stock for $37.80 per share.
Each option will become exercisable only if the company that granted the
option becomes obligated to pay a termination fee of $300 million to the other
company. The stock option agreements, however, limit the aggregate amount of
profit either company is permitted to receive as a result of the termination fee
and the exercise of an option, including profit made on the sale of shares
received as a result of the exercise of the option, to $325 million.
If either option is exercised, the company issuing shares under the option
will likely be precluded for up to two years from accounting for a subsequent
business combination transaction as a pooling of interests. The grant of the
stock options could therefore have the effect of discouraging a third party from
proposing an alternative transaction to Coastal or El Paso or limiting the
amount a third party would pay in connection with an alternative transaction
with Coastal or El Paso.
We have attached copies of both stock option agreements as Annexes B and C
to this joint proxy statement/prospectus.
LISTING OF EL PASO STOCK (SEE PAGES 63)
It is a condition to the merger that the New York Stock Exchange approve
for listing the shares of El Paso common stock El Paso will issue in connection
with the merger. El Paso expects that the New York Stock Exchange will grant
this approval. El Paso common stock will continue to trade under El Paso's
current symbol "EPG" after the merger.
REGULATORY APPROVALS REQUIRED FOR THE MERGER (SEE PAGES 36 THROUGH 37)
Under the HSR Act and the rules under the HSR Act, we cannot complete the
merger until we have given notification and furnished information relating to
the operations of the parties and the industries in which they operate to the
Antitrust Division of the United States Department of Justice and the Federal
Trade Commission and a specified waiting period expires or is terminated. We
both filed notification and report forms under the HSR Act with the Antitrust
Division of the United States Department of Justice and the Federal Trade
Commission on February 2, 2000. On March 3, 2000, we received a request from the
Federal Trade Commission for additional information and other materials. We are
not permitted to complete the merger until 20 days after we have substantially
complied with this request unless the waiting period is terminated earlier. Even
after the waiting period expires or terminates, the Antitrust Division of the
United States Department of Justice and the Federal Trade Commission will have
the
9
<PAGE> 18
authority to challenge the merger on antitrust grounds before or after the
merger is completed.
In addition, because we both currently operate subsidiary companies that
are engaged in the wholesale marketing of power, under the Federal Power Act,
the FERC has the authority to review the proposed merger to determine if it is
in the public interest. We expect to file shortly a joint application with the
FERC. In evaluating similar applications in other merger transactions, the FERC
has considered the impact of the proposed merger on competition, rates and
regulation. The FERC has, in some cases, imposed conditions on its approval of a
merger. Even after it approves the merger, the FERC will have continuing
jurisdiction over the combined company's power marketing business to affect the
rates, terms and conditions of its service and to affect its dealings with
affiliates.
Under the merger agreement, we have both agreed to use reasonable best
efforts to take all actions to obtain all material regulatory and governmental
approvals necessary to complete the merger and to address concerns of antitrust
regulators and the FERC. Neither of us is required under the merger agreement to
sell any portion of its business or take any other action to address concerns of
regulators if the result would reasonably be expected to be materially adverse
to the business, financial condition or results of operations of the combined
company after the merger. El Paso is also not required to take actions that
would be reasonably likely to be materially adverse to Tennessee Gas Pipeline
Company, a subsidiary of El Paso, or ANR
Pipeline Company, a subsidiary of Coastal. Coastal may not make any sales or
take any of the other actions described above without El Paso's approval.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGES 80 THROUGH 81)
In evaluating the merger, you should recognize that a number of directors
and executive officers of Coastal may have interests in the merger that are
different from, or in addition to, your interests as stockholders. These
interests include:
- - all exercisable and unexercisable Coastal stock options and restricted shares
that Coastal employees and directors hold will be cancelled in exchange for
shares of El Paso common stock with a market value equal to the fair value of
those options calculated based on a variation of the Black-Scholes option
valuation methodology agreed to by the companies' financial advisors. Using
this valuation methodology, based on the average of the high and low trading
prices for El Paso common stock on February 18, 2000, which was $37.50,
Coastal directors and executive officers would have received in exchange for
the exercisable and unexercisable options and restricted shares they hold a
total of 2,231,129 shares of El Paso common stock; and
- - if the combined company were to terminate all 21 of Coastal's current
executive officers after completion of the merger, they would be entitled to
receive cash severance payments of approximately $24 million in total.
10
<PAGE> 19
COMPARATIVE MARKET PRICES
The following table presents trading information for El Paso common stock
and Coastal common stock on January 14, 2000 and March 14, 2000. January 14,
2000 was the last full trading day in the United States before our announcement
of the signing of the merger agreement. March 14, 2000 was the last practicable
trading day for which information was available before the date of this joint
proxy statement/prospectus. You should read the information presented below in
conjunction with "Comparative Per Share Market Price and Dividend Information"
on page 79.
<TABLE>
<CAPTION>
EL PASO COMMON STOCK COASTAL COMMON STOCK
----------------------------- -----------------------------
HIGH LOW CLOSE HIGH LOW CLOSE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
January 14, 2000............... $37.438 $37.000 $37.125 $36.000 $34.438 $36.000
March 14, 2000................. $38.375 $36.563 $37.125 $45.000 $42.500 $43.000
</TABLE>
The market prices of the shares of El Paso common stock and Coastal common
stock fluctuate, but the number of shares of El Paso common stock to be received
by holders of Coastal stock in the merger is fixed and will not be adjusted for
changes in market prices prior to the merger.
11
<PAGE> 20
EL PASO SELECTED HISTORICAL FINANCIAL DATA
We present below selected consolidated historical financial data for El
Paso as of and for each of the years indicated. These financial statements
reflect the merger with Sonat Inc. in October 1999 in a transaction accounted
for as a pooling of interests.
We derived the operating results data for the years ended December 31,
1999, 1998 and 1997 and the financial position data as of December 31, 1999 and
1998 from El Paso's audited consolidated financial statements included in El
Paso's Annual Report on Form 10-K for the year ended December 31, 1999. We
derived the remaining financial data by combining selected financial data from
the separate audited historical consolidated financial statements of El Paso and
Sonat to give effect to the Sonat merger.
We incorporate by reference into this joint proxy statement/prospectus the
audited consolidated financial statements of El Paso for the year ended December
31, 1999, included in El Paso's Annual Report on Form 10-K for the year ended
December 31, 1999. See "Where You Can Find More Information," on page 89.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
------- ------ ------- ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA:(a)(b)
Operating revenues.......................... $10,581 $9,500 $10,015 $6,217 $2,941
Merger-related, restructuring, and asset
impairment charges(c)..................... 557 15 50 99
Ceiling test charges(d)..................... 352 1,035
Depreciation, depletion, and amortization... 609 624 639 490 447
Income (loss) from continuing operations.... (242) (306) 405 294 354
Basic earnings (loss) per common share from
continuing operations(e).................. (1.06) (1.35) 1.81 1.61 1.98
Diluted earnings (loss) per common share
from continuing operations(e)(f).......... (1.06) (1.35) 1.77 1.59 1.97
Cash dividends declared per common
share(g).................................. 0.80 0.76 0.73 0.70 0.66
Basic average common shares outstanding..... 228 226 224 183 179
Diluted average common shares
outstanding(f)............................ 239 237 229 185 180
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION DATA:(a)(b)
Total assets.................................. $16,657 $14,443 $14,784 $13,206 $6,548
Short-term debt (including current maturities
of long-term debt).......................... 1,344 1,650 1,353 1,064 534
Long-term debt, less current maturities....... 5,223 3,692 3,404 3,251 1,640
Company-obligated preferred securities of a
consolidated trust.......................... 325 325
Minority interest............................. 1,368 374 380 347 9
Stockholders' equity.......................... 2,947 3,437 3,921 3,514 2,428
</TABLE>
- ---------------
(a) Our operating results and financial position reflect El Paso's merger with
Sonat Inc. in October 1999 and Sonat's merger with Zilkha Energy Company in
January 1998. Each of these transactions was accounted for as a pooling of
interests and, accordingly, our operating results and financial position
data have been restated to include the accounts and operations of Sonat and
Zilkha Energy for all periods presented.
(b) Our operating results and financial position reflect the acquisition in
September 1995 of Eastex Energy, Inc., in December 1995 of Premier Gas
Company, in June 1996 of Cornerstone Natural Gas, Inc., in December 1996 of
El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), and in
12
<PAGE> 21
August 1998 of DeepTech International Inc. These acquisitions were
accounted for as purchases and therefore operating results of these
acquired entities are included in our operating results prospectively from
the date of acquisition.
(c) We have included under merger-related, restructuring, and asset impairment
charges in 1999, a pretax charge of $557 million ($407 million after tax)
for El Paso's merger with Sonat and the impairment of long-lived assets; in
1998, a pretax charge of $15 million ($9 million after tax) for the
reorganization of Sonat's natural gas and oil production segment; in 1997,
a pretax charge of $50 million ($33 million after tax) for Sonat's merger
with Zilkha Energy; and in 1996, a pretax charge of $99 million ($60
million after tax) for El Paso's implementation of a workforce reduction
plan and the impairment of long-lived assets.
(d) Ceiling test charges are reductions in earnings that result when
capitalized costs of natural gas and oil properties exceed the upper limit,
or ceiling, on the value of these properties. The ceiling is determined
based on the future cash flows we estimate will be derived from these
properties, discounted at a rate of 10 percent. For 1999, these charges
were $352 million pretax ($257 million after tax), and in 1998 these
charges were $1,035 million pretax ($642 million after tax).
(e) If we had not recorded the merger-related, restructuring, and asset
impairment charges and the ceiling test charges discussed above, our basic
earnings per common share from continuing operations for 1999, 1998, 1997,
and 1996, would have been $1.85, $1.53, $1.96, and $1.93, respectively. Our
diluted earnings per common share from continuing operations excluding
these charges for those same periods would have been $1.81, $1.49, $1.91,
and $1.91, respectively.
(f) As required by the accounting rules, we calculated diluted earnings (loss)
per common share for 1999 and 1998 based on basic average common shares
outstanding. If we had made this calculation based on diluted average
common shares outstanding, we would have shown less of a loss per common
share.
(g) We have assumed that cash dividends declared per common share are the same
as the historical dividends declared by El Paso during the periods
presented.
13
<PAGE> 22
COASTAL SELECTED HISTORICAL FINANCIAL DATA
We present below selected consolidated historical financial data for
Coastal as of and for each of the years indicated. We derived the consolidated
financial data for each year from Coastal's audited historical financial
statements for that year. We incorporate by reference into this joint proxy
statement/prospectus the audited consolidated financial statements of Coastal
for the year ended December 31, 1999, included in Coastal's Annual Report on
Form 10-K for the year ended December 31, 1999. See "Where You Can Find More
Information," on page 89.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA:
Operating revenues(a)..................................... $8,197 $7,368 $9,730 $12,167 $10,343
Depreciation, depletion and amortization.................. 479 443 433 453 375
Income from continuing operations(b)...................... 499 483 399 508 286
Income from continuing operations available to common
stockholders(b)......................................... 499 477 382 491 269
Basic earnings per common share from continuing operations
available to common stockholders(c)..................... 2.34 2.24 1.80 2.33 1.28
Diluted earnings per common share from continuing
operations available to common stockholders(c).......... 2.30 2.21 1.77 2.30 1.27
Cash dividends declared per common share(d)............... 0.25 0.24 0.20 0.20 0.20
Basic average common shares outstanding................... 213 213 212 211 210
Diluted average common shares outstanding................. 217 216 215 214 212
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION DATA:
Total assets........................................... $15,123 $12,304 $11,640 $11,620 $10,661
Short-term debt (including current maturities of
long-term debt)...................................... 268 213 156 113 252
Long-term debt, less current maturities................ 4,798 3,999 3,663 3,526 3,662
Company-obligated preferred securities of a
consolidated trust................................... 300 300
Minority interest...................................... 451 100 100 100 1
Stockholders' equity................................... 3,937 3,476 3,282 3,037 2,679
</TABLE>
- ---------------
(a) In February 1997, we contributed our natural gas marketing operations to
partnerships in which we have a 50 percent interest. Our operating revenues
for 1997 include two months of revenue from these operations while
operating revenues for 1995 and 1996 each include twelve months of revenue
from these operations. After February 1997, income from continuing
operations includes income from these partnerships under the equity method
of accounting.
(b) Our 1998 income from continuing operations includes a pretax gain of $59
million ($38 million after tax) from the sale of certain non-core natural
gas gathering and processing assets. Our 1996 income from continuing
operations includes a pretax gain of $272 million ($177 million after tax)
from the sale of our Utah coal mining operations.
(c) If we had excluded the 1998 gain from our income from continuing
operations, our basic and diluted earnings per common share would have been
$0.18 lower. Had we excluded the 1996 gain on the sale of our Utah coal
operations from income from continuing operations, our basic and diluted
earnings per common share would have been $1.49 and $1.47, respectively.
(d) In addition to cash dividends declared per common share, we also paid cash
dividends of $0.23 per share on our Class A common stock in 1999, $0.21 in
1998, and $0.18 in each of 1997, 1996 and 1995.
14
<PAGE> 23
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(UNAUDITED)
We expect to account for the merger as a pooling of interests, which means
that for accounting and financial reporting purposes, we will treat our
companies as if they had always been combined.
We present below selected unaudited pro forma financial data to give you a
better understanding of what the results of operations or financial position of
the combined company might have looked like had the merger occurred on an
earlier date. The unaudited pro forma operating results data combines
information from the historical consolidated statements of income of El Paso and
Coastal as if we had completed the merger on January 1, 1997. The unaudited pro
forma financial position data combines information from the historical
consolidated balance sheets of El Paso and Coastal as if we had completed the
merger on December 31, 1999.
We are providing this information for illustrative purposes only. It does
not necessarily indicate what the operating results or financial position of the
combined company might have been had the merger actually occurred at the
beginning of the earliest period presented, nor does it necessarily indicate
what the combined company's future operating results or financial position will
be. This information also does not reflect cost savings from operating
efficiencies or other improvements we may achieve by combining our companies.
Please see "Financial Information" on page 73 for a more detailed
explanation of this analysis.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
OPERATING RESULTS DATA:
Operating revenues.......................................... $18,778 $16,868 $19,745
Merger-related, restructuring, and asset impairment
charges................................................... 557 15 50
Ceiling test charges........................................ 352 1,035
Depreciation, depletion and amortization.................... 1,088 1,067 1,072
Income from continuing operations........................... 257 177 804
Income from continuing operations available to common
stockholders.............................................. 257 171 787
Basic earnings per common share from continuing operations
available to common stockholders(a)....................... 0.52 0.35 1.60
Diluted earnings per common share from continuing operations
available to common stockholders(a)(b).................... 0.51 0.34 1.58
Cash dividends declared per common share(c)................. 0.80 0.76 0.73
Basic average common shares outstanding..................... 497 494 492
Diluted average common shares outstanding(b)................ 508 505 497
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-----------------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNT)
<S> <C>
FINANCIAL POSITION DATA:
Total assets................................................ $31,780
Short-term debt (including current maturities of long-term
debt)..................................................... 1,612
Long-term debt, less current maturities..................... 10,021
Company-obligated preferred securities of consolidated
trusts.................................................... 625
Minority interest........................................... 1,819
Stockholders' equity........................................ 6,841
Book value per common share................................. 13.70
</TABLE>
15
<PAGE> 24
- ---------------
(a) If we had not recorded the merger-related, restructuring, and asset
impairment charges and the ceiling test charges in 1999 and 1998, and had
not recorded merger-related, restructuring, and asset impairment charges in
1997, we would have reported basic earnings per common share from
continuing operations of $1.85, $1.66, and $1.67, respectively, and diluted
earnings per common share from continuing operations of $1.83, $1.64, and
$1.65, respectively.
(b) As required by the accounting rules, we calculated diluted earnings per
common share for 1999 and 1998 by excluding from the number of diluted
common shares outstanding those securities which, if included, would have
caused us to show greater earnings per common share.
(c) We have assumed that cash dividends declared per share of common stock are
the same as the historical dividends declared by El Paso during the periods
presented.
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<PAGE> 25
COMPARATIVE PER SHARE DATA
(UNAUDITED)
We present below (1) historical per share data for El Paso and Coastal, (2)
unaudited pro forma combined per share data and (3) Coastal's unaudited pro
forma equivalent per share data.
The unaudited pro forma combined per share data was derived by combining
information from the historical consolidated financial statements of El Paso and
Coastal using the pooling of interests method of accounting for the merger.
The Coastal pro forma equivalent unaudited per share data shows the effect
of the merger from the perspective of a holder of Coastal common stock or Class
A common stock. The information was derived by multiplying the unaudited pro
forma combined per share data by 1.23, which is the exchange ratio applicable to
the Coastal common stock and Coastal Class A common stock.
You should read this table in conjunction with the unaudited pro forma
condensed combined financial information included in "Financial Information" in
this joint proxy statement/prospectus and the separate audited historical
consolidated financial statements of El Paso and Coastal that we have
incorporated by reference into this joint proxy statement/prospectus. The pro
forma earnings per common share and cash dividends declared per common share
amounts assume the merger had been completed on January 1, 1997. The pro forma
book value per common share data assumes the merger occurred on December 31,
1999.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
HISTORICAL -- EL PASO(a)
Basic earnings (loss) per common share from continuing
operations............................................. $(1.06) $(1.35) $1.81
Diluted earnings (loss) per common share from continuing
operations............................................. (1.06) (1.35) 1.77
Cash dividends declared per common share.................. 0.80 0.76 0.73
Book value per common share............................... 12.84
HISTORICAL -- COASTAL
Basic earnings per common share from continuing operations
available to common stockholders....................... $ 2.34 $ 2.24 $1.80
Diluted earnings per common share from continuing
operations available to common stockholders............ 2.30 2.21 1.77
Cash dividends declared per common share.................. 0.25 0.24 0.20
Book value per common share............................... 18.39
PRO FORMA COMBINED(b)
Basic earnings per common share from continuing operations
available to common stockholders....................... $ 0.52 $ 0.35 $1.60
Diluted earnings per common share from continuing
operations available to common stockholders............ 0.51 0.34 1.58
Cash dividends declared per common share(c)............... 0.80 0.76 0.73
Book value per common share............................... 13.70
COASTAL PRO FORMA EQUIVALENT(d)
Basic earnings per common share from continuing operations
available to common stockholders....................... $ 0.64 $ 0.43 $1.97
Diluted earnings per common share from continuing
operations available to common stockholders............ 0.63 0.42 1.94
Cash dividends declared per common share.................. 0.98 0.93 0.90
Book value per common share............................... 16.85
</TABLE>
- ---------------
(a) If we had not recorded the merger-related, restructuring, and asset
impairment charges and the ceiling test charges in 1999 and 1998, and had
not recorded merger-related, restructuring, and asset
17
<PAGE> 26
impairment charges in 1997, we would have reported basic earnings per
common share from continuing operations of $1.85, $1.53, and $1.96, and
diluted earnings per common share from continuing operations of $1.81,
$1.49, and $1.91, for 1999, 1998, and 1997, respectively, and the book
value per common share as of December 31, 1999, would have been $18.71.
(b) If we had not recorded the merger-related, restructuring, and asset
impairment charges and the ceiling test charges in 1999 and 1998, and had
not recorded merger-related, restructuring, and asset impairment charges in
1997, we would have reported pro forma combined basic earnings per common
share from continuing operations available to common stockholders of $1.85,
$1.66, and $1.67, and pro forma combined diluted earnings per common share
from continuing operations available to common stockholders of $1.83,
$1.64, and $1.65, for 1999, 1998, and 1997, respectively, and the pro forma
combined book value per common share as of December 31, 1999, would have
been $16.41.
(c) We have assumed that cash dividends declared per common share are the same
as the historical dividends declared by El Paso during the periods
presented.
(d) If we had not recorded the merger-related, restructuring, and asset
impairment charges and the ceiling test charges in 1999 and 1998, and had
not recorded merger-related, restructuring, and asset impairment charges in
1997, we would have reported Coastal pro forma equivalent basic earnings
per common share from continuing operations available to common
stockholders of $2.28, $2.04, and $2.05, and pro forma equivalent diluted
earnings per common share from continuing operations available to common
stockholders of $2.25, $2.02, and $2.03 for 1999, 1998, and 1997,
respectively and the Coastal pro forma equivalent book value per common
share as of December 31, 1999 would have been $20.18.
18
<PAGE> 27
RISK FACTORS
In addition to reading and considering the other information we have
included or incorporated by reference in this joint proxy statement/prospectus,
you should carefully read and consider the following factors in evaluating the
proposals to be voted on at your special stockholders' meeting.
WE WILL BE OPERATING IN HIGHLY COMPETITIVE INDUSTRIES.
Most of the natural gas and natural gas liquids we transport, gather,
process and store are owned by third parties. As a result, the volume of natural
gas and natural gas liquids involved in these activities depends on the actions
of those third parties and is beyond our control. Further, the following
factors, most of which are beyond our control, may unfavorably impact our
ability to maintain or increase current transmission, storage, gathering,
processing and sales volumes and rates, to renegotiate existing contracts as
they expire or to remarket unsubscribed capacity:
- future weather conditions, including those that favor hydroelectric
generation or other alternative energy sources;
- price competition;
- drilling activity and supply availability;
- the expiration of significant contracts; and
- service competition, especially due to current excess pipeline capacity
into California.
If we are unable to compete with the services offered by other energy
enterprises which may be larger, offer more services, and possess greater
resources, the future profitability of the combined company may be negatively
impacted.
THE REVENUES OF OUR PIPELINE BUSINESSES ARE GENERATED UNDER CONTRACTS THAT MUST
BE RENEGOTIATED PERIODICALLY.
Substantially all of the revenues of the combined company's pipeline
subsidiaries are generated under natural gas transportation contracts which
expire periodically and must be renegotiated and extended or replaced. Although
we actively pursue the renegotiation, extension and/or replacement of the
contracts, we cannot assure you that we will be able to extend or replace these
contracts when they expire or that the terms of any renegotiated contracts will
be as favorable as the existing contracts.
In particular, our ability to extend and/or replace transportation
contracts could be harmed by factors we cannot control, including:
- the proposed construction by other companies of additional pipeline
capacity in the markets served by Tennessee Gas Pipeline Company and
Southern Natural Gas Pipeline Company and in the Wisconsin market served
by ANR Pipeline Company;
- changes in state regulation of local distribution companies, which may
cause them to negotiate short-term contracts;
- reduced demand due to higher gas prices;
- the availability of alternative energy sources; and
- the viability of our expansion projects.
If we are unable to renew, extend or replace these contracts or if we renew
them on less favorable terms, we may suffer a material reduction in our revenues
and earnings.
FLUCTUATIONS IN ENERGY COMMODITY PRICES COULD ADVERSELY AFFECT OUR BUSINESS.
If natural gas prices in the supply basins connected to our pipeline
systems are higher than prices in other gas producing regions, especially
Canada, our ability to compete with other transporters may be
19
<PAGE> 28
negatively impacted. Revenues generated by our gathering and processing
contracts depend on volumes and rates, both of which can be affected by the
prices of natural gas and natural gas liquids. The success of our expanding
gathering and processing operations in the offshore Gulf of Mexico is subject to
continued development of additional oil and gas reserves in the vicinity of our
facilities and our ability to access these additional reserves to offset the
natural decline from existing wells connected to our systems. A decline in
energy prices could precipitate a decrease in these development activities and
could cause a decrease in the volume of reserves available for gathering and
processing through our offshore facilities. Fluctuations in energy prices, which
may impact gathering rates and investments by third parties in the development
of new oil and gas reserves connected to our gathering and processing
facilities, are caused by a number of factors, including:
- regional, domestic and international supply and demand;
- the availability and adequacy of transportation facilities;
- energy legislation;
- federal and state taxes, if any, imposed on the sale or transportation of
natural gas and natural gas liquids; and
- the abundance of supplies of alternative energy sources.
If there are reductions in the average volume of the natural gas and
natural gas liquids we transport, gather and process for a prolonged period, our
results of operations and financial position could be significantly negatively
affected.
THE RATES WE ARE ABLE TO CHARGE OUR CUSTOMERS MAY BE REDUCED BY GOVERNMENTAL
AUTHORITIES.
Our pipeline businesses are regulated by the FERC and various state and
local regulatory agencies. In particular, the FERC generally limits the rates we
are permitted to charge our customers for interstate natural gas transportation
and, in some cases, sales of natural gas. If the rates we are permitted to
charge our customers for use of our regulated pipelines are lowered, the
profitability of our pipeline businesses may be reduced.
THE SUCCESS OF OUR OIL AND GAS EXPLORATION AND PRODUCTION BUSINESSES IS
DEPENDENT ON FACTORS WHICH CANNOT BE PREDICTED WITH CERTAINTY.
The performance of our exploration and production businesses is dependent
upon a number of factors that we cannot control. These factors include:
- fluctuations in crude oil and natural gas prices;
- the results of future drilling activity;
- our ability to identify and precisely locate prospective geologic
structures and to drill and successfully complete wells in those
structures in a timely manner;
- our ability to expand our leased land positions in desirable areas, which
often are subject to intensely competitive leasing conditions;
- risks incident to operations of natural gas and oil wells; and
- future drilling, production and development costs, including drilling rig
rates.
ESTIMATES OF OIL AND GAS RESERVES MAY CHANGE.
Actual production, revenues, taxes, development expenditures and operating
expenses with respect to the combined company's reserves will likely vary from
our estimates of proved reserves of oil and gas included in this document and in
documents we have incorporated by reference, and those variances may be
material. The process of estimating oil and gas reserves is complex, requiring
significant decisions and
20
<PAGE> 29
assumptions in the evaluation of available geological, geophysical, engineering
and economic data for each reservoir or deposit. As a result, these estimates
are inherently imprecise. Actual future production, oil and gas prices,
revenues, taxes, development expenditures, operating expenses and quantities of
recoverable oil and gas reserves may vary substantially from our estimates. In
addition, we may be required to revise the reserve information, downward or
upward, based upon production history, results of future exploration and
development, prevailing oil and gas prices and other factors, many of which will
be beyond the combined company's control.
OUR USE OF DERIVATIVE FINANCIAL INSTRUMENTS COULD RESULT IN FINANCIAL LOSSES.
We expect that the non-regulated subsidiaries of the combined company will
use futures and option contracts traded on the New York Mercantile Exchange,
over-the-counter options and price and basis swaps with other gas merchants and
financial institutions. These instruments are intended to reduce exposure to
short-term volatility in changes in energy commodity prices. The combined
company could, however, incur financial losses in the future as a result of
volatility in the market values of the underlying commodities or if one of our
counterparties fails to perform under a contract. Furthermore, because the
valuation of these financial instruments can involve estimates, changes in the
assumptions underlying these estimates can occur, changing the valuation of
these instruments and potentially resulting in the combined company suffering
financial losses.
THE SUCCESS OF OUR POWER GENERATION AND MARKETING ACTIVITIES DEPENDS ON MANY
FACTORS, SOME OF WHICH MAY BE BEYOND OUR CONTROL.
The success of our international and domestic power projects and power
marketing activities, and the amount of the related performance-based management
fee paid to El Paso in connection with the Electron financing structure which
was approximately $20 million in the fourth quarter of 1999, could be adversely
affected by factors beyond our control, including:
- alternative sources and supplies of energy becoming available due to new
technologies and interest in self generation and cogeneration;
- uncertain regulatory conditions resulting from the recent deregulation of
the electric industry in the United States and in foreign jurisdictions;
- our ability to negotiate successfully and enter into, restructure or
recontract advantageous long-term power purchase agreements; and
- the possibility of a reduction in the projected rate of growth in
electricity usage as a result of factors such as regional economic
conditions and the implementation of conservation programs.
OUR TELECOMMUNICATIONS BUSINESS STRATEGY IS UNPROVEN.
Our experience in the telecommunications industry is limited, and we cannot
assure you that our strategic communications objectives, such as marketing
telecommunications capacity on our proposed fiber-optic network, will be
successful. Our success depends in part on our ability to integrate and adapt
our facilities and services to keep pace with advances in communications
technologies and the new and improved devices and services that result from
these changes. In addition, the market for fiber-optic networks and
telecommunications services is rapidly evolving, and although we expect demand
for these services to grow, we cannot assure you that this growth will occur.
Additionally, the price of fiber optic capacity is expected to continue to
decline because of increases in newly installed fiber optic capacity coming on
the market and rapid fiber optic equipment technology improvements. Further,
various critical issues, including security, reliability, ease and costs of
access, uncertain governmental regulation, and quality of service remain
unresolved and may adversely affect our business. We cannot assure you,
therefore, that our telecommunications strategy will be successful.
21
<PAGE> 30
OUR FOREIGN INVESTMENTS INVOLVE SPECIAL RISKS.
Our activities in areas outside the United States are subject to the risks
inherent in foreign operations, including:
- loss of revenue, property and equipment as a result of hazards such as
expropriation, nationalization, wars, insurrection and other political
risks; and
- the effects of currency fluctuations and exchange controls, such as the
recent devaluation of the Indonesian and Brazilian currencies and other
economic problems.
These legal and regulatory events and other unforeseeable obstacles may be
beyond our control or ability to manage.
COSTS OF ENVIRONMENTAL LIABILITIES, REGULATION AND LITIGATION COULD EXCEED OUR
ESTIMATES.
Our current and former operations involve management of regulated materials
and are subject to various environmental laws and regulations. These laws and
regulations obligate us to clean up various sites at which petroleum, chemicals,
low-level radioactive substances or other regulated materials may have been
disposed of or released. Some of these sites have been designated Superfund
sites by the U.S. Environmental Protection Agency under the Comprehensive
Environmental Response, Compensation and Liability Act. Each of us is also a
party to legal proceedings involving environmental matters pending in various
courts and agencies.
It is not possible for us to estimate reliably the amount and timing of all
future expenditures related to environmental matters because of:
- the difficulty of estimating clean up costs;
- the uncertainty in quantifying liability under environmental laws that
impose joint and several liability on all potentially responsible
parties; and
- the nature of environmental laws and regulations.
Although we believe we have established appropriate reserves for
liabilities, including clean up costs, we could be required to set aside
additional reserves in the future due to these uncertainties.
OUR OPERATIONS ARE SUBJECT TO OPERATIONAL HAZARDS AND UNINSURED RISKS.
Our exploration, production, transportation, gathering, refining and
processing operations are subject to the inherent risks normally associated with
those operations, including explosions, pollution, release of toxic substances,
fires and other hazards, each of which could result in damage to or destruction
of our facilities or damage to persons and property. If any of these events were
to occur, we could suffer substantial losses.
While we maintain insurance against these types of risks to the extent and
in amounts that we believe are reasonable, our financial condition and
operations could be adversely affected if a significant event occurs that is not
fully covered by insurance.
EL PASO'S SENIOR MANAGEMENT HAS LIMITED EXPERIENCE OPERATING REFINERIES AND
CHEMICAL PLANTS AND IN THE COAL PRODUCTION BUSINESS AND KEY COASTAL PERSONNEL
NECESSARY TO OPERATE THESE BUSINESSES COULD TERMINATE THEIR EMPLOYMENT WITH THE
COMBINED COMPANY.
El Paso's senior management has limited experience in the operation of
refineries and chemical plants and in the coal production businesses, all of
which are currently engaged in by Coastal. We cannot assure you that any of
Coastal's current personnel involved with those operations and businesses will
remain with the combined company after we complete the merger.
Thirteen of Coastal's executive officers are parties to individual
employment agreements and one additional executive officer or employee may
become a party to an employment agreement prior to the
22
<PAGE> 31
merger. Each of those persons will have the right to receive substantial
payments if their employment is terminated by the combined company, or if they
terminate their employment for good reason after the effective time of the
merger. In addition, several Coastal executive officers will be eligible to
participate in a voluntary early retirement incentive window program summarized
in "Material Terms of the Merger Agreement -- Additional Agreements -- Window
Program" on page 62. The window program will provide enhanced retirement
benefits that employees may consider to be of significant value. Accordingly, El
Paso expects that a substantial number of Coastal executive officers and other
key employees will likely terminate their employment within one to three years
following the effective time of the merger.
WE CANNOT ASSURE YOU THAT OUR TWO COMPANIES WILL BE SUCCESSFULLY COMBINED INTO A
SINGLE ENTITY.
If we cannot successfully combine our operations we may experience a
material adverse effect on our business, financial condition or results of
operations. The merger involves the combining of two companies that have
previously operated separately. The combining of companies such as Coastal and
El Paso involves a number of risks, including:
- the diversion of management's attention to the combining of operations;
- difficulties in the combining of operations and systems;
- difficulties in the assimilation and retention of employees;
- challenges in keeping customers; and
- potential adverse short-term effects on operating results.
Among the factors considered by the board of directors of each company in
approving the merger agreement were the opportunities for economies of scale and
scope, opportunities for growth and operating efficiencies that could result
from the merger. Although we expect the combined company to achieve significant
annual savings in operating costs as a result of the merger, we may not be able
to maintain the levels of operating efficiency that we each previously achieved
or might achieve if we remain separate. Because of difficulties in combining
operations, we may not be able to achieve the cost savings and other
size-related benefits that we hope to achieve after the merger.
SINCE THE MARKET PRICE OF EL PASO SHARES WILL VARY, COASTAL STOCKHOLDERS CANNOT
BE SURE OF THE VALUE OF THE CONSIDERATION THEY WILL RECEIVE IN THE MERGER.
At the time the merger is completed, each share of Coastal common stock and
Class A common stock will be converted into 1.23 shares of El Paso common stock,
each share of Coastal $1.19 Series A convertible preferred stock and $1.83
Series B convertible preferred stock will be converted into 9.133 shares of El
Paso common stock and each share of $5.00 Series C convertible preferred stock
will be converted into 17.980 shares of El Paso common stock. These exchange
ratios will not be adjusted in the event of any increase or decrease in the
price of the El Paso common stock or the Coastal common stock. As a result, the
value of the shares of El Paso common stock received by Coastal stockholders in
the merger will vary with fluctuations in the price of the El Paso common stock.
See "Comparative Per Share Market Price and Dividend Information" on page 79. In
addition, the merger may not be completed until a significant period of time has
passed after the companies' special meetings. Because of this, at the time of
the Coastal special meeting, Coastal stockholders will not know the exact market
value of the shares of El Paso common stock that they will receive when the
merger is completed.
THE COMPANIES COULD BE REQUIRED TO EFFECT SIGNIFICANT DIVESTITURES OR COMPLY
WITH OTHER REGULATORY REQUIREMENTS.
We cannot complete the merger until the waiting period under the HSR Act
has expired or terminated. We are also required to obtain the approval of the
FERC in order to complete the merger.
We are both obligated under the terms of the merger agreement to use our
reasonable best efforts to take all action to ensure that the waiting period
under the HSR Act and all extensions of that period
23
<PAGE> 32
expire or are terminated and other required approvals, including approval of the
FERC, are obtained. Neither of us is obligated, however, to sell any portion of
its business or take actions that would reasonably be likely to have a material
adverse effect on the business, financial condition, or results of operations of
the combined company after the merger. El Paso is also not required to take any
action that would be reasonably likely to have a material adverse effect on El
Paso's subsidiary, Tennessee Gas Pipeline Company, or Coastal's subsidiary, ANR
Pipeline Company. Coastal may not make any sale or take any of the other actions
described above without El Paso's approval. Governmental authorities could
require the companies to effect significant divestitures as a condition to
approving the transaction or impose other conditions that would affect
subsequent operations of the combined company. In some cases, the FERC has
conditioned its approval of a merger, including requiring restrictions on
affiliate transactions and on sales of electric generation capacity. Even after
the FERC approves the merger, the FERC will have continuing jurisdiction over
the combined company's pipelines and power marketing business to affect the
rates, terms and conditions of its service and to affect its dealings with
affiliates.
We cannot assure you that these and any other required regulatory approvals
will be obtained or, if they are obtained, as to the terms, conditions and
timing of these approvals. These requirements for regulatory approvals could
delay completion of the merger for a significant period of time after the
Coastal and El Paso stockholders have approved the merger and the issuance of El
Paso common stock at the special meetings.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
We have each made statements in this document and in documents that we have
incorporated by reference into this document that constitute forward-looking
statements, as that term is defined in the Private Securities Litigation Reform
Act of 1995. These statements are subject to risks and uncertainties.
Forward-looking statements include information concerning possible or assumed
future results of operations of El Paso, Coastal or the combined company. These
statements may relate to, but are not limited to, information or assumptions
about earnings per share, capital and other expenditures, dividends, financing
plans, capital structure, cash flow, pending legal proceedings and claims,
including environmental matters, future economic performance, operating income,
cost savings, management's plans, goals and objectives for future operations and
growth and markets for the stock of El Paso, Coastal and the combined company.
These forward-looking statements generally are accompanied by words such as
"intend," "anticipate," "believe," "estimate," "expect," "should" or similar
expressions. You should understand that these forward-looking statements are
necessarily estimates reflecting the best judgment of senior management of
Coastal and El Paso, not guarantees of future performance. They are subject to a
number of assumptions, risks and uncertainties that could cause actual results
to differ materially from those expressed or implied in the forward-looking
statements. Important factors that could cause actual results to differ
materially from estimates or projections contained in forward-looking statements
include, among others, the following:
- the risk that earnings may be adversely affected by fluctuating energy
prices;
- the risk that rates charged to customers may be reduced by governmental
authorities;
- the highly competitive nature of the natural gas transportation,
gathering, processing and storage businesses, the oil and gas exploration
and production business, the energy marketing and power generation
industries, the crude oil refining and chemical production businesses and
the coal mining business;
- the risk of favorable customer contracts expiring or being renewed on
less attractive terms;
- the timing and success of our exploration and development drilling
programs, which would affect production levels and reserves;
- changes to our estimates of oil, gas and coal reserves;
- the risk of financial losses arising out of hedging transactions;
24
<PAGE> 33
- risks incident to the drilling and operation of oil and gas wells;
- risks incident to operating crude oil refineries, chemical plants and
coal mines;
- future drilling, production and development costs, including drilling rig
rates;
- the costs of environmental liabilities, regulations and litigation;
- the impact of operational hazards;
- the risk that required regulatory approvals for proposed pipeline,
storage and power generation projects may be delayed or may only be
granted on terms that are unacceptable or significantly less favorable
than anticipated;
- the risks associated with future weather conditions;
- the risk that Coastal's businesses may not be successfully integrated
with El Paso's businesses;
- the risk that we may not fully realize the benefits expected to result
from the merger;
- the impact of the loss of key employees; and
- the risk that other firms will further expand into markets in which El
Paso or Coastal operate.
These factors are more fully described in "Risk Factors." Other factors
that could cause actual results to differ materially from estimates and
projections contained in forward-looking statements are described in the
documents that we incorporated by reference into this document. In addition, we
can give you no assurance that:
- we have correctly identified and assessed all of the factors affecting El
Paso's or Coastal's businesses;
- the publicly available and other information with respect to these
factors on which we have based our analysis is complete or correct;
- our analysis is correct; or
- our strategies, which are based in part on this analysis, will be
successful.
Accordingly, you should not place undue reliance on forward-looking
statements, which speak only as of the date of this joint proxy
statement/prospectus, or, in the case of documents incorporated by reference,
the date of those documents.
All subsequent written and oral forward-looking statements attributable to
El Paso, Coastal, the combined company or any person acting on their behalf are
expressly qualified in their entirety by the cautionary statements contained or
referred to in this section. Neither Coastal nor El Paso undertakes any
obligation to release publicly any revisions to these forward-looking statements
to reflect events or circumstances after the date of this joint proxy
statement/prospectus or to reflect the occurrence of unanticipated events.
25
<PAGE> 34
THE MERGER
We are furnishing this joint proxy statement/prospectus to stockholders of
El Paso and Coastal in connection with the solicitations of proxies by the El
Paso board and Coastal board for use at their respective special stockholders'
meeting.
At the El Paso special meeting, which will be held on May 5, 2000, El Paso
stockholders will be asked to approve the issuance of shares of El Paso common
stock in connection with merger.
At the Coastal special meeting, which will be held on May 5, 2000, Coastal
stockholders will be asked to approve and adopt the merger agreement.
We have attached a copy of the merger agreement as Annex A to this joint
proxy statement/ prospectus. The merger agreement is incorporated by reference
into this document and our description is qualified in its entirety by reference
to the merger agreement.
BACKGROUND OF THE MERGER
On September 7, 1999, David A. Arledge, Chairman of the Board, President
and Chief Executive Officer of Coastal, telephoned William A. Wise, President
and Chief Executive Officer of El Paso, to arrange a meeting for September 10,
1999.
On September 10, 1999, Messrs. Arledge and Wise met in Houston, Texas to
discuss energy industry issues, the operations of Coastal and El Paso, and how
the two companies might fit together in a business combination.
On September 21, 1999, Messrs. Wise and Arledge met to continue their
discussions of September 10th. At this meeting, Messrs. Wise and Arledge
discussed possibilities for a combination transaction between their two
companies, potential timetables for such a transaction, and identified various
corporate governance issues, including board representation, that would need to
be addressed in connection with any combination transaction. No conclusions were
reached at this meeting. At the end of this meeting, Messrs. Wise and Arledge
agreed to meet again at a later date to continue discussions regarding a
possible combination.
On October 1, 1999, Messrs. Arledge and Wise again met and confirmed their
general interest in a potential combination transaction and generally discussed
their respective businesses. They agreed that in order to allow each to devote
attention to his company's businesses, they would defer further discussions
about a combination for several weeks.
On November 10, 1999, Mr. Arledge telephoned Mr. Wise to inform him that he
had discussed a possible transaction with a few members of the Coastal board and
that they had reacted favorably to a possible combination of El Paso and
Coastal. Messrs. Arledge and Wise agreed to meet, together with members of their
senior management, to discuss the general nature of their respective business
plans.
On November 17, 1999, following the execution of a confidentiality
agreement, Mr. Wise, Brent Austin, Executive Vice President and Chief Financial
Officer of El Paso and Ralph Eads, Executive Vice President of El Paso, met in
Houston with Mr. Arledge, Coby Hesse, Senior Executive Vice President and Chief
Financial Officer of Coastal, and Gene Waguespack, Senior Vice President of
Coastal States Management Corporation, a subsidiary of Coastal. At that meeting,
the participants engaged in a general discussion of Coastal's business plans.
On November 18, 1999, Messrs. Wise, Austin and Eads met with Messrs.
Arledge, Hesse, and Waguespack in Houston. At this meeting they engaged in a
general discussion of El Paso's business plans.
On November 30, 1999, Messrs. Wise, Austin, Eads, Britton White Jr.,
Executive Vice President and General Counsel of El Paso, Arledge, Hesse and
Waguespack met for a general discussion on timing and other issues related to a
possible combination.
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On December 2, 1999, at a meeting of El Paso's board in New York, Mr. Wise
informed the board of the prior discussions with Coastal regarding a possible
combination transaction. After discussion, the board encouraged Mr. Wise and the
other members of El Paso's management to proceed with discussions with Coastal.
On December 6, 1999, Mr. Wise telephoned Mr. Arledge to report on his
discussions with the El Paso board regarding a possible transaction.
On December 16, 1999, Messrs. Arledge and Wise met. At this meeting, Mr.
Arledge informed Mr. Wise that Coastal management was still interested in
pursuing a possible combination transaction and proposed that Coastal and El
Paso conduct mutual due diligence in January 2000. Mr. Arledge also mentioned
that Coastal planned to retain Merrill Lynch, Pierce, Fenner & Smith
Incorporated as its financial advisor. Messrs. Arledge and Wise also discussed
possible ratios of El Paso representatives to Coastal representatives on a
combined company board and their respective roles in a combined company. Mr.
Wise indicated that El Paso's attorneys would prepare and furnish a draft of a
merger agreement.
In late December, Coastal engaged Merrill Lynch to act as its financial
advisor in connection with the proposed transaction, and in early January, El
Paso engaged Donaldson Lufkin & Jenrette Securities Corporation to act as its
financial advisor.
On January 3, 2000, Fried, Frank, Harris, Shriver & Jacobson, El Paso's
outside counsel, distributed a draft merger agreement to Coastal and its outside
counsel, Skadden, Arps, Slate, Meagher & Flom LLP.
Beginning on January 4, 2000, El Paso and its representatives and Coastal
and its representatives each conducted due diligence reviews of each other.
On January 11, 2000, in anticipation of upcoming meetings of the boards of
El Paso and Coastal, members of senior management of El Paso and Coastal met to
discuss the potential terms of a merger.
On January 12-13, 2000, the board of directors of Coastal met in Houston to
review and consider the proposed transaction with El Paso and the proposed terms
of the merger agreement. During the course of those meetings, presentations were
made by members of Coastal's management and representatives of Merrill Lynch and
Skadden Arps. Following these presentations, the board engaged in discussions
with members of Coastal's management and representatives of Merrill Lynch and
Skadden Arps regarding the proposed transaction. Mr. Arledge advised the
directors that negotiations and due diligence were continuing between the
managements of Coastal and El Paso and that, following completion of those
discussions, if warranted, the Coastal board would be notified of a special
meeting to give further consideration to the possible merger.
On January 14, 2000, the board of directors of El Paso met in Houston to
review and consider the proposed transaction with Coastal and the proposed terms
of the merger agreement. At the meeting, presentations were made by members of
El Paso's management and representatives of DLJ and Fried Frank. Following these
presentations, the board engaged in discussions with members of El Paso's
management and representatives of DLJ and Fried Frank regarding the proposed
transaction. As a result of these presentations and discussions, the board of
directors authorized El Paso's management to finalize the terms of a transaction
with Coastal.
On January 17, 2000, the Coastal board met in Houston to review the final
terms of the merger transaction. At this meeting, Merrill Lynch delivered to the
board its written opinion that, subject to the qualifications and limitations
contained in that opinion, as of January 17, 2000, the proposed 1.23 exchange
ratio applicable to the shares of Coastal common stock and Class A common stock
and the equivalent exchange ratios applicable to the $1.19 Series A convertible
preferred stock, $1.83 Series B convertible preferred stock, $5.00 Series C
convertible preferred stock and Coastal's FELINE PRIDES were fair from a
financial point of view to the holders of those shares. At this meeting, the
Coastal board unanimously voted to approve the merger agreement, the merger, and
the related agreements.
On January 17, 2000, the El Paso board met in Houston to review the final
terms of the merger agreement and the related agreements. At this meeting, DLJ
delivered to the board its written opinion
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that, subject to the qualifications and limitations contained in that opinion,
as of January 17, 2000, the proposed 1.23 exchange ratio applicable to the
common stock and Class A common stock was fair to El Paso from a financial point
of view. At this meeting, the El Paso board unanimously voted to approve the
merger agreement, the merger, including the related issuance of shares of El
Paso common stock, and the related agreements.
After the requisite approvals were obtained from the Coastal board and the
El Paso board, the merger agreement and the stock option agreements were
executed on January 17, 2000. The execution of the merger agreement and the
related agreements was publicly announced by the parties on January 18, 2000.
OUR REASONS FOR THE MERGER
Although El Paso and Coastal individually have attractive prospects for the
future, we believe that by combining the two companies' highly complementary
assets and operations we will create a company that will be the leading
integrated natural gas and power company in North America and will have greater
opportunities for growth and the creation of stockholder value than either
company would have on a stand-alone basis.
The combined company will be the only company among the top five companies
in each sector of the North American natural gas and power industries and will
have access to all key natural gas sources and major markets in North America.
As a result, the combined company will be uniquely positioned to take advantage
of cross sector opportunities, particularly opportunities that arise as a result
of the continuing convergence of the natural gas and power industries. Moreover,
the size, scope and scale of the combined company should enhance its ability to
utilize its natural gas pipeline system, which reaches approximately 70% of the
U.S. population and provides a readily available pathway for data, voice and
power transmission, to take advantage of opportunities in the communications and
electric power transmission arenas.
In addition, we expect the combined company to realize pre-tax cost savings
of at least $200 million annually beginning in the first full year of operations
after the completion of the merger. These savings will be realized principally
through reductions in general and administrative costs, including consolidation
of offices and reductions in staff. Based on El Paso's experience in its past
business combinations, including its merger with Sonat Inc. and its acquisition
of Tenneco Inc.'s energy business, we believe the combined company may achieve
annual cost savings in excess of $200 million.
The following outlines some additional strategic benefits we expect to
derive from the merger in each of the combined company's major business areas:
natural gas transmission and storage; merchant energy and power; international;
field services; and exploration and production.
Natural Gas Transmission and Storage. El Paso currently operates North
America's largest pipeline system, carrying approximately 25% of the natural gas
transported in the United States daily. This coast-to-coast pipeline system
consists of approximately 40,000 miles of pipeline and provides interstate
natural gas transportation to the northeast, southwest, southeast, mid-west and
mid-Atlantic sections of the United States, including the New York City,
Atlanta, Chicago and Boston metropolitan areas and various markets in northern
Mexico. Coastal operates ANR Pipeline, which is comprised of 10,580 miles of
pipeline spanning the strategic mid-west and Great Lakes regions of the United
States, and the Colorado Interstate gas pipeline, which consists of 4,405 miles
of pipeline and operates in the Rocky Mountain region, and also has significant
interests in the Alliance and Great Lakes pipelines which have access to
Canadian natural gas resources.
By joining together the El Paso and Coastal pipeline systems, the combined
company's interstate natural gas transmission system will consist of over 58,000
miles of pipeline areas and reach all major growth areas in the United States.
This system will access every key natural gas supply source in North
America -- from the Gulf of Mexico to Canada -- and transport approximately 20.7
billion cubic feet of gas per day, more than any other energy company in the
world. As a result, the combined company's interstate gas pipeline system will
be uniquely positioned to benefit from favorable trends in the natural gas
industry, including anticipated growth in the demand for natural gas from power
generation and as a result
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of the environmental benefits of natural gas use. We also expect that the
combined company will have the second largest natural gas storage capacity in
the United States.
Merchant Energy and Power. El Paso's merchant energy business buys, sells
and trades natural gas, power, natural gas transmission capacity and other
energy and natural gas related commodities and intermediates risk in its markets
using sophisticated integrated risk management techniques. The merged operations
will include Coastal's strong asset-based crude oil refining and refined
products marketing business. After completion of the merger, the combined
company will hold net ownership interests in approximately 8,000 megawatts of
power generation worldwide. In addition, the wholesale power marketing business
of the combined company will be the second largest in the United States, selling
approximately 89.9 million megawatt hours of power annually.
International. The international asset portfolios of Coastal and El Paso
are highly complementary. The proximity of Coastal's fuel terminals and other
interests in Southeast Asia and Latin America to El Paso's interests in those
areas advances both companies' strategy to build strong regional businesses with
growth potential.
Field Services. The combined company's field services business will be well
positioned to provide customers with wellhead-to-mainline services, including
natural gas gathering and processing. The combined company will be the second
largest gatherer and processor of natural gas in the United States, with
operations in all major U.S. production areas, including the San Juan Basin,
Gulf of Mexico, Rocky Mountains and South Texas. It will operate approximately
15,000 miles of gathering systems, which had total gathering throughput of
approximately 5,420 billion British thermal units, or Bbtu, per day in 1999. The
combined company will also operate 26 gas processing plants, which had total
processing throughput of approximately 1,555 Bbtu per day in 1999. On a combined
basis, El Paso and Coastal produced approximately 115,000 barrels of natural gas
liquids per day in 1999. In addition, the field services business of the
combined company is likely to derive significant benefits from the joining
together of El Paso and Coastal's exploration and production business.
Exploration and Production. The combined company will be the third largest
producer of natural gas and natural gas liquids in the United States, with over
5 trillion cubic feet of proved gas equivalent reserves and a leading asset
position in the Gulf of Mexico, South Texas and the Rocky Mountains, three of
the fastest growing producing areas in North America. The combined company will
also be a leader in technical areas such as deep drilling, completion procedures
and seismic data processing and interpretation. We believe the exploration and
production business of the combined company can achieve sustainable production
growth at an attractive cost and generate free cash flow for the entire company.
We expect to limit the earnings volatility of our exploration and production
business by price hedging and maintaining a large project inventory. We estimate
that the combined company will produce approximately 615 billion cubic feet of
natural gas in 2000.
FACTORS CONSIDERED BY, AND RECOMMENDATION OF, THE BOARD OF DIRECTORS OF EL PASO
The El Paso board of directors met on January 14 and January 17, 2000 to
review the proposed merger. At the meeting on January 17, 2000, the El Paso
board of directors unanimously:
- determined that the merger agreement, the merger and the related
transactions, including the issuance of El Paso common stock in
connection with the merger, are fair to and in the best interests of El
Paso and its stockholders;
- approved the merger agreement, the stock option agreements and the merger
and related transactions, including the issuance of El Paso common stock
in connection with the merger; and
- recommended that the stockholders of El Paso vote to approve the issuance
of El Paso common stock in connection with the merger.
In reaching its decision to approve the merger agreement, the stock option
agreements, the merger and related transactions and to recommend that El Paso
stockholders vote to approve the issuance of
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shares of common stock in connection with the merger, the El Paso board of
directors considered the following material factors:
- the judgment, advice and analysis of El Paso's senior management,
including its favorable recommendation of the merger;
- the reasons described above under "-- Our Reasons for the Merger,"
including the growth opportunities we expect to be available to the
combined company as a result of the merger and the anticipated cost
savings;
- the combined company's earnings per share in 2001 and 2002 are expected
to exceed by approximately 5% the earnings per share El Paso would have
generated on a stand-alone basis, assuming annual pre-tax cost savings of
$200 million;
- the merger furthers El Paso's strategy of growing its natural gas
pipeline, field services and merchant energy businesses;
- the merger will add approximately 3.69 trillion cubic feet equivalent of
proved reserves to El Paso's existing reserves, which should enhance the
combined company's ability to buy, sell and trade natural gas, oil,
electric power and other commodities through its merchant energy
business;
- the ability of Coastal's refineries to process heavier crude oils affords
them cost advantages;
- presentations by and discussions with El Paso's senior management and
representatives of Fried, Frank, Harris, Shriver & Jacobson, El Paso's
outside counsel, regarding the terms of the merger agreement and stock
option agreements;
- presentations by and discussions with Donaldson, Lufkin & Jenrette
Securities Corporation, El Paso's financial advisor, regarding the
financial terms of the merger agreement, and DLJ's opinion described
below to the effect that, based upon and subject to the assumptions,
limitations and qualifications contained in DLJ's written opinion, as of
the date of the opinion, the 1.23 exchange ratio applicable to the common
stock and Class A common stock of Coastal is fair to El Paso from a
financial point of view;
- the ability of the parties to complete the merger, including the
antitrust and other regulatory requirements applicable to the transaction
and the anticipated timing for receiving regulatory approvals;
- information concerning the businesses, assets, liabilities, results of
operations and financial performance of El Paso, Coastal and the combined
company;
- the board of directors of the combined company will consist of seven
current El Paso directors and five current Coastal directors and the
combined company will be able to draw on the diverse experiences of the
members of its board of directors;
- the headquarters of the combined company will remain in Houston, Texas;
- Ronald L. Kuehn, Jr. will remain chairman of the board of El Paso until
December 31, 2000. At that time, William A. Wise, the current president
and chief executive officer of El Paso will assume the position of
chairman, in addition to continuing as president and chief executive
officer of the combined company. David A. Arledge, who is currently the
chairman, president, and chief executive officer of Coastal, will become
the vice chairman and oversee the non-regulated operations of the
combined company;
- the El Paso board's understanding of current economic developments and
trends generally and developments and trends in the natural gas pipeline
and oil and gas production and exploration industries in particular;
- neither stockholder approval of the transaction nor the completion of the
merger will result in a change in control of El Paso under its employee
benefit plans;
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- the terms of the merger agreement, including:
- the conditions to closing;
- the circumstances under which the boards of El Paso and Coastal may
withdraw their recommendation of the proposed transaction; and
- the circumstances in which Coastal or El Paso will be required to pay
a termination fee and the size of the fee;
- the granting of stock options under the stock option agreements, the
circumstances under which the options could be exercised and the other
terms and consequences of the options, and the effect the exercise of the
options would likely have on the ability of the grantor to use pooling of
interests accounting for future business combination transactions;
- the long-term interests of El Paso and its stockholders, as well as the
effects of the proposed transaction on El Paso's employees, customers,
creditors, suppliers and the communities in which it has operations to
the extent those effects relate to stockholder value;
- the current and historical market prices of the common stock of each
company and the exchange ratios implied by those prices;
- the merger is expected to be accounted for as a pooling of interests; and
- the merger is expected to qualify as a reorganization under the Internal
Revenue Code in which El Paso will not recognize any gain or loss.
The El Paso board of directors also considered a number of countervailing
factors in its deliberations concerning the merger, including:
- the premium being received by Coastal's stockholders, based on historical
market prices, and the potential effect of the public announcement of the
merger on the market price of El Paso's common stock in the short term;
- the fact that a portion of Coastal's business includes a refining
business, chemical production and coal production, areas in which El
Paso's senior management has limited experience;
- that El Paso's operation of a refining and chemicals business, which we
estimate to represent approximately 5% of the pro forma earnings before
interest and taxes of the combined company in 2000, and the addition of
Coastal's oil and gas exploration and production business to El Paso's
existing exploration and production business may increase El Paso's
exposure to fluctuations in oil and natural gas prices;
- the risk that the companies will not be able to combine their businesses
without experiencing the loss of key employees or encountering other
difficulties, or that the companies would not realize the cost savings
expected from this combination;
- the challenges and costs of combining the businesses of two major
corporations of this size, including:
- the combination and reduction of work forces, and
- the consolidation, relocation and elimination of offices;
- the risk that key employees of Coastal, including employees active in
Coastal's refining, chemical production, coal production and oil and gas
exploration and production businesses, may depart;
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- the interests of El Paso's and Coastal's management in the merger as
described in "Interests of Certain Persons in the Merger" beginning on
page 80; and
- the risk that regulators could impose conditions on the grant of
necessary approvals such as requiring the sale of a portion of the
combined company's business or restricting the operations of the combined
company.
In the view of the El Paso board of directors, these potential
countervailing factors did not, individually or in the aggregate, outweigh the
advantages of the merger.
In view of the wide variety of factors considered in connection with its
evaluation of the merger and the complexity of these matters, El Paso's board of
directors did not find it practicable to and did not attempt to quantify, rank
or otherwise assign relative weights to these factors. El Paso's board of
directors conducted an overall analysis of the factors described above,
including thorough discussions with and questioning of El Paso's management and
El Paso's legal and financial advisors. In considering the factors described
above, individual members of El Paso's board of directors may have given
different weight to different factors.
FACTORS CONSIDERED BY, AND RECOMMENDATION OF, THE BOARD OF DIRECTORS OF COASTAL
The Coastal board of directors met on January 12, January 13 and January
17, 2000 to review the proposed merger. At the meeting on January 17, 2000, the
Coastal board of directors unanimously:
- determined that the merger agreement, the merger and the related
transactions are fair to and in the best interests of Coastal and its
stockholders;
- approved the merger agreement, the stock option agreements and the merger
and related transactions; and
- recommended that the stockholders of Coastal vote to approve and adopt
the merger agreement.
In reaching its decision to approve the merger agreement, the stock option
agreements, the merger and related transactions and to recommend that Coastal
stockholders vote to approve and adopt the merger agreement, the Coastal board
of directors considered the following material factors:
- the judgment, advice and analysis of Coastal's senior management,
including its favorable recommendation of the merger;
- the reasons described above under "-- Our Reasons for the Merger,"
including the growth opportunities we expect to be available to the
combined company as a result of the merger and the anticipated cost
savings;
- the premium expected to be received by Coastal's stockholders, based on
the exchange ratio in the merger and the then current and historical
market prices of El Paso common stock;
- the merger should enhance (as compared to Coastal on a stand-alone basis)
the combined company's ability to grow its natural gas pipeline, field
services and merchant energy businesses;
- the greater proved reserves of the combined company should enhance (as
compared to Coastal on a stand-alone basis) the combined company's
ability to buy, sell and trade natural gas, oil, electric power and other
commodities through its merchant energy business;
- presentations by and discussions with Coastal's senior management and
representatives of Skadden, Arps, Slate, Meagher & Flom LLP, Coastal's
outside counsel, regarding the terms of the merger agreement and stock
option agreements;
- presentations by and discussions with Merrill Lynch regarding the
financial terms of the merger agreement, and Merrill Lynch's opinion
described below to the effect that, subject to the qualifications and
limitations contained in Merrill Lynch's written opinion, as of the date
of the
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opinion, the 1.23 exchange ratio applicable to the Coastal common stock
and Class A common stock, the 9.133 exchange ratio applicable to the
$1.19 Series A convertible preferred stock and $1.83 Series B convertible
preferred stock and the 17.980 exchange ratio applicable to the $5.00
Series C convertible preferred stock are fair to the holders of those
securities from a financial point of view;
- the ability of the parties to complete the merger, including the
antitrust and other regulatory requirements applicable to the transaction
and the anticipated timing for receiving regulatory approvals;
- information concerning the businesses, assets, liabilities, results of
operations and financial performance of El Paso, Coastal and the combined
company;
- the board of directors of the combined company will include five current
Coastal directors;
- the headquarters of the combined company will remain in Houston, Texas;
- David A. Arledge, who is currently the Chairman, President and Chief
Executive Officer of Coastal, will become the Vice Chairman of El Paso
and oversee the non-regulated operations of the combined company;
- the Coastal board's understanding of current economic developments and
trends generally and developments and trends in the natural gas pipeline
and oil and gas production and exploration industries in particular;
- the terms of the merger agreement, including:
- the conditions to closing;
- the circumstances under which the boards of Coastal and El Paso may
withdraw their recommendations of the proposed transaction; and
- the circumstances in which Coastal or El Paso will be required to pay
a termination fee and the size of the fee;
- the granting of stock options under the stock option agreements, the
circumstances under which the options could be exercised and the other
terms and consequences of the options, including the effect the exercise
of the options would likely have on the ability of the grantor to use
pooling of interests accounting for future business combination
transactions;
- the long-term interests of Coastal and its stockholders, as well as the
effects of the proposed transaction on Coastal's employees, customers,
creditors, suppliers and the communities in which it has operations to
the extent those effects relate to Coastal and stockholder value;
- the current and historical market prices of the capital stock of each
company and the exchange ratios implied by those prices;
- the merger is expected to be accounted for as a pooling of interests; and
- the merger is expected to qualify as a reorganization under the Internal
Revenue Code in which neither Coastal nor its stockholders will recognize
any gain or loss, except, in the case of stockholders, for any gain or
loss associated with the receipt of cash in lieu of fractional shares.
The Coastal board of directors also considered a number of countervailing
factors in its deliberations concerning the merger, including:
- the exchange ratios applicable to the Coastal common stock, Class A
common stock and convertible preferred stock are fixed and not subject to
adjustment in the event of any decrease in the price of the El Paso
common stock or increase in the price of the Coastal capital stock prior
to the merger;
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- the fact that a portion of Coastal's business includes a refining
business, chemical production and coal production, areas in which El
Paso's senior management has limited experience;
- the risks that the companies will not be able to combine their businesses
without experiencing the loss of key employees or encountering other
difficulties, or that the companies would not realize the cost savings
expected from this combination;
- the challenges and costs of combining the businesses of two major
corporations of this size, including:
- the combination and reduction of work forces; and
- the consolidation, relocation and elimination of offices;
- the risk that key employees of Coastal, including employees active in
Coastal's refining, chemical production, coal production and oil and gas
exploration and production businesses, may depart;
- the interests of El Paso's and Coastal's management in the merger as
described in "Interests of Certain Persons in the Merger" beginning on
page 80; and
- the risk that regulators could impose conditions on the grant of
necessary approvals such as requiring the sale of a portion of the
combined company's business or restricting the operations of the combined
company.
In the view of the Coastal board of directors, these potential
countervailing factors did not, individually or in the aggregate, outweigh the
advantages of the merger.
In view of the wide variety of factors considered in connection with its
evaluation of the merger and the complexity of these matters, Coastal's board of
directors did not find it practicable to and did not attempt to quantify, rank
or otherwise assign relative weights to these factors. Coastal's board of
directors conducted an overall analysis of the factors described above,
including thorough discussions with and questioning of Coastal's management and
Coastal's legal and financial advisors. In considering the factors described
above, individual members of Coastal's board of directors may have given
different weight to different factors.
ACCOUNTING TREATMENT
We expect the merger to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of El Paso and Coastal will be carried forward to the
books of the combined company at their historical recorded amounts, subject to
any adjustments and reclassifications required to conform the accounting
policies of the two companies. In addition, results of operations of the
combined company will include results of El Paso and Coastal for the entire
fiscal year in which the merger occurs. The historical reported net income or
loss of El Paso and Coastal for prior periods will be combined and restated as
net income or loss of El Paso after addressing any accounting conformity issues.
See "Financial Information," beginning on page 73.
DESCRIPTION OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER
The following is a description of material United States federal income tax
consequences of the merger. Our description is not a comprehensive description
of all of the tax consequences that may be relevant to you. For example, we have
not described tax consequences that arise from rules that apply generally to all
taxpayers or to some classes of taxpayers. We have also not described tax
consequences that are generally assumed to be known by investors. Our
description is based upon the Internal Revenue Code, the regulations of the
United States Treasury Department, and court and administrative rulings and
decisions in effect on the date of this joint proxy statement/prospectus, all of
which are subject to change, possibly retroactively, and any change could affect
the continuing validity of this discussion.
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We assume that stockholders hold their shares of Coastal stock as a capital
asset and do not address the tax consequences that may be relevant to a
particular stockholder in light of their individual circumstances or to
stockholders who are subject to special treatment under some United States
federal income tax laws, such as:
- banks;
- tax-exempt organizations;
- insurance companies;
- mutual funds;
- traders in securities who elect to apply a mark-to-market method of
accounting;
- dealers in securities or foreign currencies;
- Coastal stockholders who received their Coastal stock through the
exercise of employee stock options or otherwise as compensation;
- Coastal stockholders who are not U.S. persons; and
- Coastal stockholders who held Coastal stock as part of a hedge, straddle
or conversion transaction.
We do not address any consequences arising under the laws of any state,
locality or foreign jurisdiction. Nor do we address the tax consequences to
holders of Coastal's $5.00 Series C convertible preferred stock who exercise
appraisal rights with respect to those shares.
It is a condition to the merger that each of Coastal and El Paso receive a
tax opinion from its respective tax counsel, dated as of the effective date of
the merger, to the effect that the merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code. The condition
relating to the tax opinions may not be waived by El Paso or Coastal unless
further stockholder approval of the stockholders of Coastal is obtained. The
opinions will be based on customary assumptions and representations made by,
among others, Coastal and El Paso. An opinion of counsel represents counsel's
best legal judgment and is not binding on the Internal Revenue Service or any
court. Neither El Paso nor Coastal has requested or intends to request a ruling
from the Internal Revenue Service as to the tax consequences of the merger.
The following discussion of United States federal income tax consequences
of the merger assumes that the merger, if completed, will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
for United States federal income tax purposes.
Merger. If we complete the merger:
- no gain or loss will be recognized by the stockholders of Coastal who
exchange their Coastal common stock, Class A common stock or convertible
preferred stock solely for El Paso common stock in the merger, except
with respect to cash, if any, they receive instead of a fractional share
of El Paso common stock;
- the aggregate tax basis of the El Paso common stock received by Coastal
stockholders who exchange all of their Coastal common stock, Class A
common stock and convertible preferred stock for El Paso common stock in
the merger will be the same as the aggregate tax basis of the Coastal
stock surrendered in the merger in exchange for the El Paso common stock,
decreased by the amount of any tax basis allocable to any fractional
share interest for which cash is received;
- the holding period of the El Paso common stock received in the merger
will include the holding period of shares of Coastal stock surrendered in
the merger in exchange for the El Paso common stock;
- Coastal stockholders who receive cash instead of a fractional share of El
Paso common stock generally should recognize capital gain or loss equal
to the difference between the amount of cash
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received and his or her tax basis in the Coastal stock that is allocable
to the fractional share. The deductibility of capital losses is subject
to limitations for both individuals and corporations; and
- stockholders of El Paso will not exchange their El Paso stock in the
merger and, therefore, will not recognize gain or loss for federal income
tax purposes.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO
EACH COASTAL STOCKHOLDER WILL DEPEND ON THE FACTS OF THAT STOCKHOLDER'S
PARTICULAR SITUATION. COASTAL STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING TAX
RETURN REPORTING REQUIREMENTS, THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGE IN THE TAX LAWS.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
Antitrust. Under the HSR Act, we cannot complete the merger until we have
given notification and furnished information relating to the operations of the
parties and the industries in which they operate to the Federal Trade Commission
and the Antitrust Division of the United States Department of Justice and a
specified waiting period expires or is terminated. El Paso and Coastal both
filed notification and report forms under the HSR Act with the Federal Trade
Commission and the Antitrust Division of the United States Department of Justice
on February 2, 2000. On March 3, 2000, we received a request from the Federal
Trade Commission for additional information and other materials. We are not
permitted to complete the merger until 20 days after we have substantially
complied with this request or unless the waiting period is terminated earlier.
Even after the waiting period expires or is terminated, the Federal Trade
Commission and the Antitrust Division retain the authority to challenge the
merger on antitrust grounds, before or after the merger is completed. In
addition, each state in which El Paso or Coastal operates may also seek to
review the merger. It is possible that some of these authorities or a private
party may seek to challenge the merger.
FERC Approval. We both currently operate subsidiary companies that are
engaged in the wholesale marketing of power and are considered to be "public
utilities" under the Federal Power Act for some purposes. Accordingly, under the
Federal Power Act, the FERC has the authority to review the proposed merger to
determine if it is in the public interest. We expect to file shortly a joint
application with the FERC for approval of the merger.
In evaluating these applications, the FERC has considered the impact of the
proposed merger on competition, rates and regulation. The FERC has, in some
cases, imposed conditions on its approval of a merger. Even if it approves the
merger, the FERC will have continuing jurisdiction over the combined company's
power marketing business to affect the rates, terms and conditions of its
service, and to affect its dealings with affiliates.
Other Regulatory Approvals. The merger may be subject to the antitrust
rules of foreign jurisdictions, which may provide that acquisition transactions
may not be completed before the issuance of an antitrust clearance. The merger
may also be subject to review by State regulatory agencies. We expect to make
all necessary foreign antitrust and State regulatory filings, but we cannot
assure you that required approvals will be granted.
Obligations to Obtain Regulatory Approvals. Under the merger agreement, we
have both agreed to use our reasonable best efforts to take all actions to
obtain all material regulatory and governmental approvals necessary to complete
the merger and to address concerns of regulators and governmental officials.
Addressing these concerns could require that we sell portions of our businesses
or restrict the dealings between our pipeline subsidiaries and our electric
power marketing subsidiary. Neither El Paso nor Coastal is required under the
merger agreement to sell any portion of its business or take any other action to
address concerns of regulators if the result would reasonably be expected to be
materially adverse to the business, financial condition or results of operations
of the combined company after the merger. El Paso is also not required to take
any action that would be reasonably likely to have a material adverse effect on
the Tennessee Gas Pipeline Company, a subsidiary of El Paso, or the ANR Pipeline
Company, a
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<PAGE> 45
subsidiary of Coastal. In addition, without the consent of El Paso, Coastal may
not take any action that would reasonably be likely to have a material adverse
effect on Tennessee Gas Pipeline Company or ANR Pipeline Company.
Injunctions. Our obligation to complete the merger is subject to the
condition that there be no law or injunction in effect that would prohibit the
completion of the merger. We have each agreed to use our reasonable best efforts
to have any such law or injunction lifted or vacated.
APPRAISAL RIGHTS
Both El Paso and Coastal are organized under Delaware law. Under Delaware
law, a holder of outstanding shares of Coastal's $5.00 Series C convertible
preferred stock who does not vote those shares in favor of the approval and
adoption of the merger agreement will be entitled to dissent and receive the
appraisal of his or her Series C convertible preferred stock if the merger is
completed. No stockholders of El Paso will be entitled to appraisal rights in
connection with the merger and no stockholder of Coastal will be entitled to
appraisal rights with respect to any class or series of shares of Coastal, other
than the Series C convertible preferred stock.
The following discussion is not a complete statement of the law pertaining
to dissenters' appraisal rights under the Delaware General Corporation Law and
is qualified in its entirety by reference to Section 262 of the Delaware General
Corporation Law, the full text of which we have attached to this joint proxy
statement/prospectus as Annex F and incorporate by reference. Any holder of
Series C convertible preferred stock who wishes to exercise appraisal rights or
preserve the right to do so should review Section 262 carefully and seek the
advice of legal counsel, since the failure to fully comply with the procedures
of that Section will result in the loss of appraisal rights.
Under Section 262, not less than 20 days before Coastal's special meeting,
Coastal must notify each of the record holders of Series C convertible preferred
stock as of March 17, 2000 that appraisal rights are available and include in
the notice a copy of Section 262. Coastal intends that this joint proxy
statement/prospectus constitute this notice.
Any holder of Series C convertible preferred stock wishing to exercise
appraisal rights must deliver to Coastal, prior to the vote to approve and adopt
the merger agreement at the Coastal special meeting, a written demand for
appraisal of his or her shares of Series C convertible preferred stock. A proxy
or vote against the approval and adoption of the merger agreement will not
constitute a demand. In addition, a holder of shares of Series C convertible
preferred stock wishing to exercise appraisal rights must be the record holder
of those shares on the date he or she makes written demand for appraisal, must
continue to hold those shares until the completion of the merger and must not
vote any of those shares in favor of the approval and adoption of the merger
agreement.
Only a holder of record of shares of Coastal Series C convertible preferred
stock will be entitled to assert appraisal rights for the shares of Series C
convertible preferred stock registered in his or her name. A demand for
appraisal should be executed by or on behalf of the holder of record, fully and
correctly, as his or her name appears on his or her stock certificates. If
shares of Series C convertible preferred stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity. If shares of Series C convertible
preferred stock are owned of record by more than one person, as in a joint
tenancy and tenancy in common, the demand should be executed by or on behalf of
all joint owners. An authorized agent, including one or more joint owners, may
execute a demand for appraisal on behalf of a holder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is agent for the owner or owners.
All written demands for appraisal should be sent or delivered to The
Coastal Corporation, Nine Greenway Plaza, Houston, Texas 77046-0095, Attention:
Austin M. O'Toole, Secretary.
Within 120 days after completion of the merger, Coastal or any holder of
Series C convertible preferred stock entitled to appraisal rights under Section
262 may file a petition in the Delaware Court of
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<PAGE> 46
Chancery demanding a determination of the "fair value" of the shares of Series C
convertible preferred stock he or she holds. Coastal is under no obligation to
and has no present intention to file a petition with respect to the appraisal of
the fair value of the shares of Series C convertible preferred stock.
Accordingly, it is the obligation of the Series C convertible preferred
stockholders to initiate all necessary action to perfect their dissenters'
appraisal rights within the time prescribed in Section 262.
Within 120 days after the completion of the merger, any Series C
convertible preferred stockholder who has complied with the requirements for
exercise of appraisal rights will be entitled, upon written request, to receive
from Coastal a statement setting forth the aggregate number of shares of Series
C convertible preferred stock with respect to which demands for appraisal have
been received and the number of holders of those shares. Coastal must mail this
statement to the holders of Series C convertible preferred stock within ten days
after receiving a written request for this statement or within ten days after
the expiration of the 20-day period for delivery of demands for appraisal by
holders of the Series C convertible preferred stock, outlined above, whichever
is later.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the holders of Series C
convertible preferred stock entitled to appraisal rights and will appraise the
"fair value" of their shares of Series C convertible preferred stock, exclusive
of any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the "fair value." Stockholders considering seeking
appraisal should be aware that the "fair value" of their shares of Series C
convertible preferred stock as determined under Section 262 could be more than,
the same as or less than the consideration they would receive under the merger
agreement if they did not seek appraisal. The Delaware court may determine the
costs of the appraisal proceedings and tax the parties as the court deems
equitable. The court may also order that all or a portion of the expenses
incurred by any stockholder in connection with an appraisal, including
reasonable attorneys' fees and the fees and expenses of experts utilized in the
appraisal proceeding, be charged pro rata against the value of all of the shares
of Series C convertible preferred stock entitled to appraisal.
Any holder of shares of Series C convertible preferred stock who has duly
demanded an appraisal in compliance with Section 262 will not, after completion
of the merger, be entitled to vote his or her shares of Series C convertible
preferred stock for any purpose or be entitled to the payment of dividends or
other distributions on those shares, except dividends or other distributions
payable to holders of record of shares of Series C convertible preferred stock
as of a date on or before the date of the completion of the merger.
If any holder of Series C convertible preferred stock who demands appraisal
of his or her shares fails to perfect, or effectively withdraws or loses, his or
her right to appraisal, as provided in Section 262, each share of Series C
convertible preferred stock of that stockholder will be converted into the right
to receive 17.980 shares of El Paso common stock and cash instead of fractional
shares in accordance with the merger agreement. A stockholder will fail to
perfect, or effectively lose or withdraw, his or her right to appraisal if no
petition for appraisal is filed within 120 days after completion of the merger,
or if the Coastal stockholder delivers to Coastal a written withdrawal of his
demand for appraisal and acceptance of the merger, except that any attempt to
withdraw made more than 60 days after the completion of the merger will require
the written approval of Coastal.
FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTIONS
This joint proxy statement/prospectus does not cover any resales of the El
Paso common stock to be received by Coastal stockholders in connection with the
merger, and no person is authorized to make any use of this joint proxy
statement/prospectus in connection with any such resale.
All shares of El Paso common stock received by Coastal stockholders in
connection with the merger will be freely transferable, except that shares of El
Paso common stock received by persons who are deemed to be "affiliates" of
Coastal under the Securities Act of 1933 at the time of El Paso's special
meeting may resell those shares only in transactions permitted by Rule 145 under
the Securities Act or as otherwise permitted under the Securities Act. Persons
who may be affiliates of Coastal for those purposes
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generally include individuals or entities that control, are controlled by, or
are under common control with, Coastal, and would not include stockholders who
are not executive officers, directors or significant stockholders of Coastal.
The merger agreement requires Coastal, not less than 45 days before the
closing date of the merger, to deliver to El Paso a letter identifying all
persons who may be, as of the date the merger agreement is submitted for
approval by Coastal stockholders, affiliates of Coastal and use reasonable best
efforts to cause each person who is identified as an affiliate in the letter to
deliver to El Paso and Coastal, at least 30 days before the completion of the
merger, an executed letter agreement to the effect that the affiliate will not
offer, sell or otherwise dispose of any of the shares of El Paso common stock
issued to that affiliate in the merger or otherwise owned or acquired by that
affiliate:
(1) for a period beginning 30 days prior to the completion of the merger
and continuing until results covering at least 30 days of post-merger
combined operations of El Paso and Coastal have been publicly filed by
El Paso; or
(2) in violation of the Securities Act of 1933.
The merger agreement also requires El Paso, not less than 45 days before
the closing date of the merger, to deliver to Coastal a letter identifying all
persons who may be, as of the date the proposal for the issuance of shares of El
Paso common stock is submitted for approval by El Paso's stockholders,
affiliates of El Paso and use reasonable best efforts to cause each person who
is identified as an affiliate in the letter described above to deliver to El
Paso, at least 30 days prior to the merger, an executed letter agreement from
each affiliate of El Paso to the effect that the affiliate will not offer, sell
or otherwise dispose of any shares of El Paso common stock owned or acquired by
that affiliate during the period described in clause (1) of the prior sentence.
In the merger agreement, El Paso has agreed to use reasonable best efforts
to make publicly available, within 30 days after the first month after the
completion of the merger in which there are at least 30 days of post-merger
combined operations of Coastal and El Paso, combined sales and net income
figures for the combined company.
BY-LAWS OF THE COMBINED COMPANY
In accordance with the merger agreement, El Paso will amend its by-laws so
that, effective upon completion of the merger, the by-laws of the combined
company will provide that, until December 31, 2002, the board of directors of
the combined company is to be comprised of twelve directors, except under
circumstances described below. Seven of the directors will initially be persons
designated by El Paso in accordance with the merger agreement. The remaining
five directors must be persons who were designated by Coastal in accordance with
the merger agreement.
Under the by-laws of the combined company, the combined company's board
will be required to maintain, until December 31, 2002, two separate nominating
committees, one comprised of the directors of the combined company who were
designated by El Paso and their nominated or designated successors and the other
comprised of the directors of the combined company who were designated by
Coastal and their nominated or designated successors. The El Paso directors'
nominating committee will have the authority, in connection with each annual
meeting of stockholders occurring before December 31, 2002, to recommend up to
seven candidates to be nominated by the full board of the combined company for
election at that meeting. That committee will also have the right to designate a
person to replace any director who is a member of that committee and who resigns
before the end of his or her term. Similarly, the Coastal directors' nominating
committee will have the authority, in connection with each of the annual
meetings of stockholders occurring before December 31, 2002, to recommend up to
five candidates to be nominated by the full board of the combined company for
election at that meeting. That committee will also have the right to designate a
person to replace any director who is a member of that committee and who resigns
before the end of his or her term. Candidates recommended for nomination by one
of the nominating committees, if elected at the applicable annual meeting, and
replacement directors designated
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by a nominating committee, will become members of that committee after joining
the combined company's board.
The combined company's board will only be permitted to take actions
inconsistent with the provisions of the by-laws described above, and may only
call a special meeting of stockholders to elect or remove directors, if
two-thirds of the directors of the combined company designated by El Paso and
Coastal in accordance with the merger agreement and their nominated and
designated successors approve. The combined board may, however, increase its
size beyond twelve directors in connection with a future business combination
transaction with the approval of only a majority of the directors.
These by-laws may be amended by the stockholders of the combined company.
The by-laws of the combined company will also provide that William A. Wise,
El Paso's current President and Chief Executive Officer, will be the Chairman of
the combined company's board after January 1, 2001 and will continue as
President and Chief Executive Officer of the combined company after the
completion of the merger. The by-laws will further provide that David A.
Arledge, Coastal's current Chairman, President and Chief Executive Officer, will
be Vice Chairman of the combined company's board until at least December 31,
2002. The board of the combined company will not be allowed to remove Messrs.
Wise and Arledge from their positions before December 31, 2002, unless at least
two-thirds of the directors of the combined company designated by El Paso and
Coastal in accordance with the merger agreement and their nominated and
designated successors approve.
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OPINIONS OF FINANCIAL ADVISORS
OPINION OF FINANCIAL ADVISOR TO EL PASO
El Paso asked Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), in
its role as financial advisor to El Paso, to render an opinion to the El Paso
board as to the fairness to El Paso, from a financial point of view, of the 1.23
exchange ratio in the merger applicable to the Coastal common stock and Class A
common stock. On January 17, 2000, DLJ delivered to the El Paso board its
written opinion to the effect that, as of that date, and based on and subject to
the assumptions, limitations and qualifications set forth in the DLJ opinion,
the 1.23 exchange ratio in the merger applicable to the Coastal common stock and
Class A common stock was fair to El Paso from a financial point of view.
THE FULL TEXT OF THE DLJ OPINION IS ATTACHED AS ANNEX D TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE SUMMARY OF THE DLJ OPINION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE DLJ OPINION. EL PASO STOCKHOLDERS ARE URGED TO READ THE DLJ OPINION
CAREFULLY AND IN ITS ENTIRETY FOR THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE,
OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY DLJ IN CONNECTION WITH ITS
OPINION.
The DLJ opinion was prepared for the El Paso board and was directed only to
the fairness to El Paso from a financial point of view, as of the date of the
DLJ opinion, of the 1.23 exchange ratio in the merger. DLJ expressed no opinion
in the DLJ opinion as to the prices at which El Paso common stock would actually
trade at any time. The DLJ opinion did not address the relative merits of the
merger or any other business strategies considered by the El Paso board, nor did
it address the El Paso board's decision to proceed with the merger. The DLJ
opinion did not constitute a recommendation to any El Paso stockholder as to how
he or she should vote on the issuance of El Paso common stock in connection with
the merger.
El Paso selected DLJ as its financial advisor because DLJ is an
internationally recognized investment banking firm that has substantial
experience in the natural gas industry and the other industries in which El Paso
has operations and is familiar with El Paso and its businesses. DLJ was not
retained as an advisor or agent to the stockholders of El Paso or any other
person other than El Paso. El Paso did not impose any restrictions or
limitations upon DLJ with respect to the investigations made or the procedures
followed by DLJ in rendering the DLJ opinion.
In arriving at its opinion, DLJ reviewed a draft of the merger agreement,
dated January 17, 2000, including all exhibits, as well as drafts of the two
stock option agreements, each dated January 17, 2000, by and between El Paso and
Coastal. DLJ also reviewed financial and other information that was publicly
available or furnished to DLJ by El Paso and Coastal including information
provided during discussions with their respective managements. Included in the
information provided during these discussions were financial projections of
Coastal prepared by the management of Coastal and financial projections of El
Paso prepared by the management of El Paso. In addition, DLJ compared financial
and securities data of El Paso and Coastal with publicly available information
concerning various other companies whose securities are traded in public
markets, reviewed the historical stock prices and trading volumes of the common
stock of Coastal and El Paso, reviewed prices paid in selected other business
combinations and conducted other financial studies, analyses and investigations
as DLJ deemed appropriate for purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by El Paso and Coastal or their
respective representatives, or that was otherwise reviewed by DLJ. In
particular, DLJ relied upon the estimates of the management of El Paso of the
cost savings achievable as a result of the merger and upon DLJ's discussion of
these cost savings with the management of El Paso. With respect to the financial
projections supplied to DLJ, DLJ relied on representations that they were
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of El Paso and Coastal as to the
future operating and financial performance of El Paso and Coastal. DLJ did not
assume any responsibility for making any independent evaluation of any assets or
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liabilities or for making any independent verification of the information
reviewed by DLJ. DLJ relied as to certain legal matters, including that the
merger will be free of federal income tax to El Paso, on the advice of counsel
to El Paso. DLJ further assumed that the merger will be accounted for as a
pooling of interests under generally accepted accounting principles.
Further, in rendering its opinion, DLJ assumed that obtaining the necessary
regulatory and governmental approvals for the merger would not significantly
delay completion of the merger and that, in the course of obtaining these
approvals, no restriction would be imposed that would have a material adverse
effect on the contemplated benefits of the merger.
The DLJ opinion was necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to
DLJ as of, the date the opinion was delivered. The DLJ opinion states that,
although subsequent developments may affect the DLJ opinion, DLJ does not have
any obligation to update, revise or reaffirm its opinion.
Summary of Financial Analyses Performed by DLJ
The following is a summary of the presentation made by DLJ to the El Paso
board at its January 17, 2000 meeting in connection with rendering the DLJ
opinion. Unless otherwise specified, references to cost savings below assume
that El Paso will realize $200 million of annual pre-tax cost savings beginning
in 2001, the first full year after completion of the merger.
Historical Exchange Ratio Analysis. DLJ reviewed the historical exchange
ratios implied by the daily closing prices per share of El Paso common stock to
those of Coastal common stock for the period beginning on January 14, 1999 and
ending on January 14, 2000. This analysis showed that the average historical
exchange ratio during this one-year period was 1.03.
Discounted Cash Flow Analysis. DLJ performed a DCF analysis of Coastal and
El Paso using projections and assumptions provided by the managements of Coastal
and El Paso, excluding anticipated cost savings. DCF is defined as discounted
cash flow. The DCF for Coastal's natural gas operations was estimated using
discount rates ranging from 9% to 11% and estimated terminal multiples of EBITDA
in 2004 ranging from 8.0x to 10.0x. EBITDA is defined as earnings before
interest expense, income taxes, depreciation and amortization. The DCF for
Coastal's refining and marketing operations was estimated using discount rates
ranging from 9% to 11% and estimated terminal multiples of EBITDA in 2004
ranging from 7.0x to 9.0x. The DCF for Coastal's exploration and production
operations was estimated using discount rates ranging from 11% to 13% and
estimated terminal multiples of EBITDA in 2004 ranging from 6.0x to 7.0x.
The DCF for El Paso's natural gas operations was estimated using discount
rates ranging from 9% to 11% and estimated terminal multiples of EBITDA in 2004
ranging from 8.0x to 10.0x. The DCF for El Paso's exploration and production
operations was estimated using discount rates ranging from 11% to 13% and
estimated terminal multiples of EBITDA in 2004 ranging from 4.0x to 6.0x.
For both El Paso's and Coastal's exploration and production operations, DLJ
assumed the following commodity prices:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Natural Gas (dollars per thousand cubic
feet)................................... $ 2.50 $ 2.50 $ 2.53 $ 2.57 $ 2.62
Oil (dollars per barrel).................. $20.00 $20.00 $17.46 $17.29 $17.35
</TABLE>
These analyses yielded implied exchange ratios for the Coastal common stock
and Class A common stock ranging from 1.19x to 1.25x (obtained by comparing the
highest estimated valuation of Coastal common stock to the highest estimated
valuation of El Paso common stock and the lowest estimated valuation of Coastal
common stock to the lowest estimated valuation of El Paso common stock),
compared to the proposed exchange ratio for the Coastal common stock and Class A
common stock of 1.23x.
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Contribution Analysis. DLJ analyzed and compared the relative contributions
of El Paso and Coastal to the pro forma combined company in terms of the
following, assuming no anticipated cost savings:
- projected after-tax cash flow (defined as net income available to common
stock plus depreciation, amortization and deferred taxes) for each year
from 1999 through 2004;
- projected net income for each year from 1999 through 2004; and
- projected book value as of December 31 of each year from 1999 through
2004.
Projected after-tax cash flow, net income and book value for the pro forma
combined company, excluding anticipated cost savings, was determined by adding
projected after-tax cash flow, net income and book value for El Paso and
Coastal. This analysis yielded implied exchange ratios for the Coastal common
stock and Class A common stock ranging from 1.04x to 1.37x compared to the
proposed exchange ratio for the Coastal common stock and Class A common stock of
1.23x.
Comparable Public Trading Analysis. DLJ compared selected historical and
projected operating information, excluding anticipated cost savings, stock
market data and financial ratios for each of El Paso and Coastal to the same
data for selected publicly traded companies in the natural gas, refining and
marketing and exploration and production industries that DLJ believed were
reasonably comparable to El Paso and Coastal.
The natural gas companies were:
- Enron Corp.;
- The Williams Companies, Inc.;
- Equitable Resources, Inc.;
- Kinder Morgan Energy Partners, L.P.;
- Duke Energy Corporation; and
- CMS Energy Corporation.
The refining and marketing companies were:
- Tosco Corporation;
- Ultramar Diamond Shamrock Corporation;
- Sunoco, Inc.; and
- Valero Energy Corporation.
The exploration and production companies were:
- Burlington Resources Inc.;
- Vastar Resources, Inc.;
- Apache Corporation;
- Union Pacific Resources Group Inc.;
- EOG Resources, Inc.;
- Devon Energy Corporation;
- Ocean Energy, Inc.;
- Noble Affiliates, Inc.; and
- Newfield Exploration Company.
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DLJ analyzed the enterprise value of each of the natural gas companies,
each of the refining and marketing companies and each of the exploration and
production companies measured as a multiple of selected financial data.
Enterprise value was calculated as equity market value plus total debt plus the
liquidation value of preferred stock, if any, plus the value of minority
interests, if any, minus cash and short-term investments.
In examining the natural gas companies, DLJ analyzed the enterprise value
of the companies as a multiple of projected 1999 and 2000 EBIT. EBIT is defined
as earnings before interest expense and income taxes. DLJ also analyzed the
enterprise value of the natural gas companies as a multiple of projected 1999
and 2000 EBITDA. All data relating to the natural gas companies were derived
from publicly available sources and from DLJ and other research. DLJ's analysis
of the natural gas companies yielded the following ranges of multiples:
COMPARABLE NATURAL GAS COMPANIES
<TABLE>
<CAPTION>
1999 EBIT 2000 EBIT 1999 EBITDA 2000 EBITDA
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
High......................... 23.7x 21.4x 16.5x 15.2x
Low.......................... 10.7x 9.2x 7.2x 6.0x
Median....................... 12.3x 10.6x 8.0x 7.4x
Average...................... 15.2x 13.1x 10.1x 9.0x
</TABLE>
In examining the refining and marketing companies, DLJ analyzed the
enterprise value of the companies as a multiple of projected 2000 EBIT and as a
multiple of projected 2000 EBITDA. All data relating to the refining and
marketing companies were derived from publicly available sources and from DLJ
and other research. DLJ's analysis of the refining and marketing companies
yielded the following ranges of multiples:
COMPARABLE REFINING AND MARKETING COMPANIES
<TABLE>
<CAPTION>
2000 EBIT 2000 EBITDA
--------- -----------
<S> <C> <C>
High................................................ 10.1x 5.6x
Low................................................. 7.1x 4.8x
Median.............................................. 8.3x 5.2x
Average............................................. 8.4x 5.2x
</TABLE>
In examining the exploration and production companies, DLJ analyzed the
enterprise value of the companies as a multiple of projected 1999 and 2000
EBITDA and as a multiple of proved reserves. All data relating to the
exploration and production companies were derived from publicly available
sources and from DLJ and other research. DLJ's analysis of the exploration and
production companies yielded the following ranges of multiples:
COMPARABLE EXPLORATION AND PRODUCTION COMPANIES
<TABLE>
<CAPTION>
1999 EBITDA 2000 EBITDA PROVED RESERVES
----------- ----------- ------------------------
(IN DOLLARS PER THOUSAND
CUBIC FEET EQUIVALENT)
<S> <C> <C> <C>
High........................... 8.1x 7.7x $2.72
Low............................ 4.3x 3.8x $0.67
Median......................... 6.7x 5.7x $0.98
Average........................ 6.3x 5.7x $1.25
</TABLE>
Based on the foregoing data and on projections for El Paso provided by the
management of El Paso and for Coastal provided by the management of Coastal,
excluding anticipated cost savings, this analysis
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yielded implied exchange ratios ranging from 1.12x to 1.33x (obtained by
comparing the highest estimated valuation of Coastal common stock to the highest
estimated valuation of El Paso common stock and the lowest estimated valuation
of Coastal common stock to the lowest estimated valuation of El Paso common
stock), compared to the exchange ratio for the Coastal common stock and Class A
common stock of 1.23x.
Comparable Transaction Analysis. DLJ reviewed seven selected completed or
pending mergers or acquisitions involving natural gas companies that DLJ
believed were reasonably comparable to the merger. Those transactions consisted
of:
- El Paso Natural Gas Company (currently known as El Paso Energy
Corporation)/Tenneco Inc.'s energy business;
- Duke Power Company/PanEnergy Corp.;
- KN Energy, Inc./MidCon Corp. (subsidiary of Occidental Petroleum
Corporation);
- Duke Energy Corporation/Union Pacific Fuels, Inc.;
- CMS Energy Corporation/Panhandle Eastern Pipe Line Company;
- Dominion Resources, Inc./Consolidated Natural Gas Company; and
- El Paso Energy Corporation/Sonat Inc.
DLJ reviewed four selected mergers or acquisitions involving refining and
marketing companies:
- Ultramar Corporation/Diamond Shamrock Inc.;
- Tosco Corporation/Unocal Corporation;
- Valero Energy Corporation/Basis Petroleum, Inc.; and
- Ultramar Diamond Shamrock Corporation/Total Petroleum (North America)
Ltd.
DLJ reviewed six selected mergers or acquisitions involving exploration and
production companies:
- Burlington Resources Inc./Poco Petroleums Ltd.;
- Santa Fe Energy Resources, Inc./Snyder Oil Corporation;
- Devon Energy Corporation/Northstar Energy Corporation;
- Union Pacific Resources Group Inc./Norcen Energy Resources Limited;
- Pioneer Natural Resources Company/Chauvco Resources, Ltd.; and
- Burlington Resources Inc./The Louisiana Land & Exploration Company.
In examining the natural gas transactions, DLJ analyzed, among other
things, the enterprise value of the acquired company implied by each of these
transactions as a multiple of LTM EBITDA and LTM EBIT. LTM is defined as last
reported twelve months. DLJ's analysis of the natural gas transactions yielded
the following ranges of multiples:
COMPARABLE NATURAL GAS TRANSACTIONS
<TABLE>
<CAPTION>
LTM EBITDA LTM EBIT
---------- --------
<S> <C> <C>
High................................................. 10.4x 16.5x
Low.................................................. 7.9x 12.4x
Median............................................... 9.6x 14.6x
Average.............................................. 9.2x 14.5x
</TABLE>
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<PAGE> 54
In examining the refining and marketing transactions, DLJ analyzed, among
other things, the enterprise value of the acquired company implied by each of
these transactions as a multiple of LTM EBITDA. DLJ's analysis of the refining
and marketing transactions yielded the following ranges of multiples:
COMPARABLE REFINING AND MARKETING TRANSACTIONS
<TABLE>
<CAPTION>
LTM EBITDA
----------
<S> <C>
High........................................................ 15.4x
Low......................................................... 7.8x
Average..................................................... 9.9x
</TABLE>
In examining the exploration and production transactions, DLJ analyzed,
among other things, the enterprise value of the acquired company implied by each
of these transactions as a multiple of LTM EBITDA and proved reserves. DLJ's
analysis of the exploration and production transactions yielded the following
ranges of multiples:
COMPARABLE EXPLORATION AND PRODUCTION TRANSACTIONS
<TABLE>
<CAPTION>
LTM EBITDA PROVED RESERVES
---------- ------------------------
(IN DOLLARS PER THOUSAND
CUBIC FEET EQUIVALENT)
<S> <C> <C>
High......................................... 9.9x $1.80
Low.......................................... 5.5x $0.94
Median....................................... 7.7x $1.21
Average...................................... 7.8x $1.25
</TABLE>
Based on the foregoing data and on projections for Coastal provided by the
management of Coastal, excluding anticipated cost savings, this analysis yielded
implied exchange ratios ranging from 1.11x to 1.44x (obtained by comparing the
highest estimated valuation of Coastal common stock to the highest estimated
valuation of El Paso common stock, and the lowest estimated valuation of Coastal
common stock to the lowest estimated valuation of El Paso common stock),
compared to the proposed exchange ratio for the Coastal common stock and Class A
common stock of 1.23x. The foregoing implied exchange ratios were obtained using
a range of estimated per share equity values for Coastal derived from the
comparable transaction analysis and a range of estimated per share equity values
of El Paso derived from the comparable public trading analysis.
Pro Forma Combined Accretion/Dilution Analysis. Using the projected
earnings of El Paso for the years 2000 through 2002 and the projected earnings
of Coastal for the same years, DLJ compared the projected EPS of El Paso on a
stand-alone basis to the projected pro forma EPS of the combined company after
the merger. EPS is defined as diluted earnings per share of common stock.
This analysis showed that with anticipated cost savings, the merger would
be accretive in 2001, the first full year after completion of the merger, and
2002 to holders of El Paso common stock and that without anticipated cost
savings, the merger would be dilutive to the EPS of holders of El Paso common
stock through 2002.
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ but describes, in summary form, the material
elements of the presentation made by DLJ to the El Paso board on January 17,
2000. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Each of the
analyses conducted by DLJ was carried out in order to provide a different
perspective on the transaction and to add to the total mix of information
available. DLJ did not form a
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<PAGE> 55
conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness from a financial point
of view. Rather, in reaching its conclusion, DLJ considered the results of the
analyses in light of each other and ultimately reached its opinion based on the
results of all analyses taken as a whole. DLJ did not place any particular
reliance or weight on any individual analysis, but instead concluded that its
analyses, taken as a whole, supported its determination. Accordingly,
notwithstanding the separate factors summarized above, DLJ has indicated to El
Paso that it believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying its opinion. The analyses performed by DLJ are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Engagement Letter
Pursuant to the terms of an engagement agreement dated January 12, 2000, El
Paso (1) has paid DLJ (a) a retainer fee of $250,000, (b) $2 million in
connection with the signing of the merger agreement and (c) $1 million in
connection with the delivery by DLJ of its opinion, and (2) will pay an
additional fee of $6,750,000 upon completion of the merger. El Paso has also
agreed that if the merger or similar transaction is not completed and El Paso
receives a termination fee, El Paso will pay DLJ the lesser of ten percent (10%)
of the termination fee and $6,750,000 in cash upon El Paso's receipt of the
termination fee. Any fees previously paid to DLJ pursuant to the engagement
agreement will be deducted from any fee to which DLJ is entitled pursuant to the
preceding sentence. In addition, El Paso agreed to reimburse DLJ, upon request
by DLJ from time to time, for all out-of-pocket expenses, including the
reasonable fees and expenses of counsel, incurred by DLJ in connection with its
engagement and to indemnify DLJ and some related persons against specified
liabilities in connection with its engagement, including liabilities under U.S.
federal securities laws. DLJ and El Paso negotiated the terms of the fee
arrangement.
Other Relationships
In the ordinary course of business, DLJ and its affiliates may own or
actively trade the securities of El Paso and Coastal for their own accounts and
for the accounts of their customers and, accordingly, may at any time hold a
long or short position in El Paso or Coastal securities. DLJ, as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. DLJ has performed
investment banking and other services for El Paso in the past, including (1)
acting as lead manager in a $325 million offering of preferred securities for a
trust subsidiary of El Paso in 1998; (2) acting as lead manager in a $400
million debt offering for Tennessee Gas Pipeline Company, a subsidiary of El
Paso, in 1998; (3) acting as financial advisor to El Paso in the sale of a 49%
interest in Viosca Knoll Gathering Company to Leviathan Gas Pipeline Partners,
L.P., now known as El Paso Energy Partners, L.P., in 1999; (4) acting as
financial advisor to El Paso in the purchase of EnCap Investments L.C. in 1999;
(5) acting as financial advisor to El Paso in its merger with Sonat Inc. in
1999; (6) acting as lead manager in a $500 million offering of senior notes and
a $600 million offering of senior notes for El Paso in 1999; (7) acting as lead
manager in a $100 million offering of floating rate senior notes for El Paso in
1999; (8) acting as financial advisor to El Paso in its acquisition of Crystal
Gas Storage, Inc. in 2000; and (9) acting as financial advisor to El Paso in the
pending sale of certain pipeline assets of El Paso. Affiliates of DLJ have
provided $123 million financing to a structured financing vehicle, known as
Electron, created by El Paso. DLJ is the financial advisor for Electron and is
also expected to act as lead manager in connection with a planned financing by
Electron of approximately $1 billion that is expected to occur in the first half
of 2000. DLJ has received usual and customary compensation for its past services
for El Paso.
OPINION OF FINANCIAL ADVISOR TO COASTAL
Merrill Lynch has acted as financial advisor to Coastal in connection with
the merger and has assisted the Coastal board in its examination of the
fairness, from a financial point of view, of the exchange ratios
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<PAGE> 56
to be received in the merger by the holders of Coastal's common stock, Class A
common stock, $1.19 Series A convertible preferred stock, $1.83 Series B
convertible preferred stock, $5.00 Series C convertible preferred stock and
Coastal's outstanding FELINE PRIDES. As described in this joint proxy statement/
prospectus, Merrill Lynch's opinion dated as of January 17, 2000 (together with
the related presentation) to the Coastal board was only one of many factors the
Coastal board considered in determining to approve the merger agreement dated as
of January 17, 2000.
On January 17, 2000, Merrill Lynch delivered its opinion to the Coastal
board that, as of that date and based upon and subject to the matters stated in
its opinion the exchange ratios to be received in the merger by the holders of
Coastal's common stock, Class A common stock, Series A convertible preferred
stock, Series B convertible preferred stock, Series C convertible preferred
stock and the FELINE PRIDES were fair to such holders from a financial point of
view.
THE FULL TEXT OF THE MERRILL LYNCH FAIRNESS OPINION, WHICH CONTAINS MANY OF
THE ASSUMPTIONS MERRILL LYNCH MADE, THE MATTERS IT CONSIDERED AND THE
LIMITATIONS ON THE REVIEW IT UNDERTOOK IN CONNECTION WITH ITS DELIVERY OF THIS
OPINION, IS ATTACHED AS ANNEX E AND IS INCORPORATED BY REFERENCE INTO THIS JOINT
PROXY STATEMENT/PROSPECTUS. MERRILL LYNCH'S OPINION IS DIRECTED TO THE COASTAL
BOARD AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIOS FROM A FINANCIAL
POINT OF VIEW. IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY RELATED
TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY COASTAL STOCKHOLDER
AS TO HOW THAT HOLDER SHOULD VOTE AT THE COASTAL SPECIAL MEETING. THE FOLLOWING
SUMMARY OF THE MERRILL LYNCH FAIRNESS OPINION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION.
In connection with its opinion, Merrill Lynch:
- Reviewed Coastal's Annual Reports to Stockholders and Annual Reports on
the SEC's Form 10-K and related financial information for the five fiscal
years ended December 31, 1998 and Coastal's Quarterly Reports on the
SEC's Form 10-Q and the related unaudited financial information for the
quarterly periods ended March 31, 1999, June 30, 1999 and September 30,
1999;
- Reviewed El Paso's Annual Reports to Stockholders and Annual Reports on
the SEC's Form 10-K and related financial information for the five fiscal
years ended December 31, 1998 and El Paso's Quarterly Reports on the
SEC's Form 10-Q and the related unaudited financial information for the
quarterly periods ended March 31, 1999, June 30, 1999 and September 30,
1999;
- Reviewed certain information, including financial forecasts, relating to
the businesses, earnings, cash flow, assets, liabilities and prospects of
Coastal and El Paso furnished to it by Coastal and El Paso;
- Conducted discussions with members of senior management of Coastal and El
Paso concerning their respective businesses and prospects;
- Reviewed the historical market prices and trading activity for Coastal's
common stock and El Paso's common stock and compared them with those of
publicly traded companies which Merrill Lynch deemed to be reasonably
similar to Coastal and El Paso;
- Compared the results of operations of Coastal and El Paso with those of
companies which Merrill Lynch deemed to be reasonably similar to Coastal
and El Paso;
- Compared the proposed financial terms of the merger with the financial
terms of other mergers and acquisitions which Merrill Lynch deemed to be
relevant;
- Reviewed a draft of the merger agreement, dated January 14, 2000, and the
exhibits to that agreement; and
- Reviewed other financial studies and analyses, performed other
investigations and took into account other matters as Merrill Lynch
deemed necessary.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
Coastal and El Paso, discussed with or reviewed by or for it, or publicly
available, and Merrill Lynch did not assume responsibility for independently
verifying any such information. Merrill Lynch did not undertake an independent
evaluation or appraisal of any of the assets or liabilities, contingent or
otherwise, of Coastal or El Paso or any actuarial analysis with respect to
Coastal or El Paso, nor was Merrill Lynch furnished with any such evaluation,
appraisal or actuarial analysis. In
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<PAGE> 57
addition, Merrill Lynch did not assume any obligation to conduct, nor did it
conduct, any physical inspection of the properties or facilities of Coastal or
El Paso. With respect to the financial forecast information of Coastal and El
Paso, including, without limitation, financial forecasts, evaluation of
contingencies and projections regarding, among other things, future economic
conditions pertaining to Coastal and El Paso and cost savings that may result
from the merger, furnished to or discussed with Merrill Lynch by Coastal and El
Paso, Merrill Lynch assumed that they were reasonably prepared and reflected the
best currently available estimates, allocations and judgments of the senior
management of Coastal and El Paso as to the expected future financial
performance of Coastal, El Paso or the combined entity, as the case may be. In
this section of this joint proxy statement/prospectus we refer to cost savings
that may result from the merger as the "merger benefits." Merrill Lynch
expressed no opinion as to this financial forecast information, the merger
benefits or other items or the assumptions upon which they were based. Merrill
Lynch further assumed that the merger will qualify as a tax-free reorganization
for U.S. federal income tax purposes and will be accounted for as a pooling of
interests under generally accepted accounting principles. Merrill Lynch also
assumed that the final form of the merger agreement will be substantially
similar to the last draft reviewed by it and that the merger will be completed
in accordance with the terms of the merger agreement. During the January 17,
2000 meeting with the Coastal board, Merrill Lynch advised the Coastal board
that it had assumed that in the course of obtaining the necessary regulatory and
other consents or approvals, contractual or otherwise, for the merger, no
restrictions, including any divestiture requirements or amendments or
modifications, would be imposed that would have a material adverse effect on the
contemplated merger benefits.
In connection with the preparation of its opinion, Merrill Lynch was not
authorized by Coastal or the Coastal board to solicit, nor did Merrill Lynch
solicit, third party indications of interest in the acquisition of all or any
part of, or any combination with, Coastal.
Merrill Lynch's opinion was necessarily based on information available to
it and on general market, economic and other conditions as they existed and
could be evaluated on the date of its opinion. Merrill Lynch did not address the
merits of the underlying decision by Coastal to engage in the merger. Merrill
Lynch expressed no opinion as to what the value of the El Paso common stock
actually would be when issued to the holders of Coastal's common stock, Class A
common stock, Series A preferred stock, Series B preferred stock, Series C
preferred stock and the FELINE PRIDES pursuant to the merger, the prices at
which the El Paso common stock would trade after the merger or the price at
which Coastal's common stock, Class A common stock, Series A convertible
preferred stock, Series B convertible preferred stock, Series C convertible
preferred stock or the FELINE PRIDES will trade between the date of its opinion
and the date the merger is completed. Although Merrill Lynch evaluated the
exchange ratios from a financial point of view, Merrill Lynch was not requested
to, and did not, recommend the specific exchange ratios payable in the merger.
In preparing its opinion for the Coastal board, Merrill Lynch performed a
variety of financial and comparative analyses, including those described below.
The summary of analyses performed by Merrill Lynch as set forth below is not a
complete description of the analyses underlying Merrill Lynch's opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial or summary description. No company, business or transaction used in
those analyses as a comparison is identical to El Paso, Coastal or the merger,
nor is an evaluation of the results of those analyses entirely mathematical;
rather, it involves complex considerations and judgments concerning financial
and operating characteristics and other factors that could affect the merger,
public trading or other values of the companies, business segments or
transactions being analyzed. The estimates contained in those analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by those analyses.
In addition, analyses relating to the value of businesses or securities are not
appraisals and may not reflect the prices at which businesses, companies or
securities actually may be sold. Accordingly, these analyses and estimates are
inherently subject to substantial uncertainty.
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<PAGE> 58
In arriving at its opinion, Merrill Lynch made qualitative judgments as to
the significance and relevance of each analysis and factor considered by it.
Accordingly, Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses and factors, without
considering all analyses and factors, could create an incomplete view of the
processes underlying such analyses and its opinion. In its analyses, Merrill
Lynch made numerous assumptions with respect to El Paso, Coastal, industry
performance, and regulatory, general business, economic, market and financial
conditions, as well as other matters, many of which are beyond the control of El
Paso and Coastal, and involve the application of complex methodologies and
educated judgment.
The following is a summary of the material financial and comparative
analyses performed by Merrill Lynch in arriving at its January 17, 2000 opinion
presented to the Coastal board. Merrill Lynch derived implied values per share
for Coastal's common stock, and, from these values, derived implied values for
Coastal's Class A common stock, Series A convertible preferred stock, Series B
convertible preferred stock, Series C convertible preferred stock and the FELINE
PRIDES, based upon the values suggested by these analyses, in light of the
judgment and experience of Merrill Lynch. The Merrill Lynch opinion is based
upon Merrill Lynch's consideration of the collective results of all such
analyses, together with the other factors referred to in its opinion letter.
Unless otherwise specified, references to cost savings below assume that the
combined company will realize $200 million of annual pre-tax cost savings
beginning in the first full year after completion of the merger.
Exchange Ratio Analysis. In the merger, each outstanding share of Coastal
common stock will be converted into the right to receive 1.23 shares of El Paso
common stock. Merrill Lynch compared this exchange ratio to each range of
implied exchange ratios set forth below, which were derived from the analyses
performed by Merrill Lynch, and noted that this exchange ratio was higher than,
or at the upper end of, the ranges of these implied exchange ratios.
<TABLE>
<CAPTION>
EXCHANGE
METHODOLOGY RATIO
- ----------- ---------
<S> <C>
Relative stock price analysis............................. 0.90-1.05
Contribution analysis..................................... 0.90-1.30
Discounted cash flow analysis............................. 1.00-1.40
Comparable transaction analysis........................... 0.90-1.40
Merger premium analysis................................... 1.15-1.25
Comparable company trading analysis....................... 0.80-1.20
</TABLE>
The implied exchange ratios were computed using $37.375 as the price per
share of El Paso common stock, which was the closing price of the El Paso common
stock on January 11, 2000.
Relative Stock Price Analysis. In order to determine an implied exchange
ratio range for the Coastal common stock based upon a relative stock price
analysis, Merrill Lynch calculated the quotient of the Coastal common stock
price divided by the El Paso common stock price as of January 11, 2000 and the
averages of the quotients for the 30, 90, 180, 270 and 360 day periods ending
January 11, 2000.
<TABLE>
<CAPTION>
EXCHANGE
PERIOD RATIO
- ------ --------
<S> <C>
As of July 11, 2000........................................ 0.91
30 Day Average............................................. 0.91
90 Day Average............................................. 0.96
180 Day Average............................................ 1.04
270 Day Average............................................ 1.04
360 Day Average............................................ 1.03
</TABLE>
Utilizing the relative stock price analysis, Merrill Lynch calculated an
implied exchange ratio of 0.90 to 1.05 for the Coastal common stock.
Contribution Analysis. In order to determine an implied exchange ratio
range for the Coastal common stock based upon a contribution analysis, Merrill
Lynch calculated the contribution of each of Coastal and El Paso to the net
income to common stockholders and to earnings before interest and taxes ("EBIT")
and earnings before interest, taxes, depreciation and amortization ("EBITDA") of
the pro
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<PAGE> 59
forma combined company using projections provided by the respective managements
of Coastal and El Paso for the twelve month periods ending December 31, 1999,
2000 and 2001.
<TABLE>
<CAPTION>
EXCHANGE
FINANCIAL MEASURE RATIO
- ----------------- --------
<S> <C>
1999 net income........................................... 1.30
1999 EBITDA............................................... 0.92
1999 EBIT................................................. 0.96
2000 net income........................................... 1.08
2000 EBITDA............................................... 1.08
2000 EBIT................................................. 1.00
2001 net income........................................... 1.24
2001 EBITDA............................................... 1.26
2001 EBIT................................................. 1.21
</TABLE>
Utilizing the contribution analysis, Merrill Lynch calculated an implied
exchange ratio range for the Coastal common stock of 0.90 to 1.30.
Discounted Cash Flow Analysis. In order to determine an implied exchange
ratio range for the Coastal common stock based upon a discounted cash flow
analysis, Merrill Lynch performed discounted cash flow analyses for each of
Coastal and El Paso using projections provided to Merrill Lynch by the
respective managements of Coastal and El Paso and calculated ranges of values
per share for Coastal common stock and El Paso common stock.
In performing the discounted cash flow analyses, discount rates were
applied to (1) each company's respective projected free cash flows for the years
2000 through 2004, and (2) their respective enterprise values in 2004 based upon
a range of multiples times projected 2004 EBITDA.
<TABLE>
<CAPTION>
DISCOUNT 2004 EBITDA
COMPANY RATES MULTIPLES
- ------- --------- -----------
<S> <C> <C>
Coastal............................................. 8.0%-9.0% 7.5x-8.5x
El Paso............................................. 8.0%-9.0% 7.5x-8.5x
</TABLE>
Using a discounted cash flow analysis, Merrill Lynch calculated an implied
exchange ratio range for the Coastal common stock of 1.00 to 1.40.
Comparable Transaction Analysis. Merrill Lynch reviewed publicly available
information relating to selected comparable mergers and acquisition transactions
in respect of companies engaged in businesses similar to those of Coastal and El
Paso. With respect to Coastal, Merrill Lynch examined multiples of the
consideration paid for the common equity and the value of the indebtedness
assumed in each of the transactions to, among other measures, such acquired
companies' EBITDA and EBIT, and examined multiples of the value of the common
equity in each of the transactions to net income.
The comparable transactions that Merrill Lynch reviewed and the years those
transactions were completed were the following:
- The Williams Companies, Inc.'s acquisition of Transco Energy Company
(1994);
- Texas Utilities Company's acquisition of ENSERCH Corporation (1996);
- El Paso Energy Corporation's acquisition of Tenneco Inc.'s energy
business (1996);
- Houston Industries Inc.'s acquisition of NorAm Energy Corp. (1996);
- Pacific Enterprises acquisition of Enova Corporation (1996);
- Duke Power Co.'s acquisition of PanEnergy Corp. (1996);
- PG&E Corp.'s acquisition of Valero Energy Corp. (1997);
- Shell Oil Company's acquisition of Tejas Gas Corp. (1997);
- KN Energy, Inc.'s acquisition of MidCon Corp. (1997);
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<PAGE> 60
- TransCanada Pipeline Limited's acquisition of NOVA Corporation (1998);
- CMS Energy Corporation's acquisition of Duke Energy's Panhandle Eastern
Pipeline Company and Trunkline Gas Company (1998);
- El Paso Energy Corporation's acquisition of Sonat Inc. (1999);
- Dominion Resources, Inc.'s acquisition of Consolidated Natural Gas
Company (Pending); and
- NiSource Inc.'s acquisition of Columbia Energy Group (Proposed).
In order to determine an implied exchange ratio range for the Coastal
common stock based on an analysis of comparable transactions, Merrill Lynch (1)
compared the transaction value (defined to be the offer value plus the
liquidation value of preferred stock plus the principal amount of debt less
cash) for each of the comparable transactions as a multiple of the then publicly
available (a) LTM EBITDA and (b) LTM EBIT, to the corresponding multiples for
the merger and (2) compared the offer value (defined to be the consideration
paid for the common equity) in each of the comparable transactions as a multiple
of the then publicly available latest twelve months ("LTM") net income to common
stockholders.
<TABLE>
<CAPTION>
FINANCIAL MEASURE EXCHANGE RATIO
- ----------------- --------------
<S> <C>
LTM net income......................................... 1.20-1.49
LTM EBITDA............................................. 0.82-0.99
LTM EBIT............................................... 0.80-1.21
</TABLE>
Utilizing the comparable transactions analysis, Merrill Lynch calculated an
implied exchange ratio range for the Coastal common stock of 0.90 to 1.40.
Because the reasons for, and circumstances surrounding, each of the
comparable transactions analyzed were so diverse and due to the inherent
differences between the operations and financial conditions of Coastal and the
selected companies, Merrill Lynch believes that a purely quantitative comparable
transaction analysis would not be dispositive in the context of the merger.
Merrill Lynch further believes that an appropriate use of a comparable
transaction analysis in this instance involves qualitative judgments concerning
the differences between the characteristics of these transactions and the merger
that would affect the value of the acquired companies and businesses and
Coastal, which judgments are reflected in Merrill Lynch's opinion.
Merger Premium Analysis. In order to determine an implied exchange ratio
range for the Coastal common stock based upon a merger premium analysis, Merrill
Lynch examined premiums paid for acquired companies' common equity over
pre-announcement stock prices one day prior to announcement, one week prior to
announcement and four weeks prior to announcement: (1) in all United States
public merger transactions with an equity value in excess of $5.0 billion for
the periods of 1994 to present, 1995 to present, 1996 to present, 1997 to
present, 1998 to present and 1999 to present; (2) in all United States public
merger transactions in which common stock was the form of consideration and the
equity value was in excess of $5.0 billion for the periods of 1994 to present,
1995 to present, 1996 to present, 1997 to present, 1998 to present and 1999 to
present; and (3) in eleven selected natural gas company transactions. Based on
this analysis, Merrill Lynch calculated an implied exchange ratio for the
Coastal common stock of 1.15 to 1.25.
Because the reasons for, and circumstances surrounding, each of the
transactions analyzed were different, Merrill Lynch believes that a purely
quantitative merger premium analysis would not be dispositive in the context of
the merger. Merrill Lynch further believes that an appropriate use of a merger
premium analysis in this instance involves qualitative judgments concerning the
differences between the characteristics of these transactions and the merger
that would affect the value of the acquired companies and businesses and
Coastal, which judgments are reflected in Merrill Lynch's opinion.
Comparable Company Trading Analysis. Using publicly available information,
Merrill Lynch compared selected stock trading data and financial ratio
information for Coastal with corresponding data
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and information of similar publicly traded companies. These companies were
selected by Merrill Lynch based upon Merrill Lynch's views as to the
comparability of the financial and operating characteristics of these companies
to Coastal. With respect to these analyses, Merrill Lynch made comparisons among
the following companies: El Paso Energy Corporation, Columbia Energy Group,
Consolidated Natural Gas Company, Enbridge Inc., Enron Corp., Kinder Morgan,
Inc., National Fuel Gas Co., Questar Corporation, TransCanada Pipelines Ltd.,
Westcoast Energy Inc. and The Williams Companies, Inc.
In order to determine an implied exchange ratio range based upon an
analysis of comparable publicly traded companies, Merrill Lynch compared the
market value of the Coastal common stock as a multiple of (1) estimated 1999 net
income per share and (2) estimated 2000 net income per share to the
corresponding ratios for each of the comparable companies. The earnings
estimates were obtained from IBES and First Call, two data services that monitor
and publish a compilation of earnings estimates produced by selected research
analysts on companies of interest to investors. Additionally, Merrill Lynch
compared the market capitalization of Coastal as a multiple of estimated 1999
EBITDA and estimated 2000 EBITDA to the corresponding ratios for each of the
comparable companies. Merrill Lynch determined that the appropriate trading
multiples for the comparable companies were 15.0 to 18.0, 13.0 to 16.0, 8.5 to
9.0, and 8.0 to 8.5 for 1999 estimated net income per share, 2000 estimated net
income per share, 1999 estimated EBITDA and 2000 estimated EBITDA, respectively.
These multiples were applied to Coastal's forecast of each respective financial
measure, providing the following implied exchange ratios for the Coastal common
stock:
<TABLE>
<CAPTION>
FINANCIAL MEASURE EXCHANGE RATIO
- ----------------- --------------
<S> <C>
1999 net income per share............................. 0.90-1.08
1999 EBITDA........................................... 0.95-1.16
2000 net income....................................... 0.82-0.91
2000 EBITDA........................................... 1.08-1.19
</TABLE>
Using this analysis, Merrill Lynch calculated an implied exchange ratio for
the Coastal common stock of 0.80 to 1.20.
Because of the inherent differences among the operations of Coastal and the
selected comparable companies, Merrill Lynch believes that a purely quantitative
comparable company analysis would not be dispositive in the context of the
merger. Merrill Lynch further believes that an appropriate use of a comparable
company analysis in this instance involves qualitative judgments concerning
differences among the financial and operating characteristics of Coastal and the
selected comparable companies, which judgments are reflected in Merrill Lynch's
opinion.
Pro Forma Merger Analysis. Merrill Lynch analyzed certain pro forma effects
which could result from the merger, based on financial forecasts provided by
Coastal's management for Coastal's 2000, 2001 and 2002 fiscal years and
financial forecasts provided by El Paso's management for El Paso's 2000, 2001
and 2002 fiscal years. The management of Coastal advised Merrill Lynch that the
merger will be accounted for as a pooling of interests under United States
generally accepted accounting principles. Management of Coastal and El Paso
provided Merrill Lynch with projections of cost savings estimated to result from
the merger and to be retained by the stockholders of the combined entity. This
analysis indicated that the merger would be accretive for the fiscal years
ending December 31, 2001 and 2002.
Purchase Price Analysis and Stock Trading History. Merrill Lynch performed
analyses relating to the consideration to be received by the holders of Coastal
common stock assuming various prices for El Paso common stock. Merrill Lynch
also examined the history of trading prices and volume for Coastal common stock
and El Paso common stock and various historical information relating to the
Coastal common stock and El Paso common stock.
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Other Factors and Analyses. In the course of preparing its opinion, Merrill
Lynch performed other analyses and reviewed other matters, including, among
other things:
- Expected trading characteristics of the Coastal common stock and El Paso
common stock; and
- Pro forma operating results and capitalization of the combined company.
Merrill Lynch is an internationally recognized investment banking firm and,
as a part of its investment banking business, is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions. The Coastal Board selected Merrill Lynch as its financial advisor
because of Merrill Lynch's experience and expertise and because it is familiar
with Coastal and its businesses.
Coastal has agreed to pay Merrill Lynch a fee of $10,000,000 for its
financial advisory services in connection with the merger, payable as follows:
- $250,000 upon the execution of the engagement letter between Merrill
Lynch and Coastal;
- $2,750,000 upon the execution of the merger agreement; and
- $7,000,000 payable on closing of the merger.
Coastal has agreed that if the merger or similar transaction is not
completed and Coastal receives a termination fee, Coastal will pay Merrill Lynch
twenty percent of the termination fee, subject to a maximum of one-half of the
fees to which Merrill Lynch would have become entitled had the transaction
closed. Coastal also has agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of legal
counsel, and to indemnify Merrill Lynch against liabilities arising out of a
business combination contemplated by the engagement letter or to contribute to
payments Merrill Lynch may be required to make in respect of the liabilities for
which indemnification is contemplated but for which indemnification is
unenforceable.
In the ordinary course of its business, Merrill Lynch and its affiliates
may actively trade the debt and equity securities of Coastal and El Paso for
their own accounts and for the accounts of customers and anticipate trading in
the securities of El Paso after the merger. Accordingly, Merrill Lynch and its
affiliates may at any time hold a long or short position in those securities.
Merrill Lynch has provided financial advisory and/or financing services to
Coastal and El Paso in the past including (1) acting as financial advisor to
Sonat Inc. in its merger with El Paso in 1999, (2) acting as lead manager in
Coastal's $460 million FELINE PRIDES offering in 1999 and (3) acting as lead
manager for Coastal's $300 million trust originated preferred securities
offering in 1998. Merrill Lynch has received usual and customary compensation
for its past services for Coastal and El Paso. Merrill Lynch may provide similar
services in the future, and may receive fees for rendering these services.
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MATERIAL TERMS OF THE MERGER AGREEMENT
In this section of this joint proxy statement/prospectus we describe the
material provisions of the merger agreement. We have attached a copy of the
merger agreement as Annex A to this joint proxy statement/prospectus and
incorporate the merger agreement into this joint proxy statement/prospectus by
reference. The summary of the merger agreement we provide below is qualified in
its entirety by reference to that agreement. We encourage you to read the merger
agreement because it is the legal document that governs the merger.
STRUCTURE OF THE MERGER
A wholly owned subsidiary of El Paso will merge with and into Coastal, with
Coastal surviving the merger as a wholly owned subsidiary of El Paso.
CLOSING; EFFECTIVE TIME
The merger will close at 10:00 a.m., eastern standard time, on the first
business day after satisfaction or waiver of the conditions to the merger
provided for in the merger agreement (see "-- Conditions to the Completion of
the Merger" below), unless Coastal and El Paso agree to another time or date.
The merger will become effective when a certificate of merger is filed by
El Paso and Coastal with the Secretary of State of the State of Delaware, or at
any later time as we specify in the certificate of merger.
CONSIDERATION TO BE RECEIVED IN THE MERGER
In the merger:
- each outstanding share of Coastal common stock and each outstanding share
of Class A common stock will convert into the right to receive 1.23
shares of El Paso common stock;
- each outstanding share of $1.19 Series A convertible preferred stock will
convert into the right to receive 9.133 shares of El Paso common stock;
- each outstanding share of $1.83 Series B convertible preferred stock will
convert into the right to receive 9.133 shares of El Paso common stock;
and
- each outstanding share of $5.00 Series C convertible preferred stock will
convert into the right to receive 17.980 shares of El Paso common stock.
Each outstanding share of El Paso common stock will remain outstanding as
one El Paso share and will not be converted in the merger.
PROCEDURES FOR SURRENDER OF CERTIFICATES; FRACTIONAL SHARES
After the completion of the merger, BankBoston, N.A., the exchange agent
for the merger, will send a letter of transmittal to each Coastal stockholder.
The letter of transmittal will contain instructions for the surrender of Coastal
stock certificates. DO NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
Upon surrender of stock certificates in accordance with the instructions in
the letter of transmittal, the surrendering stockholders will be entitled to
receive stock certificates representing the shares of El Paso common stock into
which the shares of Coastal stock represented by the surrendered Coastal stock
certificates were converted in the merger, together with a cash payment instead
of any fractional shares of El Paso common stock they would otherwise be
entitled to receive, as described below.
Coastal stockholders who do not surrender their Coastal stock certificates
will not receive dividends payable to El Paso stockholders on any date after the
effective time of the merger. When the Coastal stock certificates are finally
surrendered, any of these unpaid dividends will be paid without interest.
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Coastal's transfer books will be closed at the effective time of the merger
and no further transfers of shares of Coastal stock will be recorded. If shares
of Coastal stock have been transferred and the transfer was not registered in
Coastal's transfer books, a certificate representing the shares of El Paso
common stock into which the transferred shares were converted in the merger will
be issued to the person to whom those shares were transferred, together with a
cash payment instead of fractional shares of El Paso common stock, if any, and
any unpaid dividends in respect of those El Paso shares, so long as the stock
certificates representing the transferred Coastal shares are accompanied by all
documents required to evidence and effect the transfer and by evidence of
payment of any applicable stock transfer taxes.
We will not issue fractional shares of El Paso common stock. Instead, the
exchange agent will pay an amount in cash determined by multiplying the
applicable fractional share interest by the average of the closing prices for
the shares of El Paso common stock as reported on the New York Stock Exchange
Composite Transaction Reporting System over the four trading day period before
the completion of the merger.
BOARD OF DIRECTORS; NOMINATING COMMITTEES; OFFICERS
El Paso has agreed to take all action necessary so that as of the effective
time of the merger:
- the board of directors of the combined company will have 12 members;
- seven of the current directors of El Paso, designated by El Paso before
the effective time of the merger, will become directors of the combined
company. El Paso has not yet designated the members of its current board
who will be directors of the combined company. In accordance with the
merger agreement, El Paso's designees will, however, include William A.
Wise, currently a director of El Paso and its President and Chief
Executive Officer and, if the merger is completed before December 31,
2000, Ronald L. Kuehn, Jr., currently Chairman of El Paso's board;
- five of the current directors of Coastal, designated by Coastal before
the effective time of the merger, will become directors of the combined
company. Coastal has not yet designated the members of its current board
who will be directors of the combined company. In accordance with the
merger agreement, Coastal's designees will, however, include David A.
Arledge, currently Chairman, President and Chief Executive Officer of
Coastal, but may not include any other current or former executive
officer or other employee of Coastal; and
- the combined company's board will have two nominating committees, one
comprised of the directors of the combined company designated by El Paso
and the other comprised of the directors of the combined company
designated by Coastal. See "Directors of the Combined Company After the
Merger" on page 80.
Under the terms of the merger agreement, the combined company's board of
directors will be required to maintain until December 31, 2002 the existence of
the two separate nominating committees. The nominating committee comprised of
persons who were directors of El Paso before the merger will have the authority,
in connection with each annual meeting of the stockholders of the combined
company occurring before December 31, 2002, to recommend up to seven candidates
to be nominated by the full board of the combined company for election at that
meeting. This committee will also have the right to designate a person to
replace any director who is a member of that committee who resigns before the
end of his or her term. The nominating committee comprised of persons who were
directors of Coastal before the merger will have the authority, in connection
with each of those annual meetings, to recommend up to five candidates to be
nominated by the full board of the combined company for election at that
meeting. This committee will also have the right to designate a person to
replace any director who is a member of that committee and who resigns before
the end of his or her term. Candidates recommended for nomination by one of the
nominating committees, if elected at the applicable annual meeting, and
replacement directors designated by a nominating committee, will become members
of that committee after joining the combined company's board.
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Until December 31, 2002, the combined company's board is required to be
comprised of 12 directors. Before December 31, 2002, the board of the combined
company may only take actions that are inconsistent with these provisions if
two-thirds of all of the El Paso and Coastal designees, and their nominated and
designated successors, approve, except that the board may increase its size
beyond 12 directors in connection with a business combination transaction with
only the approval of a majority of the directors.
El Paso has agreed to take all action necessary so that:
- Ronald L. Kuehn, Jr., El Paso's current chairman, will be the chairman of
the combined company until December 31, 2000;
- William A. Wise, currently President and Chief Executive Officer of El
Paso, will be the chairman of the combined company after December 31,
2000 and also continues as President and Chief Executive Officer of the
combined company after the effective time of the merger; and
- David A. Arledge, currently Chairman, President and Chief Executive
Officer of Coastal, will be the Vice Chairman of the combined company and
will be responsible for overseeing the combined company's non-regulated
businesses.
The merger agreement also provides that, without the approval of two-thirds
of the El Paso and Coastal designees, and their designated successors, on the
combined company's board, before December 31, 2002, the board of the combined
company may not:
- remove William A. Wise as President, Chief Executive Officer or, after he
becomes Chairman, Chairman of the combined company;
- remove David A. Arledge as Vice-Chairman of the combined company; or
- reduce the power and authority granted to the combined company's
Chairman, Vice Chairman, President or Chief Executive Officer.
REPRESENTATIONS AND WARRANTIES
In the merger agreement El Paso and Coastal made various representations
and warranties to each other. The representations relate to, among other things:
- corporate organization, qualification, standing and power;
- subsidiaries;
- capitalization;
- enforceability of the merger documents, required consents and
governmental approvals to complete the merger and whether entering into
the merger will violate existing agreements;
- documents filed by each of El Paso and Coastal with the SEC;
- absence of material changes or events since September 30, 1999;
- litigation;
- compliance with applicable laws, permitting and licensing requirements;
- disclosure of liabilities;
- employee benefit matters;
- tax matters;
- board approval;
- required stockholder votes in connection with the merger;
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- treatment of the merger as a pooling of interests for accounting
purposes;
- engagement of and payment of fees to brokers, investment bankers, finders
and financial advisors in connection with the merger agreement;
- opinions of financial advisors;
- restrictions on business activities;
- labor matters;
- environmental matters; and
- "Year 2000" readiness.
COVENANTS
Conduct of Business. We have each agreed that, except as permitted or
contemplated by the merger agreement or as consented to by the other party,
until the completion of the merger, we will each:
- conduct our businesses in all material respects in the ordinary course
consistent with past practice;
- use reasonable best efforts to preserve our business organizations;
- use reasonable best efforts to keep available the services of our
officers and other employees; and
- use reasonable best efforts to maintain our existing relations and
goodwill with customers, suppliers, regulators, distributors, creditors,
lessors and others having business dealings with us.
However, neither party will be in breach of these obligations because one
or more of its officers and employees is no longer employed by that party.
We and our subsidiaries are also prohibited from taking any action outside
of the parameters specified in the merger agreement relating to the following
matters:
- amending our organizational documents;
- splitting, combining, subdividing or reclassifying our outstanding
shares;
- declaring or paying dividends, other than regular dividends;
- repurchasing our shares;
- in the case of Coastal, entering into any agreement to dispose of, in the
aggregate, a material amount of its assets or any material business or to
acquire any assets or businesses except that Coastal may make:
- acquisitions contemplated by its capital expenditures budget for the
year 2000;
- acquisitions not contemplated by its capital expenditures budget, if
they do not in total exceed an additional $200 million; and
- additional acquisitions, if they do not in total exceed an additional
$300 million and are approved by El Paso, which may not unreasonably
withhold its approval;
- in the case of El Paso, not acquiring or disposing of assets of any
business that generated net revenue or net income in the prior fiscal
year constituting 25% or more of El Paso's consolidated net revenue or
net income for that year or is comprised of net assets having a book
value equal to 25% or more of El Paso's consolidated net assets;
- taking any action that, to our knowledge, would prevent the merger from
qualifying for pooling of interests accounting treatment or from
qualifying as a reorganization under the Internal Revenue Code;
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- establishing, amending, or accelerating rights or benefits under, any
agreement relating to severance or change in control, any employee plan
or any employment or consulting agreement with current or former officers
or directors or any collective bargaining agreements;
- increasing the compensation payable to any of our officers, directors or
employees except in the ordinary course of the business;
- granting any severance or termination pay to any of our officers or
directors;
- granting any stock options or other equity related awards;
- issuing shares or convertible securities, except in connection with the
exercise of options or the conversion of outstanding convertible
securities. However, El Paso may:
- issue trust securities not convertible into El Paso common stock in
connection with financing transactions; and
- in connection with permitted acquisitions, issue common stock and
convertible securities, so long as the issuance is not required to be
approved by the El Paso stockholders and no more than 37.5 million
shares of El Paso common stock or securities convertible into shares of
El Paso common stock are issued without the approval of Coastal, which
may not unreasonably withhold its approval;
- changing our accounting policies;
- in the case of El Paso, taking any action to amend or modify its
shareholder rights plan or redeem the rights subject to that plan;
- taking any action to render inapplicable or to exempt any third party
from any provision of our certificate of incorporation or applicable
anti-takeover statutes;
- taking any action that would be reasonably likely to result in any of the
conditions to the merger not being satisfied or that would impair our
ability to complete the transactions contemplated by the merger
agreement;
- taking any action to cause our shares of common stock to cease to be
listed on the New York Stock Exchange;
- releasing any third party from any standstill agreement;
- issuing any indebtedness having the right to vote together with the
holders of our common stock; or
- entering into any commitments or agreements to do any of the foregoing.
Notwithstanding the preceding restrictions, we have agreed that El Paso
may:
- enter into or amend consulting, employment or collective bargaining
agreements;
- amend its Key Executive Severance Protection Plan and Employee Severance
Protection Plan, in limited circumstances;
- pay bonus and make salary adjustments in the ordinary course; and
- grant stock options, restricted stock and other equity related awards to
directors, officers and employees in the ordinary course of business and
to new executives when they are hired.
We have also agreed that Coastal may:
- continue to make option grants to directors in accordance with past
practice;
- amend its Replacement Pension Plan;
- continue to make payments to participants in its Annual Bonus Plan in
accordance with the terms of the plan and past practice;
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- enter into employment agreements with 12 Coastal officers and one other
key employee of Coastal;
- adopt a transition severance pay plan;
- adopt an early retirement window program; and
- establish retention policies.
Coordination of Dividends. We will coordinate with each other regarding the
declaration and payment of dividends in respect of the El Paso stock and the
Coastal stock and the record dates and payment dates relating to those
dividends. Our intention is that no holder of El Paso stock or Coastal stock
will receive two dividends, or fail to receive one dividend, for any single
fiscal quarter with respect to its shares, including shares of El Paso common
stock that a holder receives in exchange for shares of Coastal stock in the
merger.
No Solicitation. We may not, and may not authorize or permit any of our
officers, directors, employees or representatives to:
- solicit, initiate or encourage, or take any other action designed to
facilitate any takeover proposal; or
- engage in negotiations regarding any takeover proposal or provide any
confidential information to any person relating to any takeover proposal.
However, prior to our respective special meetings, in response to an
unsolicited superior proposal, we may:
- furnish confidential information to any person who makes a superior
proposal to us if that person signs a confidentiality agreement; and
- participate in discussions or negotiations regarding the superior
proposal.
In the merger agreement, we defined "takeover proposal" to mean any
inquiry, proposal or offer from any person relating to any:
- acquisition of a business of Coastal or El Paso that constitutes 25% or
more of its consolidated net revenues, net income or assets;
- acquisition of 25% or more of the common stock or voting power of Coastal
or El Paso;
- tender offer which if completed would result in a person beneficially
owning 25% or more of the common stock or voting power of Coastal or El
Paso; or
- merger or other business combination involving Coastal or El Paso or any
of their subsidiaries that constitutes 25% or more of the consolidated
net revenues, net income or assets of Coastal or El Paso.
In the merger agreement, we defined "superior proposal" as any proposal by
a third party to acquire more than 50% of the combined voting power of Coastal
or El Paso, or 50% or more of the consolidated assets of Coastal or El Paso, if:
- the proposal is otherwise on terms which the board of the company that
received the proposal determines, in its good faith judgment based in
part on the advice of a financial advisor of nationally recognized
reputation, to be more favorable to that company's stockholders than the
proposed merger and for which the third party has obtained committed
financing, to the extent required, or in the board's good faith judgment,
the third party is reasonably capable of obtaining; and
- after considering those matters that it regards as relevant, including
the advice of counsel, the board of the company that received the
proposal determines in good faith that, in light of the proposal, it
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is necessary to take the action in question in order to comply with its
fiduciary duties under applicable law.
In addition, we must each promptly advise the other orally and in writing
of any takeover proposal or any inquiry that could reasonably be expected to
lead to a takeover proposal, the identity of the person making the takeover
proposal or inquiry and the material terms of the takeover proposal.
Except in the circumstances we describe below, neither the Coastal board
nor the El Paso board may:
- withdraw or modify in a manner adverse to the other company, that board's
approval of the proposed transaction or recommendation that its
stockholders vote in favor of the proposed transaction;
- approve any letter of intent, agreement in principle, acquisition
agreement or similar agreement relating to the takeover proposal; or
- approve or recommend or propose to approve or recommend any takeover
proposal.
In response to a superior proposal that the receiving company did not
solicit in violation of the merger agreement, the board of the receiving company
may terminate the merger agreement and enter into an agreement with respect to a
superior proposal. However, it must first give written notice advising the other
that it has resolved to accept a superior proposal, specifying its material
terms and identifying the person making the superior proposal and then must wait
five business days after giving the notice before terminating the merger
agreement.
The boards of El Paso and Coastal may also withdraw or modify in a manner
adverse to the other company that board's approval or recommendation of the
proposed transaction if it determines in good faith that as a result of adverse
developments affecting the other company the merger is contrary to its
stockholders' best interests.
ADDITIONAL AGREEMENTS
Coastal Stock Options and Restricted Stock. At the effective time of the
merger, all options to acquire Coastal stock will be cancelled and exchanged for
a number of shares of El Paso common stock equal to the value of the cancelled
Coastal options, together with a cash payment instead of any fractional shares
of El Paso common stock they would otherwise be entitled to receive. The number
of shares of El Paso common stock that Coastal option holders will receive will
be calculated based on a variation of the Black-Scholes option valuation
methodology on which the companies' financial advisors have agreed. Restricted
Coastal stock will also be cancelled and exchanged for a number of shares of
unrestricted El Paso common stock based on the same valuation methodology used
for the cancellation and exchange of the options.
Treatment of Coastal Employee Benefit Plans. Following the completion of
the merger, El Paso intends to provide continuing Coastal employees with
compensation and employee benefits substantially similar to those it provides to
similarly situated El Paso employees, except that Coastal employees will not
become participants in El Paso's change in control severance plans. El Paso has
also agreed to assume all of Coastal's employee benefit plans and to honor
Coastal's obligations under these plans. El Paso has, however, generally
retained the right to amend or terminate these plans as permitted by their terms
and by applicable law. In addition, as a general rule, continuing Coastal
employees will receive credit for pre-merger service for purposes of eligibility
and vesting (but not benefit accrual) under El Paso's benefit plans and
arrangements.
Employment Agreements. Coastal has entered into employment agreements with
thirteen executive officers and may enter into one additional employment
agreement with a Coastal executive officer or key employee prior to the merger.
We have summarized the material provisions of these employment agreements in the
section entitled "Interests of Certain Persons in the Merger -- Employment
Agreements."
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Window Program. El Paso and Coastal have agreed to establish a voluntary
early retirement incentive window program for continuing Coastal employees who
are at least age 50 and have at least ten years of service as of December 31,
2000. Payments and benefits to eligible employees who voluntarily terminate
their employment under the window program will consist of an enhanced retirement
benefit and retiree medical and life insurance coverage, subject in each case to
the terms of the merger agreement.
Severance Plan. Prior to the effective time of the merger, Coastal will
adopt a severance plan covering substantially all regular full-time and regular
part-time employees who are active employees of Coastal and its subsidiaries.
The severance plan provides for severance pay and continued medical and dental
benefits for each eligible employee (1) whose employment Coastal or El Paso
terminates without cause after the effective time of the merger or (2) who
terminates employment in connection with a request that, after the effective
time of the merger, he or she relocate the principal site of his or her
employment by more than 50 miles. The amount of severance payable under the plan
depends upon the eligible employee's monthly base salary or wages and years of
service at the time of termination, with a maximum amount of severance pay equal
to one year of base salary or wages and a minimum amount of severance pay equal
to three months of base salary or wages. Eligible employees will also be
entitled to continued medical and dental coverage for six months after a
qualifying termination of employment. Participants in the voluntary early
retirement incentive window program and employees of Coastal and its
subsidiaries who are parties to individual employment agreements with severance
arrangements are not eligible for severance pay or benefits under the severance
plan. The severance plan will automatically terminate after the second
anniversary of the effective time of the merger.
Retention Arrangements. El Paso and Coastal have agreed to two types of
retention arrangements for employees of Coastal and its subsidiaries. First,
prior to the completion of the merger, Coastal will set aside $5 million to make
payments, at its discretion and in consultation with El Paso, to provide
incentives to key employees to remain with Coastal from the date of the merger
agreement through to the effective time of the merger or later, as El Paso and
Coastal may agree. Second, Coastal will establish a retention program for
employees who will not be offered jobs with the combined company but whose
services are necessary after the effective time of the merger on a transition
basis. Retention payments under this program will equal one week of base salary
or wages for each whole and partial month of transition service. Employees of
Coastal and its subsidiaries who participate in the voluntary early retirement
incentive window program are not eligible for this retention program. Employees
of Coastal and its subsidiaries who are parties to individual employment
agreements with severance arrangements are not eligible for either of these
retention arrangements.
Conversion of Pension Plan. El Paso and Coastal have also agreed to
measures about how participants in Coastal's pension plans will be transitioned
from a final average pay formula to a cash balance benefit formula and for the
provision of retiree medical coverages and benefits to participants in the
voluntary early retirement incentive window program and certain former Coastal
employees, subject in each case to the terms of the merger agreement.
Insurance and Indemnification. El Paso will obtain and maintain in effect
for six years after the completion of the merger a directors' and officers'
liability insurance policy, substantially equivalent to El Paso's current
policy, insuring Coastal's directors and officers for all liabilities and costs
arising from acts or omissions that occurred prior to or as of the completion of
the merger. El Paso will not, however, be required to pay, in total, an annual
premium for the insurance in excess of 200% of the current annual premium paid
by El Paso for its existing coverage. If the annual premiums of that insurance
coverage exceed that amount, El Paso will be obligated to obtain a policy with
as much coverage available for a cost up to but not exceeding that amount.
From and after the completion of the merger, El Paso will, to the fullest
extent permitted under applicable law, indemnify each person who is, or has
been, an officer or director of Coastal or any of its subsidiaries against all
losses, damages and expenses, including reasonable attorneys' fees, in
connection with any lawsuit or investigation arising out of or pertaining to
acts or omissions, or alleged acts or omissions, by them in their capacities as
such, prior to or as of the completion of the merger.
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The indemnified parties will, for a period of six years after the
completion of the merger, be entitled to the benefit of the provisions of
Coastal's certificate of incorporation and by-laws relating to indemnification,
limitation of liability and advancement of expenses of officers and directors.
Fees and Expenses. Whether or not the merger is completed, we will each pay
our own costs and expenses incurred in connection with the merger agreement,
subject to the expense reimbursement provisions described below under
"-- Termination." Subject to those expense reimbursement provisions, we will,
however, split on a 50-50 basis the filing, printing and mailing fees and
expenses incurred in connection with any required federal or state securities
law filings or approvals, filings made pursuant to the HSR Act, and other
expenses not directly attributable to one of the parties.
New York Stock Exchange Listing. El Paso is required to prepare and submit
to the New York Stock Exchange a listing application with respect to the shares
of El Paso common stock to be issued in connection with the merger and to use
reasonable best efforts to obtain approval for the listing of those shares of El
Paso common stock on the New York Stock Exchange. When the merger is completed,
we will delist the Coastal common stock, Series A convertible preferred stock
and Series B convertible preferred stock from each of the stock exchanges on
which it is currently listed and deregister these classes of shares under the
Securities Exchange Act of 1934. Consequently, Coastal stockholders will no
longer be able to trade these shares on any exchange.
Tax Treatment. We must use our reasonable best efforts to cause the merger
to qualify as a reorganization under Section 368(a) of the Internal Revenue Code
and cannot knowingly take any action or fail to take any action that would
reasonably be expected to cause the merger not to so qualify as a
reorganization.
Pooling of Interests. We must use our reasonable best efforts to cause the
merger to be accounted for as a pooling of interests and cannot knowingly take
any action that would cause that accounting treatment not to be obtained.
Publicity. We have agreed to consult with one another and use our
reasonable best efforts to agree upon the text of any press release or public
statement relating to the merger or required by any governmental entity or
regulatory body.
Reasonable Best Efforts. Each of us has agreed to use its reasonable best
efforts to take all actions necessary or advisable under applicable law to
complete the merger, including:
- promptly preparing and filing all necessary applications, notices and
filings with third parties and governmental entities; and
- taking all reasonable steps necessary to obtain all material consents and
approvals.
We have each also agreed to supply to the Federal Trade Commission or other
governmental agency, additional information that may be requested under the HSR
Act and any other regulatory laws and to take all actions necessary to cause the
expiration of the applicable waiting periods under the HSR Act as soon as
practicable. We are not, however, required to sell, hold separate or otherwise
dispose of any of our consolidated assets or to conduct our business in a
specified manner as a condition to obtaining any government approval or for any
other reason if the result would reasonably be likely to have a materially
adverse effect on the business, financial condition or results of operations of
the combined company. El Paso is also not obligated to take action that would
reasonably be likely to have a material adverse effect on Tennessee Gas Pipeline
Company, a subsidiary of El Paso, or ANR Pipeline Company, a subsidiary of
Coastal. In addition, without the consent of El Paso, Coastal may not take any
action that would reasonably be likely to have a material adverse effect on the
business, financial condition or results of operations of the combined company
or on Tennessee Gas Pipeline Company or ANR Pipeline Company.
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CONDITIONS TO THE COMPLETION OF THE MERGER
Our obligations to complete the merger are subject to the satisfaction or
waiver of various conditions on or before the date on which the merger is
completed, which include, in addition to other customary closing conditions, the
following:
- the Coastal stockholders having approved and adopted the merger
agreement;
- the El Paso stockholders having approved the issuance of common stock of
El Paso in connection with the merger;
- no court having issued an order and no law having been enacted that
prevents the completion of the merger or makes the completion of the
merger illegal;
- the waiting period under the HSR Act having expired or terminated;
- governmental and regulatory authorities, including the FERC, having
issued to us all other approvals necessary to complete the transactions
without conditions that would be materially adverse to El Paso's or
Coastal's businesses, financial condition or results of operations unless
the failure to obtain the approvals would not reasonably be expected to
have a material adverse effect on the business, financial condition or
the results of operations of the combined company or a material adverse
effect on Tennessee Gas Pipeline Company or ANR Pipeline Company;
- the shares of El Paso common stock issuable in connection with the merger
having been approved for listing on the New York Stock Exchange; and
- Coastal having received and delivered to El Paso a letter from Coastal's
independent public accountants stating that Coastal's independent public
accountants concur with Coastal management's conclusion that Coastal is
eligible to participate in a transaction accounted for as a pooling of
interests, and El Paso having received and delivered to Coastal a letter
from El Paso's independent public accountants stating that El Paso's
independent public accountants concur with El Paso management's
conclusion that accounting for the merger as a pooling of interests is
appropriate.
In addition, the obligations of each of us to effect the merger are subject
to the satisfaction or waiver of the following additional conditions:
- the representations and warranties made by the other in the merger
agreement being true and correct, except to the extent that the failure
to be true and correct would not reasonably be expected to have a
material adverse effect on the representing party;
- the other party to the merger agreement having performed in all material
respects all obligations required to be performed by it under the merger
agreement on or before the date of the completion of the merger; and
- our legal tax counsel having furnished us opinions that the merger will
constitute a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code. This condition may not be waived unless Coastal
stockholder approval is obtained.
TERMINATION
The merger agreement may be terminated:
- by our mutual written consent;
- by either of us:
- if we do not complete the merger on or before the "drop-dead date."
January 17, 2001 has been designated the drop-dead date. However, if the
merger is not completed by that day, solely because necessary regulatory
consents have not been obtained, then the drop-dead date will be
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April 17, 2001. Moreover, neither of us may terminate the merger
agreement if our failure to fulfill any of our obligations under the
merger agreement is the cause of the merger not being completed by the
drop-dead date;
- if a court issues a final non-appealable order that makes the merger
illegal or permanently prohibits the completion of the merger, but only
if the party seeking to terminate the merger agreement has used all
reasonable best efforts to have the court order vacated;
- if (1) there has been a material breach by the other party of its
representations, warranties, covenants or agreements contained in the
merger agreement, (2) the breach would result in the failure to satisfy
one or more of the conditions to the merger, and (3) the breach is
incapable of being cured or, if capable of being cured, has not been
cured within 20 days after written notice was received by the party
alleged to be in breach;
- if Coastal stockholders fail to approve and adopt the merger agreement
at Coastal's special meeting;
- if El Paso stockholders fail to approve the El Paso stock issuance at El
Paso's special meeting;
- if the relevant company's board has resolved to accept a superior
proposal in the manner described under "-- Covenants -- No Solicitation"
above and it has paid to the other company the $300 million termination
fee and expenses described below; or
- if the other company's board (1) fails to reaffirm its recommendation of
the merger within 15 days of a request to do so, (2) withdraws or
modifies in any manner adverse to the terminating company its approval
or recommendation of the transactions under the merger agreement, or (3)
approves or recommends any takeover proposal or acquisition transaction
involving the other company.
Coastal and El Paso have each agreed that it will pay the other company a
$300 million termination fee and reimburse up to $10 million of the other
company's expenses incurred in connection with the merger agreement if:
- (1) any person makes a takeover proposal to the paying company or its
stockholders, and El Paso or Coastal terminates the merger agreement
because of the occurrence of the drop-dead date or because the paying
company's stockholders fail to approve the merger, and (2) within 12
months after the termination of the merger agreement, the paying company
enters into or completes another transaction;
- any person makes a takeover proposal to the paying company or its
stockholders and the other company terminates the merger agreement
because the paying company's board withdraws, modifies or fails to affirm
its approval or recommendation of the merger or has approved the takeover
proposal;
- (1) no takeover proposal has been made to the paying company or its
stockholders, but the other company terminates the merger agreement
because the paying company's board withdraws, modifies or fails to affirm
its approval or recommendation of the merger, and (2) within three months
after the termination of the merger agreement, the paying company enters
into or completes another transaction; or
- the paying company terminates the merger agreement because it accepts a
superior proposal under circumstances described above.
Coastal and El Paso have agreed also to reimburse the other company for up
to $10 million of its expenses if the paying company's stockholders fail to
approve the transaction, even if no takeover proposal had been previously made.
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AMENDMENTS
We may amend the merger agreement at any time before or after stockholder
approval of the matters contemplated by the merger agreement. After the
stockholder approval, we may not make any amendment that, by law or in
accordance with the rules of any relevant stock exchange, requires further
approval by either Coastal stockholders or El Paso stockholders without the
further approval of those stockholders.
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MATERIAL TERMS OF THE STOCK OPTION AGREEMENTS
As an inducement and condition to entering into the merger agreement, El
Paso and Coastal granted to each other options to purchase shares of their
common stock equal to approximately 14.9% of their currently outstanding shares.
We have attached the stock option agreements as Annexes B and C to this joint
proxy statement/prospectus and incorporate those agreements into this joint
proxy statement/ prospectus by reference. We encourage you to read these
agreements. The description of the stock option agreements we provide below is
qualified in its entirety by reference to those agreements.
TERMS OF THE OPTIONS
Number of Shares and Exercise Price. Under the El Paso stock option
agreement, El Paso has granted to Coastal an option to purchase up to 35,080,566
shares of El Paso common stock at a price per share equal to $37.80. Under the
Coastal stock option agreement, Coastal has granted to El Paso an option to
purchase up to 31,834,515 shares of Coastal common stock at a price per share
equal to $34.14375.
The number and type of securities subject to each option and their exercise
price will be adjusted to preserve the economic benefit of the options, if there
is any change in or distribution in respect of the granting party's common stock
by reason of a merger, recapitalization, stock dividend, split-up, combination,
exchange of shares or any similar event.
Exercise Rights. Each party holding an option may exercise its option in
the event that the merger agreement is terminated under circumstances which
entitle the option holder to receive a termination fee, as described above
beginning on page 64 in "Material Terms of the Merger Agreement -- Termination."
Expiration. To the extent an option has not been exercised, it will expire
upon the earlier of:
- completion of the merger; and
- nine months after the occurrence of one of the events entitling the
option holder to receive a termination fee as described in the previous
paragraph.
SUBSTITUTE OPTION
If the party that granted an option under a stock option agreement enters
into an agreement to:
- consolidate with or merge into any person in a transaction in which it is
not the surviving corporation or in which its common stock represents
less than 50% of the voting securities of the surviving corporation; or
- sell all or substantially all of its assets,
then the option will be converted into or exchanged for an option with identical
terms appropriately adjusted to acquire the number and class of shares or other
securities, cash or property that the option holder would have received if the
option had been exercised immediately prior to such consolidation, merger or
sale.
EXCHANGE OPTION
Each option agreement provides that, if the party that granted an option
enters into any agreement (1) providing that all of its shares are to be
purchased for, or converted into the right to receive, cash or (2) with respect
to any merger, consolidation or sale of substantially all assets described above
under "-- Substitute Option," the party is required to make a proper provision
in the agreement to provide that, if the option has not yet been exercised and
is then exercisable, then upon the completion of any of these
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transactions, the option holder will have the right, at its election, to receive
in exchange for the cancellation of the option an amount in cash equal to the
product of:
- the number of shares subject to the option; and
- the difference between the exercise price for the options and the market
value of those shares before the transaction is entered into or the
market value of the shares before the transaction is completed, whichever
is greater.
In either case, the market value of the shares is based on the average closing
price for those shares over a ten-trading day period.
LIMITATION OF PROFIT
Each option holder's total profit under the applicable stock option
agreement may not exceed $325 million. The total profit under each option
agreement is the sum of:
- any termination fees received under the merger agreement, as described in
"Material Terms of the Merger Agreement";
- any net cash proceeds from the exchange of the option pursuant to the
option agreements as described above under "--Exchange Option"; and
- any cash proceeds of the sale of the option shares to a third party, less
the option exercise price paid for those option shares.
EFFECT OF STOCK OPTION AGREEMENTS
The stock option agreements are intended to increase the likelihood that
the merger will be completed under the terms of the merger agreement. The stock
option agreements would have the effect of making an acquisition or other
combination of either company by or with a third party more costly because of
the need in any such transaction to acquire or otherwise provide for the shares
of the issuer's common stock purchased by the option holder by reason of the
holder's exercise of the option. Moreover, following consultation with each of
their independent accountants, the management of El Paso and Coastal believe
that if an option becomes exercisable it is likely during the following two
years to preclude any other acquiror of the company that granted the option from
accounting for any acquisition by using the pooling of interests accounting
method. Accordingly, the stock option agreements may discourage a third party
from proposing another transaction, including one that might be more favorable
to stockholders than the merger.
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THE SPECIAL MEETINGS
DATES, TIMES AND PLACES
El Paso. El Paso's special meeting will be held at The Westin Galleria,
5060 W. Alabama, Houston, Texas 77056, at 9:00 a.m., local time, on Friday, May
5, 2000.
Coastal. Coastal's special meeting will be held at the Renaissance Houston
Hotel, located at 6 Greenway Plaza East, Houston, Texas 77046, at 9:00 a.m.,
local time, on Friday, May 5, 2000.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
El Paso. At El Paso's special meeting, holders of El Paso common stock will
be asked to approve the issuance of shares of El Paso common stock to Coastal
stockholders and optionholders in connection with the proposed merger. See "The
Merger" and "Material Terms of the Merger Agreement."
The El Paso board believes that the merger agreement, the merger and the
related transactions, including the issuance of El Paso common stock in
connection with the merger, are fair to and in the best interests of El Paso and
its stockholders and unanimously recommends that El Paso stockholders vote FOR
approval of the issuance of shares of El Paso common stock in connection with
the merger.
Coastal. At Coastal's special meeting, holders of Coastal common stock,
Class A common stock, $1.19 Series A convertible preferred stock, $1.83 Series B
convertible preferred stock and $5.00 Series C convertible preferred stock will
be asked to approve and adopt the merger agreement. See "The Merger" and
"Material Terms of the Merger Agreement."
The Coastal board believes that the merger agreement, the merger and the
related transactions are fair to and in the best interests of Coastal and its
stockholders and unanimously recommends that Coastal stockholders vote FOR the
approval and adoption of the merger agreement.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
El Paso. Only holders of record of El Paso common stock at the close of
business on March 17, 2000, the record date for El Paso's special meeting, are
entitled to notice of and to vote at El Paso's special meeting. At the close of
business on March 14, 2000, 236,505,461 shares of El Paso common stock were
issued and outstanding and held by approximately 68,000 holders of record.
Holders of a majority of the shares of El Paso common stock issued and
outstanding and entitled to vote on the record date must be represented in
person or by proxy at El Paso's special meeting in order for a quorum to be
established for purposes of transacting business at El Paso's special meeting.
Abstentions and broker "non-votes" will be considered present for purposes of
establishing a quorum. A broker non-vote occurs when a broker is not permitted
to vote on a matter without instruction from the beneficial owner of the shares
and no instruction is given. If a quorum is not established, we expect that the
meeting will be adjourned or postponed to solicit additional proxies. Holders of
record of El Paso common stock on the record date are each entitled to one vote
per share on each matter to be considered at El Paso's special meeting.
Coastal. Only holders of record of the common stock, Class A common stock,
$1.19 Series A convertible preferred stock, $1.83 Series B convertible preferred
stock, and $5.00 Series C convertible preferred stock of Coastal at the close of
business on March 17, 2000, the record date for Coastal's special meeting, are
entitled to receive notice of and to vote at Coastal's special meeting. At the
close of business on March 14, 2000, 213,369,398 shares of Coastal common stock,
343,226 shares of Class A common stock, 52,709 shares of $1.19 Series A
convertible preferred stock, 57,555 shares of $1.83 Series B convertible
preferred stock, and 26,680 shares of $5.00 Series C convertible preferred stock
were issued and outstanding. A majority of the votes represented by shares of
Coastal stock issued and outstanding and entitled to vote on the record date
must be represented in person or by proxy at Coastal's special meeting in order
for a quorum to be established for purposes of transacting business at Coastal's
special meeting. Abstentions and broker non-votes will be considered present for
purposes of establishing a quorum. If a quorum is not established at Coastal's
special meeting, we expect that the meeting will be adjourned or
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postponed to solicit additional proxies. Holders of record of shares of Coastal
common stock, $1.19 Series A convertible preferred stock, $1.83 Series B
convertible preferred stock, and $5.00 Series C convertible preferred stock on
the record date are each entitled to one vote at Coastal's special meeting.
Holders of record of Class A common stock on the record date are each entitled
to one hundred votes per share at Coastal's special meeting.
VOTES REQUIRED
El Paso. To approve the issuance of shares of El Paso common stock in
connection with the merger, El Paso stockholders must vote a majority of all
shares voted by all El Paso stockholders at the special meeting in favor of the
proposal for the issuance of those shares, provided that the total number of
votes cast represents a majority of the total number of El Paso common stock
outstanding on the record date. At the special meeting, El Paso stockholders
will be entitled to vote a total of approximately 236,505,461 shares of El Paso
common stock.
Coastal. To approve and adopt the merger agreement, Coastal stockholders
must cast a majority of the total number of votes that they are entitled to cast
at the special meeting in favor of the proposal to approve and adopt the merger
agreement. At the special meeting, Coastal stockholders will be entitled to cast
a total of approximately 247,828,942 votes. AN ABSTENTION OR A BROKER OR OTHER
NON-VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL TO ADOPT THE
MERGER AGREEMENT.
SHARE OWNERSHIP AND VOTING POWER OF MANAGEMENT
El Paso. As of the close of business on March 14, 2000, the directors and
executive officers of El Paso held, and they will be entitled to vote at the
special meeting, approximately 18.8 million shares of El Paso common stock.
These shares represent approximately 7.9% of the total number of shares of El
Paso common stock El Paso stockholders will be entitled to vote at the special
meeting. All of the executive officers and directors of El Paso have indicated
to us that they intend to vote their shares in favor of the issuance of El Paso
common stock in connection with the merger.
Coastal. As of the close of business on March 14, 2000, the directors and
executive officers of Coastal held approximately 5,652,180 shares of Coastal
common stock and 183,966 shares of Class A common stock. They will be entitled
to cast approximately 24,048,780 votes at the special meeting, representing
approximately 9.7% of the total number of votes Coastal stockholders will be
entitled to cast at that meeting. All of the executive officers and directors of
Coastal have indicated to us that they intend to vote their shares in favor of
the approval and adoption of the merger agreement.
VOTING OF PROXIES; SHARES HELD IN "STREET NAME"
Submitting Proxies. El Paso and Coastal stockholders may submit their
proxies by attending their respective special meetings and voting their shares
in person at the meetings, or by completing the enclosed proxy card, signing and
dating it and mailing it in the enclosed postage-prepaid envelope. If a written
proxy card is signed by a stockholder and returned without instructions, the
shares represented by the proxy will be voted for the proposal presented at El
Paso's special meeting or for the proposal presented at Coastal's special
meeting, as applicable.
In addition, El Paso and Coastal stockholders may submit their proxies by
telephone. Coastal stockholders may also submit their proxies over the Internet.
The telephone and Internet voting procedures are designed to authenticate votes
cast by use of a personal identification number. These procedures allow
stockholders to appoint a proxy to vote their shares and to confirm that their
instructions have been properly recorded. Instructions for voting by telephone
and, if you are a Coastal stockholder, over the Internet are printed on the
proxy card for stockholders of record of El Paso and Coastal.
Shares held in "Street Name." El Paso and Coastal stockholders whose shares
are held in "street name," meaning in the name of a bank, broker or other record
holder, must either direct the record holder of their shares as to how to vote
their shares or obtain a proxy from the record holder to vote at their special
meeting.
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Under the applicable rules of the New York Stock Exchange, brokers who hold
shares in street names for customers who are the beneficial owners of those
shares are prohibited from giving a proxy to vote those customers' shares with
respect to the matters to be voted on at the special meetings in the absence of
specific instructions from the customer. Brokers are also required to request
instructions from beneficial owners.
Revoking or Changing Proxies
El Paso and Coastal stockholders of record may revoke or change their
proxies at any time prior to the time their proxies are voted at El Paso's
special meeting or Coastal's special meeting. Proxies may be revoked by written
notice, including by facsimile, to the Corporate Secretary of El Paso or the
Corporate Secretary of Coastal, as applicable, and may be revoked or changed by
a later dated proxy signed and returned by mail or by attending El Paso's
special meeting or Coastal's special meeting, as applicable, and voting in
person. Attendance at El Paso's special meeting or Coastal's special meeting
will not in and of itself constitute a revocation of a proxy. El Paso and
Coastal stockholders of record may also revoke or change their proxies by a
later-dated proxy using the telephone voting procedures or the Internet voting
procedures. Any written notice of a revocation of a proxy must be sent so as to
be delivered before the taking of the vote at the applicable special meeting as
follows:
FOR EL PASO STOCKHOLDERS, TO:
El Paso Energy Corporation
El Paso Energy Building
1001 Louisiana Street
Houston, Texas 77002
Telecopy: (713) 420-4099
Attention: Corporate Secretary
FOR COASTAL STOCKHOLDERS, TO:
The Coastal Corporation
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046-0995
Telecopy: (713) 877-7071
Attention: Senior Vice President and Secretary
El Paso stockholders who require assistance in changing or revoking a proxy
should contact Georgeson Shareholder Communications Inc., and Coastal
stockholders who require assistance in changing or revoking a proxy should
contact D.F. King & Co. at their addresses and phone numbers provided in this
joint proxy statement/prospectus under the caption "Who Can Answer Your
Questions" on page 4.
Other Business; Adjournments
We are not aware of any other business to be acted upon at either special
meeting. If, however, other matters are properly brought before either special
meeting, or any adjourned meeting, your proxies will have discretion to act on
those matters or to adjourn the meeting, according to their best judgment.
Adjournments of the special meeting may be made for the purpose of, among
other things, soliciting additional proxies. Any adjournments may be made at any
time by stockholders representing a majority of the votes present in person or
by proxy at the applicable special meeting, whether or not a quorum exists,
without further notice other than by an announcement made at the meeting.
Neither company currently intends to seek an adjournment of its special meeting.
General Information
The cost of solicitation of proxies from El Paso stockholders will be paid
by El Paso and the cost for solicitation of proxies from Coastal stockholders
will be paid by Coastal. In addition to solicitation by mail,
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the directors, officers and employees of El Paso and Coastal may also solicit
proxies from stockholders by telephone, telecopy, telegram, over the Internet or
in person. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries to send the proxy materials to beneficial
owners, and El Paso or Coastal, as the case may be, will, upon request,
reimburse those brokerage houses and custodians for their reasonable expenses in
so doing.
El Paso has retained Georgeson Shareholder Communications Inc. to aid in
the solicitation of proxies and to verify records related to the solicitations.
Georgeson Shareholder Communications Inc. will receive a fee of $12,500 as
compensation for its services plus reimbursement for its related out-of-pocket
expenses. El Paso has agreed to indemnify Georgeson Shareholder Communications
Inc. against specified liabilities arising out of or in connection with its
engagement.
Coastal has retained D.F. King & Co. to aid in the solicitation of proxies
and to verify records related to the solicitations. D.F. King & Co. will receive
a fee of $7,500 as compensation for its services plus a per call solicitation
charge and reimbursement for its related out-of-pocket expenses. Coastal has
agreed to indemnify D.F. King & Co. against specified liabilities arising out of
or in connection with its engagement.
Stockholders who submit proxy cards should not send in any stock
certificates with their proxy cards. A letter of transmittal with instructions
for the surrender of certificates representing shares of Coastal stock will be
mailed by El Paso to former Coastal stockholders shortly after the merger is
completed. See "Material Terms of the Merger Agreement -- Procedures for
Surrender of Certificates; Fractional Shares."
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FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma financial information gives effect to the
merger using the pooling of interests method of accounting. This information is
presented to show the estimated impact of the merger as if our companies had
always been combined. This presentation assumes the issuance of approximately
270 million shares of El Paso common stock in connection with the merger. The
Unaudited Pro Forma Condensed Combined Statements of Income are prepared as if
we completed the merger as of January 1, 1997, and the Unaudited Pro Forma
Condensed Combined Balance Sheet was prepared as if we completed the merger on
December 31, 1999.
The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements explain the assumptions used in preparing the financial information,
and do not reflect cost savings from operating efficiencies or other
improvements we may achieve by combining our companies. The historical financial
information for Coastal includes certain reclassifications to conform to El
Paso's presentation. These reclassifications have no impact on income from
continuing operations or total stockholders' equity.
Accounting policy differences and intercompany balances between El Paso and
Coastal are not expected to be material and, accordingly, adjustments have not
been included in these statements.
We are providing this financial information for illustration purposes only.
It does not necessarily indicate what the operating results and financial
position of the combined company might have been had the merger been completed
at the beginning of the earliest period presented, nor does it necessarily
indicate what the combined company's operating results and financial position
will be following the merger.
The accompanying unaudited pro forma financial information should be read
in conjunction with:
- the audited consolidated financial statements and other financial
information included in El Paso's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, including the notes to those
financial statements; and
- the audited consolidated financial statements and other financial
information contained in Coastal's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, including the notes to those
financial statements.
See "Where You Can Find More Information" on page 89.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
EL PASO COASTAL COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Total current assets............................... $ 2,911 $ 2,924 $ $ 5,835
Property, plant, and equipment, net................ 10,261 9,337 19,598
Other.............................................. 3,485 2,862 6,347
------- ------- ----- -------
Total assets............................. $16,657 $15,123 $ $31,780
======= ======= ===== =======
LIABILITIES & STOCKHOLDERS' EQUITY
Total current liabilities.......................... $ 3,702 $ 3,038 $ 70(a) $ 6,783
(27)(b)
------- ------- ----- -------
Long-term debt, less current maturities............ 5,223 4,798 10,021
------- ------- ----- -------
Deferred income taxes.............................. 1,738 1,814 3,552
------- ------- ----- -------
Other.............................................. 1,354 785 2,139
------- ------- ----- -------
Company-obligated preferred securities of
consolidated trusts.............................. 325 300 625
------- ------- ----- -------
Minority interest.................................. 1,368 451 1,819
------- ------- ----- -------
Stockholders' equity
Cumulative preferred stock....................... -- --(c)
Class A common stock............................. -- --(c)
Common stock..................................... 716 73 735(c) 1,524
Additional paid-in capital....................... 1,367 1,032 (868)(c) 1,531
Retained earnings................................ 1,207 2,965 (70)(a) 4,129
27(b)
Other............................................ (343) (133) 133(c) (343)
------- ------- ----- -------
Total stockholders' equity............... 2,947 3,937 (43) 6,841
------- ------- ----- -------
Total liabilities and stockholders'
equity................................. $16,657 $15,123 $ $31,780
======= ======= ===== =======
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial
Statements.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
EL PASO COASTAL COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues................................ $10,581 $8,197 $ $18,778
------- ------ ---- -------
Operating expenses
Cost of gas and other products.................. 7,974 5,149 13,123
Operation and maintenance....................... 979 1,587 2,566
Merger-related and asset impairment charges..... 557 557
Ceiling test charges............................ 352 352
Depreciation, depletion, and amortization....... 609 479 1,088
Taxes, other than income taxes.................. 146 100 246
------- ------ ---- -------
10,617 7,315 17,932
------- ------ ---- -------
Operating income (loss)........................... (36) 882 846
Other income, net................................. 227 146 373
------- ------ ---- -------
Income before interest, income taxes, and minority
interest........................................ 191 1,028 1,219
------- ------ ---- -------
Interest and debt expense......................... 453 323 776
Minority interest................................. 36 25 61
Income tax expense (benefit)...................... (81) 174 93
------- ------ ---- -------
408 522 930
------- ------ ---- -------
Income (loss) from continuing operations before
preferred dividends of subsidiaries............. (217) 506 289
Preferred stock dividends of subsidiaries......... 25 7 32
------- ------ ---- -------
Income (loss) from continuing operations.......... (242) 499 257
Dividends on preferred stock...................... --
------- ------ ---- -------
Income (loss) from continuing operations available
to common stockholders.......................... $ (242) $ 499 $ $ 257
======= ====== ==== =======
Basic earnings (loss) per share from continuing
operations available to common stockholders..... $ (1.06) $ 0.52
======= =======
Diluted earnings (loss) per share from continuing
operations available to common stockholders..... $ (1.06)(d) $ 0.51(d)
======= =======
Basic average common shares outstanding........... 228 269(e) 497
======= ==== =======
Diluted average common shares outstanding......... 239(d) 269(e) 508(d)
======= ==== =======
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial
Statements.
75
<PAGE> 84
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
EL PASO COASTAL COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues................................ $9,500 $7,368 $ $16,868
------ ------ --- -------
Operating expenses
Cost of gas and other products.................. 6,970 4,377 11,347
Operation and maintenance....................... 956 1,587 2,543
Merger-related and asset impairment charges..... 15 15
Ceiling test charges............................ 1,035 1,035
Depreciation, depletion, and amortization....... 624 443 1,067
Taxes, other than income taxes.................. 138 88 226
------ ------ --- -------
9,738 6,495 16,233
------ ------ --- -------
Operating income (loss)........................... (238) 873 635
Other income, net................................. 186 94 280
------ ------ --- -------
Income (loss) before interest, income taxes, and
minority interest............................... (52) 967 915
------ ------ --- -------
Interest and debt expense......................... 387 295 682
Minority interest................................. 12 16 28
Income tax expense (benefit)...................... (170) 166 (4)
------ ------ --- -------
229 477 706
------ ------ --- -------
Income (loss) from continuing operations before
preferred dividends of subsidiaries............. (281) 490 209
Preferred stock dividends of subsidiaries......... 25 7 32
------ ------ --- -------
Income (loss) from continuing operations.......... (306) 483 177
Dividends on preferred stock...................... 6 6
------ ------ --- -------
Income (loss) from continuing operations available
to common stockholders.......................... $ (306) $ 477 $ $ 171
====== ====== === =======
Basic earnings (loss) per share from continuing
operations available to common stockholders..... $(1.35) $ 0.35
====== =======
Diluted earnings (loss) per share from continuing
operations available to common stockholders..... $(1.35)(d) $ 0.34(d)
====== =======
Basic average common shares outstanding........... 226 268(e) 494
====== === =======
Diluted average common shares outstanding......... 237(d) 268(e) 505(d)
====== === =======
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial
Statements.
76
<PAGE> 85
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
EL PASO COASTAL COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues................................ $10,015 $9,730 $ $19,745
------- ------ --- -------
Operating expenses
Cost of gas and other products.................. 7,308 6,864 14,172
Operation and maintenance....................... 966 1,610 2,576
Merger-related and asset impairment charges..... 50 50
Depreciation, depletion, and amortization....... 639 433 1,072
Taxes, other than income taxes.................. 138 90 228
------- ------ --- -------
9,101 8,997 18,098
------- ------ --- -------
Operating income.................................. 914 733 1,647
Other income, net................................. 94 119 213
------- ------ --- -------
Income before interest and income taxes........... 1,008 852 1,860
------- ------ --- -------
Interest and debt expense......................... 344 308 652
Income tax expense................................ 234 138 372
------- ------ --- -------
578 446 1,024
------- ------ --- -------
Income from continuing operations before preferred
dividends of subsidiaries....................... 430 406 836
Preferred stock dividends of subsidiaries......... 25 7 32
------- ------ --- -------
Income from continuing operations................. 405 399 804
Dividends on preferred stock...................... 17 17
------- ------ --- -------
Income from continuing operations available to
common stockholders............................. $ 405 $ 382 $ $ 787
======= ====== === =======
Basic earnings per share from continuing
operations available to common stockholders..... $ 1.81 $ 1.60
======= =======
Diluted earnings per share from continuing
operations available to common stockholders..... $ 1.77 $ 1.58
======= =======
Basic average common shares outstanding........... 224 268(e) 492
======= === =======
Diluted average common shares outstanding......... 229 268(e) 497
======= === =======
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial
Statements.
77
<PAGE> 86
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) This amount reflects estimated transaction costs, including legal,
accounting, filing, printing and financial advisory services fees we
estimate we will incur in connection with the merger.
(b) This amount represents the income tax consequences of the $70 million of
estimated transaction costs associated with the merger, and was calculated
by multiplying $70 million by an assumed income tax rate of 38%.
(c) These numbers reflect the exchange in the merger of 1.23 shares of El Paso
common stock for each outstanding share of Coastal's common stock and each
share of Coastal's Class A common stock, 9.133 shares of El Paso common
stock for each outstanding share of Coastal's Series A and Series B
convertible preferred stock, 17.980 shares of El Paso common stock for each
outstanding share of Coastal's Series C convertible preferred stock, and the
cancellation of $133 million of Coastal treasury stock. These numbers also
include the issuance of an estimated 5.3 million shares of El Paso common
stock in exchange for Coastal stock options and restricted stock. The number
of shares issued for Coastal's stock options and restricted stock was
determined based on the fair value of these options and shares and based on
the average of the high and the low prices of El Paso's common stock on
February 18, 2000, which was $37.50.
(d) As required by the accounting rules, we calculated diluted earnings (loss)
per common share for 1999 and 1998 by excluding from the number of common
shares outstanding, those securities which, if included, would have caused
us to show greater earnings or a lower loss per common share.
(e) We determined these adjustment amounts by multiplying the average
outstanding shares of Coastal's common stock, Class A common stock, and
convertible preferred stock for each period by the applicable exchange ratio
contemplated by the merger agreement. Each period also includes the issuance
of an estimated 5.3 million shares of El Paso common stock for Coastal's
stock options and restricted stock.
78
<PAGE> 87
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Market Prices and Dividends. El Paso common stock is listed on the New York
Stock Exchange under the symbol "EPG." Coastal common stock is listed on the New
York Stock Exchange under the symbol "CGP." The Coastal common stock is also
listed on the Amsterdam, Dusseldorf, Frankfurt, Hamburg, Munich and London Stock
Exchanges. Coastal's $1.19 Series A convertible preferred stock and $1.83 Series
B convertible preferred stock are listed on the New York Stock Exchange under
the symbols "CGP-pa" and "CGP-pb," respectively. However, there is very limited
trading of these shares. The Coastal Class A common stock and $5.00 Series C
convertible preferred stock are not listed on any exchange and are not otherwise
publicly traded.
The table below sets forth, for the periods indicated, the high and low
sale prices of El Paso common stock and Coastal common stock as reported on the
New York Stock Exchange Composite Transaction Tape, in each case based on
published financial sources, and the cash dividends declared on El Paso common
stock and Coastal common stock for the same periods.
El Paso's common stock prices and the cash dividend amounts in the
following table have been adjusted to reflect El Paso's payment of a stock
dividend in April 1998 of one share of common stock for each share of common
stock then outstanding.
<TABLE>
<CAPTION>
EL PASO COMMON STOCK COASTAL COMMON STOCK
---------------------------- ----------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1998:
First Fiscal Quarter...... $35.625 $31.125 $.19125 $34.125 $26.594 $.0500
Second Fiscal Quarter..... 38.937 35.437 .19125 38.250 32.344 .0625
Third Fiscal Quarter...... 38.625 24.687 .19125 35.750 25.250 .0625
Fourth Fiscal Quarter..... 36.812 30.125 .19125 38.750 30.875 .0625
1999:
First Fiscal Quarter...... 39.375 30.687 .20 37.375 29.437 .0625
Second Fiscal Quarter..... 38.375 31.937 .20 43.875 32.750 .0625
Third Fiscal Quarter...... 40.500 34.437 .20 45.250 37.875 .0625
Fourth Fiscal Quarter..... 43.437 33.375 .20 42.500 31.250 .0625
2000:
First Fiscal Quarter
(through March 14,
2000).................. 40.500 30.313 .206 47.750 32.750 .0625
</TABLE>
On January 14, 2000, the last full trading day in the United States prior
to the public announcement of the proposed merger, the closing prices of El Paso
common stock and Coastal common stock reported on the New York Stock Exchange
Composite Transaction Tape were $37.125 per share and $36.00 per share,
respectively. On March 14, 2000, the most recent practicable date prior to the
printing of this joint proxy statement/prospectus, the closing prices of El Paso
common stock and Coastal common stock reported on the New York Stock Exchange
Composite Transaction Tape were $37.125 per share and $43.00 per share,
respectively. Stockholders should obtain current market quotations prior to
making any decision with respect to the merger.
Post-Merger Dividend Policy. Following the merger, we expect the combined
company will pay dividends on its common stock at El Paso's dividend rate,
currently $.206 per share per quarter. However, the payment of dividends will be
in the discretion of the combined company's board and will be determined after
consideration of various factors, including the earnings and financial condition
of the combined company and its subsidiaries.
79
<PAGE> 88
DIRECTORS OF THE COMBINED COMPANY AFTER THE MERGER
The El Paso board of directors currently consists of twelve members. As
called for by the merger agreement, following the merger the combined company's
board will be comprised of 12 members, seven of whom will be persons designated
by El Paso's current board of directors and five of whom will be persons
designated by Coastal's current board of directors.
Although the persons who will serve on the combined company's board have
not been formally designated, in accordance with the merger agreement, the
designees will include:
- Ronald L. Kuehn, Jr., currently Chairman of El Paso, if the merger is
completed before December 31, 2000;
- William A. Wise, currently President and Chief Executive Officer and a
director of El Paso, who will hold the position of Chairman of the
combined company after December 31, 2000; and
- David A. Arledge, currently Chairman, President and Chief Executive
Officer of Coastal, who will hold the position of Vice Chairman of the
combined company.
We have included biographical information regarding each of El Paso's and
Coastal's current board members in the section entitled "Information Regarding
El Paso and Coastal Directors" beginning on page 92.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Coastal and El Paso boards of
directors with respect to the merger, stockholders of Coastal and El Paso should
be aware that certain directors and members of management of Coastal have
interests in the merger that are different from, or in addition to, their
interests as stockholders generally. The Coastal and El Paso boards of directors
were aware of these interests and considered them, among other matters, in
approving the merger agreement.
Combined Company Directors. The merger agreement provides that five of
Coastal's current directors, including Mr. Arledge, designated by Coastal are to
become members of the combined company's board of directors at the effective
time of the merger. Mr. Arledge will become Vice Chairman of the combined
company's board of directors and will be responsible for overseeing the combined
company's non-regulated businesses. Under the by-law provisions to be adopted by
El Paso in connection with the merger, Mr. Arledge may not be removed from his
position before December 31, 2002 without a supermajority vote. See "The
Merger -- By-Laws of the Combined Company" on page 39 and "Material Terms of the
Merger Agreement -- Board of Directors; Nominating Committees; Officers" on page
56.
Coastal Stock Options and Restricted Stock. In connection with the merger,
all exercisable and unexercisable Coastal stock options and shares of restricted
stock will be exchanged for shares of the combined company having a market value
equal to the value of those options and shares determined under a variation of
the Black-Scholes option valuation methodology. Based on the average of the high
and low trading price of the El Paso common stock on February 18, 2000, which
was $37.50, under this valuation methodology, Mr. Arledge and the four other
most highly paid executive officers of Coastal would have received in exchange
for their Coastal options a total of 1,349,384 shares of El Paso common stock.
Based on the same assumptions, all of the Coastal executive officers and
directors as a group would have received in exchange for their Coastal options
and restricted shares a total of 2,231,129 shares of El Paso common stock. See
"Material Terms of the Merger Agreement -- Additional Agreements -- Coastal
Stock Options and Restricted Stock."
Employment Agreements. Mr. Arledge and 12 other Coastal executive officers
have signed employment agreements with Coastal and, prior to the merger, one
additional Coastal executive officer or key employee may sign an employment
agreement with Coastal. Mr. Arledge's employment agreement and the agreements of
two other executive officers are currently in effect, and the remaining
agreements will become effective as of the effective time of the merger. These
agreements have two or three year terms,
80
<PAGE> 89
and provide for base salary and annual cash bonuses during the term. In
addition, each of these agreements provides for a supplemental retirement
benefit. Each agreement also contains a one-year non-competition provision in
the event the executive is terminated for cause or if the executive terminates
his employment other than for good reason.
If the employment of an executive officer terminates after the completion
of the merger under circumstances that entitle him to severance payments and
benefits under his agreement, he will be entitled to the following:
- a lump-sum cash payment equal to 2.99 times the sum of his base salary
and annual target cash bonus;
- a lump-sum cash payment equal to any benefits forfeited by reason of the
termination, but excluding forfeited equity and equity-based benefits;
and
- continued participation in incentive, savings, retirement, welfare and
fringe benefit plans for a period of 36 months following termination, or
the cash equivalent of the foregoing.
Each executive officer will be entitled to the foregoing severance payments
and benefits due to any termination by Coastal other than for cause within two
or three years following the effective time of the merger and upon a termination
by the executive officer for good reason within this two- or three-year period.
For purposes of these employment agreements, good reason consists of a reduction
in compensation or benefits, forced relocation, or a material, adverse change in
titles, duties, responsibilities, perquisites or status.
If any payment to Mr. Arledge is subject to an excise tax under Section
4999 of the Internal Revenue Code, he will receive a gross-up payment to place
him in the net after-tax position he would have been in if he had not been
subject to the excise tax. Both companies believe that the merger will not
require any gross-up payment to be made to Mr. Arledge.
A Coastal executive officer who is entitled to an enhanced retirement
benefit under his employment agreement and under the voluntary early retirement
incentive window program will receive the greater of the two enhancements, but
not both enhancements.
We estimate, based on assumptions and data available as of a recent date,
that, if the employment of the five most highly paid Coastal executive officers
terminated immediately following the effective time of the merger under
circumstances that entitled them to severance payments and benefits under the
Coastal employment agreements, they would be entitled to cash severance benefits
under these agreements of approximately $12 million. We also estimate that the
cash severance benefits payable to all 21 of Coastal's executive officers as a
group upon termination of employment following the merger would be approximately
$24 million.
Insurance and Indemnification. Under the merger agreement, El Paso has
agreed to provide certain continuing indemnification and insurance benefits for
officers, directors and employees of Coastal. See "Material Terms of the Merger
Agreement -- Additional Agreements -- Insurance and Indemnification."
81
<PAGE> 90
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the merger, holders of shares of Coastal common stock, Class
A common stock, $1.19 Series A convertible preferred stock, $1.83 Series B
convertible preferred stock and $5.00 Series C convertible preferred stock will
become holders of shares of El Paso common stock and the rights of the former
Coastal stockholders will be governed by the certificate of incorporation of El
Paso, the by-laws of El Paso and the Delaware General Corporation Law. The
rights of the holders of shares of Coastal common stock, Class A common stock,
$1.19 Series A convertible preferred stock, $1.83 Series B convertible preferred
stock and $5.00 Series C convertible preferred stock are presently governed by
the certificate of incorporation of Coastal, the by-laws of Coastal and the
Delaware General Corporation Law. We have set forth on the following pages a
summary comparison of material differences among the rights of Coastal
stockholders under the current certificate of incorporation and by-laws of
Coastal (right column), and the rights of stockholders of the combined company
following the merger as governed by the amended certificate of incorporation and
by-laws of El Paso (left column). These rights may be subject to change through
amendment of the certificate of incorporation or by-laws.
This summary does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, the Delaware General Corporation Law,
as well as the certificates of incorporation and by-laws of each of Coastal and
El Paso, copies of which are on file with the SEC.
<TABLE>
<CAPTION>
EL PASO COASTAL
------- -------
<S> <C>
AUTHORIZED CAPITAL STOCK
750,000,000 shares of common stock, par 500,000,000 shares of common stock, par
value $3.00 per share. 50,000,000 shares of value $.33 1/3 per share. 2,700,000 shares
preferred stock, par value $.01 per share, of Class A common stock, par value $.33 1/3
of which 7,500,000 shares have been per share. 50,000,000 shares of cumulative
designated Series A junior participating convertible preferred stock, par value
preferred stock, par value $.01 per share. $.33 1/3 per share, of which 123,169 shares
No shares of the Series A junior have been designated $1.19 cumulative
participating preferred stock are currently convertible preferred stock, Series A,
outstanding. 348,015 shares have been designated $1.83
cumulative convertible preferred stock,
Series B, and 100,000 shares have been
designated $5.00 cumulative convertible
preferred stock, Series C.
VOTING RIGHTS
Each share of common stock entitles its Holders of common stock, Class A common
holder to one vote on all matters presented stock and each series of convertible
for a vote of the stockholders of El Paso. preferred stock generally vote together on
all matters reserved for a vote of the
stockholders of Coastal, except that, at any
meeting at which directors are to be
elected, one-quarter of the directors are
elected by the holders of common stock and
each series of convertible preferred stock
voting together as a class, without the
participation of the holders of Class A
common stock.
Each share of common stock and each share of
each series of convertible preferred stock
entitles its holder to one vote. Each share
of Class A common stock entitles its holder
to 100 votes.
</TABLE>
82
<PAGE> 91
<TABLE>
<CAPTION>
EL PASO COASTAL
------- -------
<S> <C>
Coastal may not, without the approval of
holders of at least two-thirds of shares of
each affected series of its convertible
preferred stock:
- create or issue any new class or series of
stock that ranks prior to a series of its
convertible preferred stock as to payment
of dividends or distribution of assets on
liquidation; or
- change the preferences, rights or powers
applicable to a series of its convertible
preferred stock so as to affect the stock
adversely.
SIZE OF THE BOARD OF DIRECTORS
May not be less than one. The board may fix May not be less than three nor more than 18.
the number of directors by a vote of a The board may fix the number of directors by
majority of the directors then in office. a vote of a majority of the directors then
The board currently consists of 12 in office. The board currently consists of
directors. 12 directors.
Pursuant to the merger agreement, the
by-laws of El Paso will be amended to
provide that, until December 31, 2002, the
board will consist of 12 directors, unless
increased in connection with a future
business combination transaction or with the
approval of two-thirds of the members of the
board who were designated by El Paso or
Coastal in connection with the merger and
their designated successors. See "The
Merger -- By-laws of the Combined Company"
on page 39.
ELECTION AND CLASSIFICATION OF THE BOARD OF DIRECTORS
Elected annually. The board of directors is classified into
three classes, with the term of office of
one class expiring each year. In case of any
increase in the number of directors, the
number of directors in each class is to be
as nearly equal as possible. Each director
is elected to a three-year term.
REMOVAL OF DIRECTORS; FILLING VACANCIES
Directors may be removed, with or without Directors may be removed only for cause.
cause, at any special meeting of the Vacancies on the board may be filled by
stockholders called for that purpose, and action of a majority of the directors then
the vacancy in the board resulting from a in office.
removal of that type may be filled by the
stockholders at a special meeting. Vacan-
cies and newly created directorships may be
filled in the manner set forth in the
Delaware General Corporation Law.
Pursuant to the merger agreement, El Paso's
by-laws will be amended to provide that,
until December 31, 2002, vacancies resulting
from the resignation of any of the directors
designated by El Paso in connection with the
merger and their
</TABLE>
83
<PAGE> 92
<TABLE>
<CAPTION>
EL PASO COASTAL
------- -------
<S> <C>
designated successors will be filled by a
nominating committee consisting of only
those directors, and vacancies resulting
from the resignation of any directors
designated by Coastal in connection with the
merger and their designated successors will
be filled by a nominating committee
consisting of only those directors. See "The
Merger -- By-laws of the Combined Company"
on page 39.
SPECIAL MEETINGS OF STOCKHOLDERS
Special meetings of the stockholders may be Special meetings of stockholders may be
called only by a majority of the board, the called only by a majority of the directors
Chairman of the board, the Chief Executive or by the Chairman of the board.
Officer, the President or the Vice Chairman
of the board.
Pursuant to the merger agreement, El Paso's
by-laws will be amended to provide that,
until December 31, 2002, no special meeting
of the stockholders may be called to vote on
the election or removal of directors without
the approval of two-thirds of the directors
designated by El Paso and Coastal in
connection with the merger and their
designated successors. See "The Merger --
By-laws of the Combined Company" on page 39.
ADVANCE NOTICE PROVISION
A stockholder's proposal or nomination must A stockholder's nomination must be received
be received by the corporate secretary not by the corporate secretary not less than 30
earlier than the close of business on the days before the date fixed for the meeting
120th day and not later than the close of at which the nomination would be voted upon.
business of the 90th day prior to the first Coastal does not have any advance notice
anniversary of the preceding year's annual provision applicable to other stockholder
meeting. proposals.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
A director, officer, employee or agent will Coastal's certificate of incorporation has a
be indemnified to the full extent authorized provision substantially similar to El Paso's
by the Delaware General Corporation Law indemnification provision.
against all liability incurred by such
indemnitee in connection with any actual or
threatened action because of his or her
position with respect to El Paso and that
indemnification shall continue as to an
indemnitee who has ceased to be a director,
officer, employee or agent; provided,
however, that El Paso will indemnify any of
these indemnitees seeking indemnification in
connection with a proceeding initiated by
that indemnitee only if the proceeding was
authorized by the board. The right to
indemnification includes the right to be
paid by El Paso the expenses incurred in
defending any such proceeding in advance of
its final disposition. El Paso may
</TABLE>
84
<PAGE> 93
<TABLE>
<CAPTION>
EL PASO COASTAL
------- -------
<S> <C>
maintain insurance, at its expense, to
protect itself and any other person against
any liability whether or not El Paso would
have the power to indemnify that person
against that liability under Delaware
General Corporation Law.
AMENDMENT OF BY-LAWS
The by-laws of El Paso may be amended by the Coastal's by-laws have a provision
affirmative vote of a majority of the entire substantially similar to El Paso's by-law
board, subject to the right of stockholders amendment provision prior to the merger.
to amend by-laws made or amended by the
board, by the affirmative vote of the
holders of a majority of the outstanding
shares represented at a stockholders meeting
and entitled to vote at that meeting.
After the merger is completed, subject to
the right of stockholders to amend the
by-laws, the affirmative vote of two-thirds
of the members of the board designated by El
Paso and Coastal in connection with the
merger, and their designated successors,
will be required to amend provisions of the
by-laws relating to the size of the board,
nomination of candidates for election to the
board, the designation of directors to fill
vacancies on the board and the removal of
the Chairman, Vice Chairman, President or
Chief Executive Officer.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The affirmative vote of holders of a The affirmative vote of holders of a
majority of shares of common stock is majority of the voting power of all shares
necessary to amend the certificate of of Coastal voting stock is necessary to
incorporation, except that the affirmative amend the certificate of incorporation,
vote of not less than 51% of all shares except that the provision in the certificate
entitled to vote in the election of of incorporation relating to the approval of
directors, excluding the shares of any a business combination can be amended only
holder of 10% or more of El Paso's common with the affirmative vote of the holders of
stock or the common stock of El Paso's 85% of the voting power of all the voting
affiliate (such holder is more fully stock, unless the amendment is unanimously
described below in "-- Fair Price recommended by the board of directors as
Provisions"), is necessary to amend (i) the long as all directors were elected by the
"fair price" provisions described below in stockholders prior to an acquisition of 20%
"-- Fair Price Provisions" and (ii) the or more of the voting stock of Coastal.
provision prohibiting action by stockholders
by written consent.
BUSINESS COMBINATIONS
The certificate of incorporation does not The certificate of incorporation permits
address the vote required by stockholders of mergers and sales or exchanges of all or
a surviving corporation to approve a merger, substantially all of the assets with another
unless the fair price provision described party that is not an owner of 20% or more of
below is applicable. Coastal's voting stock, with the approval of
the holders of a majority of the voting
power of all shares.
</TABLE>
85
<PAGE> 94
<TABLE>
<CAPTION>
EL PASO COASTAL
------- -------
<S> <C>
FAIR PRICE PROVISIONS
The affirmative vote of not less than 51% of The affirmative vote of not less than 85% of
the holders of El Paso common stock entitled the voting power of all the holders of
to vote in the election of directors, Coastal voting stock excluding the stock of
excluding the stock of any beneficial owner any beneficial owner of 20% or more of the
of 10% or more of El Paso's stock who is a voting power of all Coastal voting stock,
party to a merger or consolidation, is who is a party to the proposed merger or
required for the adoption or authorization consolidation, is required for the adop-
of a merger or consolidation, unless tion or authorization of the proposed merger
disinterested directors determine by a or consolidation with the 20% beneficial
two-thirds vote that: (i) the beneficial owner, unless disinterested directors
owner referred to above is the beneficial determine by a two-thirds vote that: (i) the
owner of not less than 80% of all shares and fair market value of the consideration per
has declared its intention to vote in favor share to be received by the holders of each
of or to approve such merger or class of stock in a merger or consolidation
consolidation; or (ii) (A) the fair market is equal to or greater than the
value of the consideration per share to be consideration per share paid by the 20%
received by the holders of each class or beneficial owner in acquiring the largest
series of stock in a merger or consolidation number of shares of the stock previously
is equal to or greater than the acquired; (ii) the fair market value of the
consideration per share paid by such 10% consideration per share to be received by
beneficial owner in acquiring the largest the holders of each class of stock in a
number of shares of such class of stock merger or consolidation (A) is not less than
previously acquired, and (B) the 10% the highest per share price paid by the 20%
beneficial owner shall not have received the beneficial owner in acquiring any of its
benefit except proportionately as a holdings and (B) is not less than the
stockholder, of any loans, advances, earnings per share of common stock of
guarantees, pledges or other financial Coastal for the four full consecutive fiscal
assistance provided by El Paso to approve quarters immediately preceding the record
such merger or consolidation. date for the solicitation of the votes for
the transaction multiplied by the then
price/earnings multiple, if any; (iii) after
the beneficial owner acquires 20% but before
completion of the business combination (A)
the beneficial owner ensures that Coastal's
board of directors includes representation
by directors who were elected prior to the
acquisition of 20% which is proportionate to
the stockholders not affiliated with the
beneficial owner, (B) there shall be no
reduction in the rate of dividends except as
may be approved by a unanimous vote of the
directors, (C) the 20% beneficial owner
shall not have acquired newly issued shares,
and (D) the 20% beneficial owner shall not
have acquired any additional stock; (iv) the
20% beneficial owner shall not have without
the unanimous approval of the board of
directors either (A) received the benefit of
any loans provided by Coastal or (B) made
any changes in Coastal's capital struc-
ture; and (v) a proxy shall be sent to the
</TABLE>
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<TABLE>
<CAPTION>
EL PASO COASTAL
------- -------
<S> <C>
stockholders that contains a recommendation
as to the advisability of the transaction.
STATE LAW TAKEOVER LEGISLATION
The company is subject to Section 203 of the The company is subject to Section 203 of the
Delaware General Corporation Law. Section Delaware General Corporation Law.
203 generally prohibits a Delaware
corporation from engaging in a "Business
Combination," defined as a variety of
transactions, including mergers, asset
sales, issuance of stock and other
transactions resulting in a financial
benefit to the interested stockholder, with
an "interested stockholder," defined
generally as a person that is the beneficial
owner of 15% or more of a corporation's
outstanding voting stock, for a period of
three years following the date that such
person became an interested stockholder
unless certain conditions are met.
SHAREHOLDER RIGHTS PLANS
One right issued under El Paso's rights Coastal has not adopted a shareholder rights
plan, is attached to each share of El Paso's plan.
common stock presently outstanding and
rights will be attached to any new shares of
common stock issued in the future. One right
will be issued with respect to each share of
common stock issued pursuant to the merger.
The rights are not exercisable unless a
person becomes the beneficial owner of 15%
or more of the voting power of El Paso
without the approval of El Paso. If without
the approval of El Paso a person becomes the
beneficial owner of 15% or more of the
voting power, then each right not owned by
the 15% beneficial owner will generally
entitle its holder to receive upon exercise
that number of shares of El Paso common
stock having a market value of twice the $75
exercise price of the rights. El Paso's
rights plan is currently scheduled to expire
on July 7, 2002.
CONVERSION
None. Each share of Class A common stock is
convertible at any time at the option of its
holder into one share of common stock. The
board may at any time, at its option,
convert all the shares of Class A common
stock into shares of common stock on a
share-for-share basis.
Each share of $1.19 Series A convertible
preferred stock is convertible at any time
at the option of its
</TABLE>
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<TABLE>
<CAPTION>
EL PASO COASTAL
------- -------
<S> <C>
holder into 7.325 shares of common stock and
.1 of a share of Class A Common Stock.
Each share of $1.83 Series B convertible
preferred stock is convertible at any time
at the option of its holder into 7.325
shares of common stock and .1 of a share of
Class A common stock.
Each share of $5.00 Series C convertible
preferred stock is convertible at any time
at the option of its holder into 14.421
shares of common stock and .197 of a share
of Class A common stock.
REDEMPTION
None. Each share of $1.19 Series A convertible
preferred stock is redeemable by Coastal at
any time for $33 per share.
Each share of $1.83 Series B convertible
preferred stock is redeemable by Coastal at
any time for $50 per share.
Each share of $5.00 Series C convertible
preferred stock is redeemable by Coastal at
any time for $100 per share.
</TABLE>
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<PAGE> 97
WHERE YOU CAN FIND MORE INFORMATION
El Paso has filed with the SEC a registration statement under the
Securities Act of 1933 that registers the distribution to Coastal stockholders
of El Paso common stock to be issued in connection with the merger. The
registration statement, including the attached exhibits and schedules, contains
additional relevant information about El Paso and Coastal. The rules and
regulations of the SEC allow us to omit some information included in the
registration statement from this joint proxy statement/prospectus.
In addition, we file reports, proxy statements and other information with
the SEC under the Securities Exchange Act of 1934. You may read and copy this
information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
Room 1024 Suite 1300 Citicorp Center
450 Fifth Street, N.W. 7 World Trade Center Suite 1400
Washington, D.C. 20549 New York, New York 10048 500 West Madison Street
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. The SEC also maintains an
Internet World Wide Web site that contains reports, proxy statements and other
information about issuers, including El Paso and Coastal, who file
electronically with the SEC. The address of that site is http://www.sec.gov. You
can also inspect reports, proxy statements and other information about each of
us at the offices of The New York Stock Exchange, Inc., located at 20 Broad
Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" information into this
document. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this document, except
for any information that is superseded by information that is included directly
in this document.
This document incorporates by reference the documents listed below that we
have previously filed with the SEC. They contain important information about our
companies and their financial condition. Some of these filings have been amended
by later filings, which are also listed.
<TABLE>
<CAPTION>
EL PASO'S SEC FILINGS (FILE NO. 1-14365) DESCRIPTION OR PERIOD/AS OF DATE
- ---------------------------------------- --------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1999
Current Report on Form 8-K, dated January Discloses the entering into of the merger
18, 2000 agreement and related matters
Current Report on Form 8-K/A, dated January Contains, as an exhibit, a presentation to
20, 2000 analysts regarding the proposed merger
Current Report on Form 8-K, dated February Discloses the entering into an agreement to
2, 2000 purchase the natural gas and natural gas
liquids businesses of subsidiaries of PG&E
Corporation
Current Report on Form 8-K, dated March 10, Discloses unaudited pro forma financial
2000 information of El Paso and Coastal giving
effect to the merger
</TABLE>
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<PAGE> 98
<TABLE>
<CAPTION>
EL PASO'S SEC FILINGS (FILE NO. 1-14365) DESCRIPTION OR PERIOD/AS OF DATE
- ---------------------------------------- --------------------------------
<S> <C>
Current Report on Form 8-K, dated March 16, Discloses the filing of a comprehensive
2000 settlement agreement with the Federal Energy
Regulatory Commission regarding a rate
proceeding and the closings of the sales of
East Tennessee Natural Gas Company and Sea
Robin Pipeline Company
Registration Statement on Form 8-A, dated Contains a description of the El Paso common
August 3, 1998 stock
Registration Statement on Form 8-A/A, dated Contains a description of the El Paso
January 29, 1999 preferred stock purchase rights
COASTAL'S SEC FILINGS (FILE NO. 1-7176)
- --------------------------------------------
Annual Report on Form 10-K/A Year ended December 31, 1999
Current Report on Form 8-K, dated January Discloses the entering into of the merger
18, 2000 agreement and related matters
Current Report on Form 8-K, dated January Contains, as an exhibit, a presentation to
20, 2000. analysts regarding the proposed merger.
</TABLE>
We incorporate by reference additional documents that either company may
file with the SEC between the date of this document and the date of our special
meetings. These documents include periodic reports, including Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document through El Paso or Coastal, as the case may be, or from the SEC through
the SEC's web site at the address provided above. Documents incorporated by
reference are available from us without charge, excluding any exhibits to those
documents unless the exhibit is specifically incorporated by reference as an
exhibit in this document. You can obtain documents incorporated by reference in
this document by requesting them in writing or by telephone from the appropriate
company at the following addresses:
<TABLE>
<S> <C>
El Paso Energy Corporation The Coastal Corporation
Office of Corporate Secretary Office of Corporate Secretary
El Paso Energy Building Coastal Tower
1001 Louisiana Street 9 Greenway Plaza
Houston, Texas 77002 Houston, Texas 77046-0995
Telephone No.: (713) 420-6195 Telephone No.: (713) 877-6821
</TABLE>
If you would like to request documents, please do so by April 28, 2000 to
receive them before the special meetings. If you request any incorporated
documents from us, we will mail them to you by first class mail, or other
equally prompt means, within one business day after we receive your request.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT THE MERGER OF OUR COMPANIES THAT DIFFERS FROM, OR ADDS TO,
THE INFORMATION IN THIS DOCUMENT OR IN OUR DOCUMENTS THAT ARE PUBLICLY FILED
WITH THE SEC. THEREFORE, IF ANYONE DOES GIVE YOU DIFFERENT OR ADDITIONAL
INFORMATION, YOU SHOULD NOT RELY ON IT.
IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
DOCUMENT OR TO ASK FOR PROXIES, OR IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO
DIRECT THESE ACTIVITIES, THEN THE OFFER PRESENTED BY THIS DOCUMENT DOES NOT
EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS SPEAKS
ONLY AS OF ITS DATE UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER
DATE APPLIES. INFORMATION IN THIS DOCUMENT ABOUT EL PASO HAS BEEN SUPPLIED BY EL
PASO, AND INFORMATION ABOUT COASTAL HAS BEEN SUPPLIED BY COASTAL.
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<PAGE> 99
EXPERTS
The consolidated financial statements of El Paso incorporated in this joint
proxy statement/prospectus and registration statement on Form S-4, of which this
joint proxy statement/prospectus forms a part, by reference to the Annual Report
on Form 10-K of El Paso Energy Corporation for the year ended December 31, 1999,
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Coastal as of December 31, 1999
and 1998, and for each of the three years in the period ended December 31, 1999,
appearing in Coastal's Annual Report on Form 10-K for the year ended December
31, 1999, have been incorporated by reference in this joint proxy
statement/prospectus and in a registration statement on the SEC's Form S-4 filed
with the SEC, of which this joint proxy statement/prospectus forms a part, in
reliance upon the report of Deloitte & Touche LLP, independent auditors, on the
authority of such firm as experts in accounting and auditing.
Information related to the estimated proved reserves attributable to
certain oil and gas properties of subsidiaries of Coastal as of December 31,
1999 and estimates of future net cash flows and present value of the reserves
have been incorporated by reference in this joint proxy statement/prospectus and
in a registration statement on the SEC's Form S-4 filed with the SEC, of which
this document forms a part, in reliance on the reserve report, dated January 31,
2000, prepared by Huddleston & Co., Inc., independent petroleum engineers.
LEGAL MATTERS
Legal matters relating to the validity of the El Paso common stock issuable
in connection with the merger and certain United States federal income tax
matters relating to the merger have been passed upon for El Paso by Fried,
Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations). Legal matters relating to certain United States federal income
tax matters relating to the merger have been passed upon for Coastal by Skadden,
Arps, Slate, Meagher & Flom LLP.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of PricewaterhouseCoopers LLP will be present at El Paso's
special meeting, and representatives of Deloitte & Touche LLP will be present at
Coastal's special meeting. In each case, these representatives will have the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals submitted for inclusion in the proxy statement for El
Paso's 2001 annual meeting of stockholders must be mailed to the Corporate
Secretary, El Paso Energy Corporation, 1001 Louisiana Street, Houston, Texas
77002, and must be received by the Corporate Secretary on or before November 22,
2000. El Paso will consider only proposals meeting the requirements of
applicable SEC rules. Under the by-laws of El Paso, in order for stockholder
proposals that are not included in the proxy statement to be brought before the
2001 annual meeting of stockholders, the proposals must be mailed to the
Corporate Secretary at the above address and received not less than 90 days nor
more than 120 days prior to the scheduled date of the 2001 annual meeting.
Due to the contemplated completion of the merger, Coastal does not
currently intend to hold a 2001 annual meeting of stockholders. In the event
that a 2001 annual meeting of Coastal stockholders is held, any proposals of
stockholders submitted for inclusion in the proxy statement for Coastal's 2001
annual meeting of stockholders must be mailed to the Corporate Secretary, The
Coastal Corporation, Coastal Tower, Nine Greenway Plaza, Houston, Texas
77046-0995, and must be received by the Corporate Secretary not less than 120
days prior to the anniversary of the release of the prior year's annual meeting
proxy statement. Coastal will consider only proposals meeting the requirements
of applicable SEC rules.
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<PAGE> 100
SEC rules set forth specific standards with respect to which stockholder
proposals are required to be included in a company's proxy statement for an
annual meeting.
OTHER MATTERS
Under Coastal and El Paso's respective by-laws, the business that may be
conducted at the Coastal special meeting or El Paso special meeting, as
applicable, is confined to those matters (1) set forth in the notice of special
meeting of stockholders that accompanies this joint proxy statement/prospectus
or (2) otherwise properly brought before the meeting by or at the direction of
the applicable board of directors. Coastal expects that the only matter that
will be properly brought before its special meeting will be the proposal to
approve and adopt the merger agreement. El Paso expects that the only matter
that will be properly brought before its special meeting will be the proposal to
approve the issuance of shares of El Paso common stock in connection with the
merger.
INFORMATION REGARDING EL PASO AND COASTAL DIRECTORS
EL PASO DIRECTORS
The El Paso board of directors currently consists of 12 members. We have
set forth below biographical information regarding those 12 individuals:
BYRON ALLUMBAUGH -- age 68, is a member of the compensation committee of
the board of El Paso and has been a director since July 1992. Prior to his
retirement in February 1997, Mr. Allumbaugh was Chairman of the board of Ralphs
Grocery Company where he had served as Chief Executive Officer from June 1995 to
February 1996 and as Chairman of the board and Chief Executive Officer from 1976
to 1995. He is also a director of CKE Restaurants, Inc., Penn Traffic Co. and
Ultramar Diamond Shamrock Inc.
JUAN CARLOS BRANIFF -- age 42, is a member of the audit committee of the
board of El Paso and has been a director since October 1997. He has been Vice
Chairman of Grupo Financiero Bancomer since October 1999. He served as Deputy
Chief Executive Officer of Service Banking of Bancomer from September 1994 to
October 1999 and as Executive Vice President of Capital Investments and Mortgage
Banking from December 1991 to September 1994. For more than five years prior, he
held several positions in the real estate, corporate finance and brewing
division of Valores Industriales, S.A.-Fomento Economico Mexicano, S.A. de C.V.
("FEMSA") and its affiliates. He is also a director of FEMSA, S.A. de C.V., Coca
Cola FEMSA, S.A. de C.V., and Grupo Financiero Bancomer.
JAMES F. GIBBONS, PH.D. -- age 68, is a member of the compensation
committee of El Paso and has been a director since January 1994. Having been on
the faculty of Stanford University since 1957, Dr. Gibbons is currently
Professor of Electrical Engineering and special counsel to the President for
Industry Relations and was Dean of Stanford's School of Engineering from
September 1984 to June 1996. He is also a director at Stanford University, Cisco
Systems, Inc. and Lockheed Martin Corporation.
RONALD L. KUEHN, JR. -- age 65, is non-executive Chairman of the board of
El Paso and has been a director since October 1999. From 1981 until October
1999, Mr. Kuehn served as a director of Sonat Inc. Mr. Kuehn is also a director
of AmSouth Bancorporation, Praxair, Inc., Protective Life Corporation, The Dun &
Bradstreet Corporation, Transocean Sedco FOREX Inc. and Union Carbide
Corporation. During the five years prior to October 1999, Mr. Kuehn served as an
executive officer of Sonat.
BEN F. LOVE -- age 75, is chairman of the compensation committee of the
board of El Paso and has been a director since April 1992. Prior to his
retirement in 1989, Mr. Love had been Chairman of the board and Chief Executive
Officer of Texas Commerce Bancshares, Inc. for seventeen years. He is also a
director of Mitchell Energy & Development Corp.
MAX L. LUKENS -- age 51, is a member of the audit committee of the board of
El Paso and has been a director of El Paso since October 1999. From 1995 until
October 1999, he served as a director of
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<PAGE> 101
Sonat Inc. Mr. Lukens was Chairman, President and Chief Executive Officer of
Baker Hughes Incorporated, the principal business of which is the provision of
products and services to the petroleum and continuous process industries until
January 2000. During the past five years, Mr. Lukens has served as an executive
officer of Baker Hughes Incorporated.
KENNETH L. SMALLEY -- age 70, is chairman of the audit committee, a member
of the governance committee of the board of El Paso and has been a director
since April 1992. For more than five years prior to his retirement in 1992, Mr.
Smalley was a Senior Vice President of Phillips Petroleum Company and President
of Phillips 66 Natural Gas Company, a subsidiary of Phillips Petroleum Company.
He is also a director of El Paso Tennessee Pipeline Co.
ADRIAN M. TOCKLIN -- age 48, is chairman of the governance committee of the
board of El Paso and has been a director of El Paso since October 1999. From
1994 until October 1999, Mrs. Tocklin served as a director of Sonat Inc. Mrs.
Tocklin is President and Chief Executive Office of Tocklin & Associates, Inc.,
an insurance management and consulting firm. She is a director of CNA Surety
Corp. During the past five years prior to her retirement in April 1998, Mrs.
Tocklin served as an executive officer of CNA Insurance Companies and The
Continental Corporation.
MALCOLM WALLOP -- age 67, is a member of the audit committee, governance
committee of the board of El Paso and has been a director since February 1995.
Mr. Wallop has been Chairman of Western Strategy Group since January 1999 and
has been President of Frontiers of Freedom Foundation since January 1996. For 18
years prior, he was a member of the United States Senate. He is also a director
of Hubbell Inc., Sheridan State Bank and El Paso Energy Partners Company, the
general partner of El Paso Energy Partners, L.P.
WILLIAM A. WISE -- age 53, is President and Chief Executive Officer of El
Paso and has been a director since March 1984. Mr. Wise was Chairman of El Paso
from January 1994 to October 1999, Chief Executive Officer since June 1990 and
President since July 1998. Previously, he served El Paso as President from
January 1990 to April 1996, President and Chief Operating Officer from April
1989 to December 1989 and Executive Vice President from March 1987 to April
1989. He is also a director of Battle Mountain Gold Company and Chase Bank of
Texas and is Chairman of the Board of El Paso Tennessee Pipeline Co., and El
Paso Energy Partners Company, the general partner of El Paso Energy Partners,
L.P.
JOE B. WYATT -- age 63, is a member of the compensation committee of the
board of El Paso and has been a director of El Paso since October 1999. From
1989 until October 1999, Mr. Wyatt served as a director of Sonat Inc. Mr. Wyatt
is Chancellor, Chief Executive Officer and Trustee of Vanderbilt University, a
position he has held during the past five years. He is a director of Ingram
Micro, Inc. and Reynolds Metals Company.
SELIM K. ZILKHA -- age 72, is a member of the governance committee of the
board of El Paso and has been a director of El Paso since October 1999. From
January 1998 until October 1999, Mr. Zilkha served as a director of Sonat Inc.
He served as the sole director and Chief Executive Officer of Zilkha Energy
Company from March 1984 until January 1998. Prior to that time, Mr. Zilkha was a
banker with Zilkha & Sons in the United States and Europe from 1947 to 1955 and
in London from 1955 to 1960. In 1960, he founded Mothercare, PLC, a retail chain
catering to mothers-to-be, babies and small children in Great Britain, Europe
and the United States. Mr. Zilkha sold his interest in Mothercare, PLC in
January 1982.
COASTAL DIRECTORS
The Coastal board of directors currently consists of 12 members. We have
set forth below biographical information regarding those 12 individuals:
DAVID A. ARLEDGE -- age 55, has been Chairman, President and Chief
Executive Officer of Coastal since July 1997 and has been a director since 1988.
He is also a member of the executive committee of
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the board of Coastal. He joined Coastal in 1980 and served in various executive
positions prior to becoming President and Chief Executive Officer in 1995.
JOHN M. BISSELL -- age 69, has been a director of Coastal since 1985. He is
chairman of the compensation and executive development committee and a member of
the nominating and audit committees of the board of Coastal. During the past
five years, Mr. Bissell has been the Chairman of the Board of Bissell Inc.
GEORGE L. BRUNDRETT, JR. -- age 78, has been a director of Coastal and its
predecessor since 1973. During the past five years, Mr. Brundrett has been an
attorney.
HAROLD BURROW -- age 85, is the Vice Chairman of the board of Coastal, a
member of the executive committee of the board of Coastal, and has been a
director of Coastal since 1973. He retired as an employee of Coastal's pipeline
subsidiaries on January 1, 1996.
JAMES F. CORDES -- age 59, is a member of the executive committee of the
board of Coastal and has been a director since 1985. Mr. Cordes retired in March
1997 and is a former Executive Vice President of Coastal. Mr. Cordes is a member
of the Board of Directors of Comerica Co.
ROY L. GATES -- age 71, is a member of the audit committee of the board of
Coastal and has been a director of Coastal and its predecessor since 1969.
During the past five years, Mr. Gates' occupation has involved ranching and
investing.
ANTHONY W. HALL, JR. -- age 54, has been a director of Coastal since
August, 1999. Mr. Hall has been City Attorney of the City of Houston since March
1998 and prior to that was a partner in the Houston law firm of Jackson Walker,
LLP.
KENNETH O. JOHNSON -- age 79, is a Senior Vice President of Coastal and has
been a director of Coastal since 1988. He has been an executive officer of
Coastal during the past five years.
JEROME S. KATZIN -- age 81, is the chairman of the audit committee, a
member of the compensation and executive development committee and a member of
the nominating committee of the Board of Coastal, and has been a director of
Coastal since 1983. During the past five years, Mr. Katzin has been retired. He
is a former investment banker and a former director of Shearson Lehman Brothers
Inc. Mr. Katzin is a member of the Board of Directors of Qualcomm Inc.
J. CARLETON MACNEIL, JR. -- age 65, is a member of the compensation and
executive development committee and of the nominating committee of Coastal and
has been a director of Coastal since 1997. During the past five years, Mr.
MacNeil's occupation has been securities brokerage and investments.
THOMAS R. MCDADE -- age 67, has been a director of Coastal since 1993.
During the past five years, Mr. McDade has been the Senior Partner at the law
firm of McDade Fogler Maines, L.L.P., Houston.
O.S. WYATT, JR. -- age 75, is the founder of Coastal and its predecessor,
the chairman of the executive committee of the board of Coastal and has been a
director of Coastal and its predecessor since 1955. He retired as an employee
and chairman of the board of Coastal in July 1997.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JANUARY 17, 2000
BY AND BETWEEN
EL PASO ENERGY CORPORATION
EL PASO MERGER COMPANY
AND
THE COASTAL CORPORATION
<PAGE> 104
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
ARTICLE I................................................... A-1
SECTION 1.1 The Merger................................... A-1
SECTION 1.2 The Closing; Effective Time.................. A-2
SECTION 1.3 Subsequent Actions........................... A-2
SECTION 1.4 Certificate of Incorporation; By-laws;
Directors and Officers of the Surviving
Corporation................................... A-2
ARTICLE II.................................................. A-2
SECTION 2.1 Treatment of Common Stock and Preferred
Stock.................................................. A-2
SECTION 2.2 Cancellation of Excluded Shares.............. A-3
SECTION 2.3 Conversion of Common Stock of Merger Sub..... A-3
SECTION 2.4 Exchange Agent; Exchange Procedures.......... A-3
SECTION 2.5 Transfer Books; Lost, Stolen or Destroyed
Certificates.................................. A-4
SECTION 2.6 No Fractional Share Certificates; Termination
of Exchange Fund.............................. A-5
SECTION 2.7 Options...................................... A-5
SECTION 2.8 Appraisal Rights............................. A-6
SECTION 2.9 Dividends.................................... A-7
SECTION 2.10 Certain Adjustments.......................... A-7
ARTICLE III................................................. A-7
SECTION 3.1 Organization and Qualification;
Subsidiaries........................................... A-7
SECTION 3.2 Restated Certificate of Incorporation and
By-laws................................................ A-8
SECTION 3.3 Capitalization............................... A-8
SECTION 3.4 Power and Authority; Authorization; Valid and
Binding................................................ A-9
SECTION 3.5 No Conflict; Required Filings and Consents... A-9
SECTION 3.6 SEC Reports; Financial Statements............ A-10
SECTION 3.7 Absence of Certain Changes................... A-10
SECTION 3.8 Litigation; Liabilities...................... A-11
SECTION 3.9 Compliance; Permits.......................... A-11
SECTION 3.10 Employee Matters; ERISA...................... A-12
SECTION 3.11 Labor Matters................................ A-13
SECTION 3.12 Environmental Matters........................ A-14
SECTION 3.13 Board Action; Vote Required.................. A-15
SECTION 3.14 Opinion of Financial Advisor................. A-16
SECTION 3.15 Brokers...................................... A-16
SECTION 3.16 Tax Matters.................................. A-16
SECTION 3.17 Public Utility Holding Company Act of 1935... A-16
SECTION 3.18 Restrictions on Business Activities.......... A-17
SECTION 3.19 Year 2000.................................... A-17
SECTION 3.20 Accounting Matters........................... A-17
ARTICLE IV.................................................. A-17
SECTION 4.1 Organization and Qualification;
Subsidiaries........................................... A-17
SECTION 4.2 Restated Certificate of Incorporation and
By-laws of Parent and Merger Sub.............. A-18
SECTION 4.3 Capitalization............................... A-18
SECTION 4.4 Power and Authority; Authorization; Valid and
Binding................................................ A-19
SECTION 4.5 No Conflict; Required Filings and Consents... A-19
SECTION 4.6 SEC Reports; Financial Statements............ A-20
SECTION 4.7 Absence of Certain Changes................... A-20
SECTION 4.8 Litigation; Liabilities...................... A-21
SECTION 4.9 Compliance; Permits.......................... A-21
SECTION 4.10 Employee Matters; ERISA...................... A-22
</TABLE>
A-i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 4.11 Labor Matters................................ A-23
SECTION 4.12 Environmental Matters........................ A-23
SECTION 4.13 Board Action; Vote Required.................. A-24
SECTION 4.14 Opinion of Financial Advisor................. A-25
SECTION 4.15 Brokers...................................... A-25
SECTION 4.16 Tax Matters.................................. A-25
SECTION 4.17 Public Utility Holding Company Act of 1935... A-25
SECTION 4.18 Restrictions on Business Activities.......... A-25
SECTION 4.19 Year 2000.................................... A-26
SECTION 4.20 Accounting Matters........................... A-26
ARTICLE V................................................... A-26
SECTION 5.1 Interim Operations of the Company............ A-26
SECTION 5.2 Interim Operations of Parent................. A-27
SECTION 5.3 No Solicitation.............................. A-29
ARTICLE VI.................................................. A-31
SECTION 6.1 Meetings of Stockholders..................... A-31
SECTION 6.2 Filings; Other Action........................ A-31
SECTION 6.3 Publicity.................................... A-32
SECTION 6.4 Registration Statements...................... A-32
SECTION 6.5 Listing Application.......................... A-32
SECTION 6.6 Reserved..................................... A-32
SECTION 6.7 Expenses..................................... A-33
SECTION 6.8 Access to Information........................ A-33
SECTION 6.9 Insurance; Indemnity......................... A-33
SECTION 6.10 Employee Benefit Plans....................... A-34
SECTION 6.11 Governance Matters........................... A-35
SECTION 6.12 Affiliates................................... A-36
SECTION 6.13 Pooling-of-Interests......................... A-37
SECTION 6.14 Takeover Statutes............................ A-37
SECTION 6.15 Tax-Free Merger.............................. A-37
SECTION 6.16 Section 16(b)................................ A-37
SECTION 6.17 Reasonable Best Efforts...................... A-38
ARTICLE VII................................................. A-39
SECTION 7.1 Conditions to Obligations of the Parties..... A-39
SECTION 7.2 Additional Conditions to Obligations of
Parent................................................. A-40
SECTION 7.3 Additional Conditions to Obligations of the
Company................................................ A-41
ARTICLE VIII................................................ A-41
SECTION 8.1 Termination.................................. A-41
SECTION 8.2 Effect of Termination........................ A-43
SECTION 8.3 Amendment.................................... A-44
SECTION 8.4 Extension; Waiver............................ A-44
ARTICLE IX.................................................. A-45
SECTION 9.1 Non-Survival of Representations, Warranties
and Agreements......................................... A-45
SECTION 9.2 GOVERNING LAW................................ A-45
SECTION 9.3 Notices...................................... A-45
SECTION 9.4 Certain Definitions; Interpretation.......... A-46
SECTION 9.5 Headings..................................... A-47
SECTION 9.6 Severability................................. A-47
SECTION 9.7 Assignment; Binding Effect; No Third Party
Beneficiaries.......................................... A-47
SECTION 9.8 ENFORCEMENT.................................. A-47
</TABLE>
A-ii
<PAGE> 106
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 9.9 Counterparts................................. A-47
SECTION 9.10 Entire Agreement............................. A-47
EXHIBITS
Exhibit A -- Methodology for Valuation of Company Options
Exhibit B -- Form of Amendments to By-laws of Parent
Exhibit C -- Form of Affiliate Letter of the Company's Affiliates
Exhibit D -- Form of Affiliate Letter of Parent's Affiliates
</TABLE>
[Exhibits B, C and D have been omitted from the joint proxy statement/prospectus
and are available upon request.]
A-iii
<PAGE> 107
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE NO.
DEFINED TERM --------
<S> <C>
Acquisition Agreement....................................... A-29
Acquisition Transaction..................................... A-30
Action...................................................... A-33
affiliate................................................... A-46
Agreement................................................... A-1
Amended By-laws............................................. A-35
Applicable Period........................................... A-29
By-laws Amendment........................................... A-35
Cap Amount.................................................. A-33
Closing..................................................... A-2
Closing Date................................................ A-2
Coastal Limited Preferred Stock............................. A-7
Code........................................................ A-1
Combination Director........................................ A-35
Combination Transaction..................................... A-35
Common Exchange Ratio....................................... A-3
Company..................................................... A-1
Company Certificate......................................... A-3
Company Class A Common Stock................................ A-3
Company Common Stock........................................ A-1
Company Converted Preferred Stock........................... A-3
Company Converted Stock..................................... A-3
Company Defined Benefit Plan................................ A-13
Company Director............................................ A-35
Company Disclosure Letter................................... A-7
Company Employee Plans...................................... A-12
Company Employees........................................... A-34
Company Equity Equivalent Security.......................... A-8
Company ERISA Affiliate..................................... A-12
Company Material Adverse Effect............................. A-46
Company Option.............................................. A-5
Company Permits............................................. A-12
Company Preferred Stock..................................... A-8
Company SEC Reports......................................... A-10
Company Stock Option Agreement.............................. A-1
Company Termination Fee..................................... A-43
Company Trust Securities.................................... A-7
Confidentiality Agreement................................... A-33
control..................................................... A-46
D&T......................................................... A-5
DE Appraisal Provisions..................................... A-6
DGCL........................................................ A-1
Dissenting Shares........................................... A-6
DLJ......................................................... A-25
DOJ......................................................... A-38
Effective Time.............................................. A-2
Environmental Costs......................................... A-15
Environmental Laws.......................................... A-15
Environmental Matter........................................ A-15
</TABLE>
A-iv
<PAGE> 108
<TABLE>
<CAPTION>
PAGE NO.
DEFINED TERM --------
<S> <C>
Environmental Permits....................................... A-14
EPTPC Preferred Stock....................................... A-17
ERISA....................................................... A-12
Exchange Act................................................ A-10
Exchange Agent.............................................. A-3
Exchange Fund............................................... A-3
Exchange Ratios............................................. A-3
Excluded Common Shares...................................... A-3
Excluded Preferred Shares................................... A-3
Excluded Shares............................................. A-3
Feline Prides............................................... A-8
FERC........................................................ A-9
Form S-4.................................................... A-32
GAAP........................................................ A-1
Governmental Entity......................................... A-10
Hazardous Substances........................................ A-15
Holding Company Act......................................... A-16
HSR Act..................................................... A-9
Indemnified Party........................................... A-33
Initial Period.............................................. A-35
IRS......................................................... A-12
Joint Proxy Statement/Prospectus............................ A-32
knowledge................................................... A-46
Leviathan Employee Options.................................. A-18
Merger...................................................... A-1
Merger Sub.................................................. A-1
Merrill Lynch............................................... A-16
New Plans................................................... A-34
Notice...................................................... A-29
NYSE........................................................ A-5
Old Plans................................................... A-34
Parent...................................................... A-1
Parent Certificates......................................... A-3
Parent Common Stock......................................... A-1
Parent Defined Benefit Plan................................. A-23
Parent Directors' Nominating Committee...................... A-35
Parent Disclosure Letter.................................... A-17
Parent Employee Plans....................................... A-22
Parent Employees............................................ A-34
Parent Equity Equivalent Security........................... A-18
Parent ERISA Affiliate...................................... A-22
Parent Material Adverse Effect.............................. A-46
Parent Options.............................................. A-18
Parent Permits.............................................. A-21
Parent Preferred Stock...................................... A-18
Parent Rights Agreement..................................... A-18
Parent SEC Reports.......................................... A-20
Parent Stock Issuance....................................... A-19
Parent Stock Market Price................................... A-5
Parent Stock Option Agreement............................... A-1
Parent Termination Fee...................................... A-44
</TABLE>
A-v
<PAGE> 109
<TABLE>
<CAPTION>
PAGE NO.
DEFINED TERM --------
<S> <C>
Parent Trust Securities..................................... A-18
PBGC........................................................ A-12
PCBs........................................................ A-15
Person...................................................... A-46
Post-Merger Material Adverse Effect......................... A-38
PwC......................................................... A-5
Regulatory Law.............................................. A-38
Representatives............................................. A-29
SEC......................................................... A-1
Securities Act.............................................. A-10
Series A Company Preferred Stock............................ A-8
Series A Exchange Ratio..................................... A-3
Series B Company Preferred Stock............................ A-8
Series B Exchange Ratio..................................... A-3
Series C Company Preferred Stock............................ A-8
Series C Exchange Ratio..................................... A-3
Stock Option Agreements..................................... A-1
Subsidiary.................................................. A-46
Superior Proposal........................................... A-30
Surviving Corporation....................................... A-1
Takeover Proposal........................................... A-30
Tax......................................................... A-46
Termination Date............................................ A-41
</TABLE>
A-vi
<PAGE> 110
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 17, 2000 (this
"Agreement"), by and among El Paso Energy Corporation, a Delaware corporation
("Parent"), El Paso Merger Company, a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), and The Coastal Corporation, a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have determined that a merger of Merger Sub with and into the Company
(the "Merger") is in the best interests of their respective companies and
stockholders and presents an opportunity for their respective companies to
achieve long-term strategic and financial benefits and have approved the
transactions provided for herein upon the terms and subject to the conditions
set forth in this Agreement;
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger will qualify as a tax-free reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code"), and that this Agreement will be, and is
hereby, adopted as a plan of reorganization for purposes of the Code;
WHEREAS, it is intended that the Merger will be accounted for as a pooling
of interests under United States generally accepted accounting principles
("GAAP") and the applicable rules and regulations of the Securities and Exchange
Commission (the "SEC");
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Parent's willingness to enter into this
Agreement, Parent and the Company are executing and delivering a Stock Option
Agreement, dated as of the date hereof (the "Company Stock Option Agreement"),
pursuant to which the Company is granting to Parent an option to purchase, under
certain circumstances, for a purchase price of $34.14375 per share, up to
31,834,515 shares of common stock, par value $.33 1/3 per share, of the Company
(together with any associated preferred stock or similar purchase rights, the
"Company Common Stock"); and
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Company's willingness to enter into this
Agreement, Parent and the Company are executing and delivering a Stock Option
Agreement, dated as of the date hereof (the "Parent Stock Option Agreement", and
together with the Company Stock Option Agreement, the "Stock Option
Agreements"), pursuant to which Parent is granting to the Company an option to
purchase, under certain circumstances, for a purchase price of $37.80 per share,
up to 35,080,566 shares of common stock, par value $3.00 per share, of Parent
(together with any associated preferred stock purchase rights, the "Parent
Common Stock").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained in this Agreement, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
SECTION 1.1 The Merger. (a) Subject to and upon the terms and conditions
of this Agreement and in accordance with the provisions of Section 251 of the
Delaware General Corporation Law (the "DGCL"), at the Effective Time (as defined
in Section 1.2(b)), Merger Sub shall be merged with and into the Company and the
separate corporate existence of Merger Sub shall cease. The Company shall
continue as the surviving corporation (the "Surviving Corporation") in the
Merger and, as of the Effective Time, shall be a wholly-owned subsidiary of
Parent. The effects and consequences of the Merger shall be as specified in this
Agreement and in Section 259(a) of the DGCL.
SECTION 1.2 The Closing; Effective Time. (a) The closing of the Merger
(the "Closing") shall take place (i) at the offices of Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza,
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<PAGE> 111
New York, New York 10004, at 10:00 A.M. local time, on the first business day on
which the last to be satisfied or waived of the conditions set forth in Article
VII (other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or waiver of those conditions) shall be
satisfied or waived in accordance with this Agreement or (ii) at such other
place, time and/or date as Parent and the Company shall agree (the date of the
Closing, the "Closing Date").
(b) On the Closing Date, Parent, Merger Sub and the Company shall cause a
certificate of merger with respect to the Merger, meeting the requirements of
the DGCL, to be properly executed and filed with the Secretary of State of the
State of Delaware in accordance with the applicable provisions of the DGCL. The
Merger shall become effective at the time at which the certificate of merger
with respect thereto shall be duly filed with Secretary of State of the State of
Delaware, or at such later time specified in such certificate of merger as shall
be agreed by Parent and the Company (the time that the Merger becomes effective,
the "Effective Time").
SECTION 1.3 Subsequent Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise the
Surviving Corporation's right, title or interest in, to or under any of the
rights, properties, privileges, franchises or assets of either of its
constituent corporations acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger, or otherwise to carry out the
intent of this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of either of the constituent corporations of the Merger, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and on
behalf of each of such corporations or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties, privileges,
franchises or assets in the Surviving Corporation or otherwise to carry out the
intent of this Agreement.
SECTION 1.4 Certificate of Incorporation; By-laws; Directors and Officers
of the Surviving Corporation. Unless otherwise agreed by Parent and the Company
prior to the Closing:
(i) The Restated Certificate of Incorporation of the Company shall
constitute at and after the Effective Time (until amended as provided by
applicable law and such Restated Certificate of Incorporation, as
applicable) the certificate of incorporation of the Surviving Corporation.
(ii) The Amended and Restated By-laws of the Company in effect
immediately prior to the Effective Time shall constitute at and after the
Effective Time (until amended as provided by applicable law and the
certificate of incorporation and by-laws, as applicable) the by-laws of the
Surviving Corporation.
(iii) The officers of the Company immediately prior to the Effective
Time shall continue to serve in their respective offices of the Surviving
Corporation from and after the Effective Time, until their successors are
elected or appointed and qualified or until their resignation or removal.
(iv) The directors of Merger Sub immediately prior to the Effective
Time shall be the directors of the Surviving Corporation from and after the
Effective Time, until their successors are elected or appointed and
qualified or until their resignation or removal. Prior to the Effective
Time, the Board of Directors of the Company will approve the appointment of
such directors of Merger Sub as directors of the Surviving Corporation.
ARTICLE II
SECTION 2.1 Treatment of Common Stock and Preferred Stock. (a) At the
Effective Time, without any action on the part of any holder thereof (but
subject to Sections 2.4, 2.5, 2.6 and 2.8 of this Agreement), (i) each share of
Company Common Stock, and each share of Class A Common Stock, par value $.33 1/3
per share, of the Company ("Company Class A Common Stock"), issued and
outstanding immediately prior to the Effective Time, and all rights in respect
thereof, shall forthwith cease to exist and
A-2
<PAGE> 112
(other than those shares held in the treasury of the Company, by Parent or by
any of their respective Subsidiaries (collectively, the "Excluded Common
Shares")) shall be converted into the right to receive 1.230 validly issued,
fully paid and nonassessable shares of Parent Common Stock (the "Common Exchange
Ratio"), and (ii) each share of Series A Company Preferred Stock (defined in
Section 3.3), Series B Company Preferred Stock (defined in Section 3.3) and
Series C Company Preferred Stock (defined in Section 3.3) (collectively, the
"Company Converted Preferred Stock"), issued and outstanding immediately prior
to the Effective Time, and all rights in respect thereof, shall forthwith cease
to exist and (other than those shares of Company Converted Preferred Stock held
in the treasury of the Company, by Parent or by any of their respective
Subsidiaries (collectively, the "Excluded Preferred Shares" and, together with
the Excluded Common Shares, the "Excluded Shares")) each such share of Series A
Company Preferred Stock shall be converted into the right to receive 9.133
validly issued, fully paid and nonassessable shares of Parent Common Stock (the
"Series A Exchange Ratio"), each such share of Series B Company Preferred Stock
shall be converted into the right to receive 9.133 validly issued, fully paid
and nonassessable shares of Parent Common Stock (the "Series B Exchange Ratio")
and each such share of Series C Company Preferred Stock shall be converted into
the right to receive 17.980 validly issued, fully paid and nonassessable shares
of Parent Common Stock (the "Series C Exchange Ratio", and together with the
Common Exchange Ratio, the Series A Exchange Ratio and the Series B Exchange
Ratio, the "Exchange Ratios").
(b) Upon consummation of the Merger, except as otherwise provided herein:
(i) each certificate (other than certificates representing Excluded Shares)
("Company Certificate") that immediately prior to the Effective Time represented
issued and outstanding shares of Company Common Stock, Company Class A Common
Stock or Company Converted Preferred Stock (together, "Company Converted Stock")
shall evidence, commencing immediately after the Effective Time, the right to
receive shares of Parent Common Stock on the basis set forth in Section 2.1(a).
SECTION 2.2 Cancellation of Excluded Shares. At the Effective Time,
without any action on the part of the holder thereof, each Excluded Share shall
forthwith cease to be outstanding and shall be canceled and retired, and no
shares of stock or other securities of Parent, the Company or the Surviving
Corporation shall be issuable, and no payment or other consideration shall be
made or paid, in respect thereof.
SECTION 2.3 Conversion of Common Stock of Merger Sub. At the Effective
Time, without any action on the part of the holder thereof, each share of common
stock of Merger Sub that is issued and outstanding immediately prior to the
Effective Time shall be converted into one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
SECTION 2.4 Exchange Agent; Exchange Procedures. (a) Subject to the terms
and conditions of this Agreement, at or prior to the Effective Time, Parent
shall appoint BankBoston, N.A., or such other exchange agent selected by Parent
that is reasonably acceptable to the Company (the "Exchange Agent"), to effect
the exchange of shares of Company Converted Stock (other than Dissenting Shares
(as defined in Section 2.8(b)) for shares of Parent Common Stock in accordance
with the provisions of this Article II. As soon as reasonably practicable
following the Effective Time, Parent shall deposit, or cause to be deposited,
with the Exchange Agent, for exchange in accordance with this Article II,
certificates representing shares of Parent Common Stock ("Parent Certificates")
in an amount sufficient to allow the Exchange Agent to make all deliveries of
Parent Certificates in exchange for Company Certificates in connection with the
Merger, as contemplated by this Section 2.4 and any cash payable in respect of
fractional shares in accordance with Section 2.6(a) hereof and any dividends or
other distributions payable in accordance with Section 2.4(b) (the "Exchange
Fund").
(b) Parent shall instruct the Exchange Agent to mail to each record holder
of shares of Company Converted Stock as soon as reasonably practicable after the
Effective Time (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to shares of Company Converted
Stock shall pass, only upon the delivery of a Company Certificate or Company
Certificates representing such shares to the Exchange Agent, and which letter
shall otherwise be in such form and
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<PAGE> 113
have such other provisions as Parent shall reasonably specify, which form shall
be reasonably acceptable to the Company) and (ii) instructions for use in
effecting the surrender of Company Certificates for Parent Certificates and cash
in lieu of fractional shares, if any. Commencing immediately after the Effective
Time, upon the surrender to the Exchange Agent of a Company Certificate,
together with a duly executed and completed letter of transmittal and all other
documents and other materials reasonably required by the Exchange Agent to be
delivered in connection therewith, the holder thereof shall be entitled to
receive a Parent Certificate or Parent Certificates representing the number of
whole shares of Parent Common Stock into which the shares of the Company
Converted Stock which immediately prior to the Effective Time were represented
by such Company Certificate so surrendered shall have been converted in
accordance with the provisions of Section 2.1, together with a cash payment in
lieu of fractional shares, if any, in accordance with Section 2.6(a). Unless and
until any Company Certificate is so surrendered, no dividends or other
distributions, if any, payable to the holders of record of shares of Parent
Common Stock as of any date subsequent to the Effective Time shall be paid to
the holder of such Company Certificate in respect thereof. Upon the surrender of
any Company Certificate, the record holder of the Parent Certificate or Parent
Certificates representing shares of Parent Common Stock issued in exchange
therefor shall be entitled to receive, (i) at the time of surrender, the amount
of any dividends or other distributions in respect of such shares of Parent
Common Stock having a record date after the Effective Time and a payment date
prior to the surrender date, and (ii) at the appropriate payment date, the
amount of dividends or other distributions in respect of such shares of Parent
Common Stock having a record date after the Effective Time and a payment date
subsequent to the date of such surrender. No interest shall be payable in
respect of the payment of dividends or distributions pursuant to the immediately
preceding sentence.
(c) Parent, the Surviving Corporation and the Exchange Agent shall be
entitled to deduct and withhold from the shares of the Parent Common Stock and
cash in lieu of fractional shares otherwise payable to any holder of shares of
the Company Converted Stock pursuant to this Article II, and from any dividends
or other distributions which such holder is entitled to receive pursuant to
Section 2.4(b), such amounts as Parent, the Surviving Corporation and/or the
Exchange Agent is required to deduct or withhold therefrom under the Code and/or
any applicable provision of state, local or foreign law.
SECTION 2.5 Transfer Books; Lost, Stolen or Destroyed Certificates. (a)
The stock transfer books of the Company shall be closed at the Effective Time
and no transfer of any shares of Company Converted Stock shall thereafter be
recorded on any of such stock transfer books. In the event of a transfer of
ownership of any shares of the Company Converted Stock that is not registered in
the stock transfer records of the Company at the Effective Time, a Parent
Certificate or Parent Certificates representing the number of whole shares of
Parent Common Stock into which such shares of the Company Converted Stock shall
have been converted in the Merger shall be issued to the transferee together
with a cash payment in lieu of fractional shares, if any, in accordance with
Section 2.6(a), and payment of dividends or distributions, if any, in accordance
with Section 2.4(b) only if the Company Certificate or Company Certificates are
surrendered as provided in Section 2.4 (but subject to Section 2.5(b) hereof),
accompanied by all documents required to evidence and effect such transfer and
evidence of payment of any applicable stock transfer taxes.
(b) In the event any Company Certificate shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Company Certificate, upon the delivery of a duly executed affidavit of
that fact by the holder thereof, Parent Certificates in accordance with Section
2.4, cash in lieu of fractional shares, if any, in accordance with Section
2.6(a), and payment of dividends and distributions, if any, in accordance with
Section 2.4(b); provided, however, that Parent may, in its discretion, require
the owner of such lost, stolen or destroyed Company Certificate to deliver a
bond in such sum as Parent may reasonably direct as indemnity against any claim
that may be made against Parent, the Company, the Surviving Corporation or the
Exchange Agent with respect to that Company Certificate alleged to have been
lost, stolen or destroyed.
SECTION 2.6 No Fractional Share Certificates; Termination of Exchange
Fund. (a) No scrip or certificates for fractional shares of Parent Common Stock
will be issued upon the surrender for exchange
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<PAGE> 114
of Company Certificates, and no fractional interest in a share of Parent Common
Stock will entitle the holder thereof to vote or receive dividends or
distributions or any other rights of a stockholder of Parent, with respect to
any such fractional share interest. Each Person entitled to receive, but for
this Section 2.6(a), a fractional share of Parent Common Stock shall be entitled
to receive an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the average of the closing
prices (such average, the "Parent Stock Market Price") of the shares of Parent
Common Stock on the New York Stock Exchange (the "NYSE") Composite Transaction
Reporting System as reported in The Wall Street Journal (but subject to
correction for typographical or other manifest errors in such reporting) over
the four trading day period immediately preceding the Closing Date.
(b) Any portion of the Exchange Fund which remains undistributed one year
after the Effective Time shall be delivered to Parent upon demand, and each
holder of shares of the Company Converted Stock who has not theretofore
surrendered such holder's Company Certificates in accordance with the provisions
of this Article II shall thereafter look only to Parent for satisfaction of such
holder's claims for shares of Parent Common Stock, any cash in lieu of
fractional shares of Parent Common Stock payable in accordance with Section
2.6(a) and any dividends or distributions payable in accordance with Section
2.4(b). Notwithstanding the foregoing, none of Parent, the Company, the
Surviving Corporation or the Exchange Agent shall be liable to any former holder
of shares of Company Converted Stock for any shares or amounts properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
SECTION 2.7 Options. (a) In connection with the Merger, each option to
purchase shares of Company Common Stock or Company Class A Common Stock (a
"Company Option") that will be outstanding immediately prior to the Effective
Time shall be cancelled as of the Effective Time, and, in consideration thereof,
the holder thereof shall have the right to receive a number of shares of Parent
Common Stock, decreased to the nearest whole share, having an aggregate value
(calculated based on the Parent Stock Market Price) equal to the value of such
Company Option immediately prior to the Effective Time, as calculated jointly by
PricewaterhouseCoopers LLP ("PwC") and Deloitte & Touche LLP ("D&T") on the
basis of the methodology set forth on Exhibit A. Parent shall pay cash to the
holders of Company Options based on the Parent Stock Market Price in lieu of
issuing fractional shares of Parent Common Stock, unless PwC and/or D&T shall
advise Parent and/or the Company that it would be unable to deliver at the
Closing the letter referred to in the second sentence of Section 6.13(a) or the
second sentence of 6.13(b), as applicable, if cash is so paid in lieu of issuing
fractional shares of Parent Common Stock. Notwithstanding the foregoing, in the
event that PwC and/or D&T shall advise Parent and/or the Company that it would
be unable to deliver at the Closing the letter referred to in the second
sentence of Section 6.13(a) or the second sentence of 6.13(b), as applicable, if
Company Options are cancelled as contemplated by this Section 2.7(a), the
provisions of this Section 2.7(a) shall be inapplicable. The Company shall use
reasonable best efforts, in consultation with Parent, to obtain necessary
consents, adopting necessary amendments to stock plans or otherwise to effect
the cancellation and exchange of Company Options; provided that each such
consent and amendment shall provide that if the provisions of this Section
2.7(a) are inapplicable by reason of the immediately preceding sentence, such
consent or amendment shall be void ab initio. The Company, Parent or an
applicable affiliate of either of them, shall be entitled to deduct from other
compensation payable to any holder of a Company Option any sums required by
federal, state or local tax law to be withheld with respect to the issuance of
shares of Parent Common Stock pursuant to this Section 2.7. In the alternative,
such holder may be required to pay such sums directly to the applicable entity.
Parent shall have no obligation under this Section 2.7 to issue shares of Parent
Common Stock to any such holder until payment of such sums has been received by
the applicable entity.
(b) Subject to Section 2.7(c), in the event that Section 2.7(a) is
inapplicable as provided in the third sentence of Section 2.7(a), the Company
shall take all action necessary with respect to each Company Option outstanding
immediately prior to the Effective Time such that as of the Effective Time: (i)
each such Company Option shall entitle the holder thereof to purchase solely
such number of shares of
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<PAGE> 115
Parent Common Stock as is equal to the product of (x) the number of shares of
Company Converted Stock subject to such Company Option immediately prior to the
Effective Time and (y) the Common Exchange Ratio; and (ii) the exercise price
per share of Parent Common Stock subject to any such Company Option as of and
after the Effective Time shall be equal to (x) the exercise price per share of
the Company Converted Stock subject to such Company Option immediately prior to
the Effective Time divided by (y) the Common Exchange Ratio.
(c) The number of shares of Parent Common Stock deliverable upon exercise
of each Company Option to which Section 2.7(b) applies shall, at and after the
Effective Time as contemplated by Section 2.7(b), be rounded, if necessary, to
the nearest whole share of Parent Common Stock, and the exercise price with
respect thereto shall be rounded, if necessary, to the nearest one one-hundredth
of a cent (it being understood that all options exercisable at the same price
and granted on the same date to the same individual shall be aggregated for this
purpose); provided, however, that any adjustment to an "incentive stock option"
shall be consistent with Section 422 of the Code. If Section 2.7(b) is
applicable, each Company Option shall be assumed by Parent and shall be subject
to the same terms and conditions as in effect immediately prior to the Effective
Time (including, without limitation, any applicable vesting schedule), but
giving effect to the Merger.
(d) If Section 2.7(b) is applicable, as soon as practicable after the
Effective Time, Parent shall deliver to the holders of Company Options a notice
stating that the agreements evidencing the grants of such Company Options shall
continue in effect on the same terms and conditions (subject to the adjustments,
if any, required by this Section 2.7 after giving effect to the transactions
contemplated hereby and the terms of the applicable stock plan).
(e) If Section 2.7(b) is applicable, Parent shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of Parent Common
Stock for delivery upon exercise of Company Options and shall use reasonable
best efforts to ensure that such shares are listed on the NYSE upon issuance. If
Section 2.7(b) is applicable, as soon as practicable after the Effective Time,
Parent shall file with the SEC a registration statement on Form S-8 of the SEC
(if available) (or any successor or other appropriate form) with respect to the
shares of Parent Common Stock issuable upon the exercise of such Company Options
and shall use reasonable best efforts to maintain the effectiveness of such
registration statement, and to maintain the current status of the prospectus or
prospectuses contained therein, until all such Company Options have been
exercised, expired or forfeited.
SECTION 2.8 Appraisal Rights. (a) In accordance with Section 262 of the
DGCL, no appraisal rights shall be available to holders of shares of Company
Common Stock, Company Class A Common Stock, Series A Company Preferred Stock and
Series B Company Preferred Stock in connection with the Merger.
(b) Notwithstanding anything in this Agreement to the contrary, shares of
Series C Company Preferred Stock ("Dissenting Shares") in respect of which the
holders thereof comply with all applicable procedures set forth in Section 262
of the DGCL with respect to the right of stockholders to dissent from a merger
and receive fair value for their shares (the "DE Appraisal Provisions") shall
not be converted into Parent Common Stock, pursuant to this Article II but shall
entitle the holder thereof to receive such consideration as may be determined to
be due in respect of such Dissenting Shares pursuant to the DE Appraisal
Provisions; provided, however, that any holder of Dissenting Shares who shall
have failed to perfect or shall have withdrawn or lost such holder's rights to
appraisal of such Dissenting Shares, in each case under the DE Appraisal
Provisions, shall forfeit the right to appraisal of such Dissenting Shares, and
such Dissenting Shares shall be converted into Parent Common Stock pursuant to
this Article II. The Company shall give Parent (i) prompt notice of any demands
for appraisal, and any withdrawals of such demands, received by the Company and
any other related instruments served pursuant to the DE Appraisal Provisions and
received by the Company, and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under the DE Appraisal
Provisions. The Company shall not, except with the prior written consent of
Parent, negotiate or make any payment with respect to any demands for appraisal
or offer to settle or settle any such demands.
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SECTION 2.9 Dividends. Parent and the Company shall coordinate with each
other the declaration of, and the setting of record dates and payment dates for,
dividends in respect of their respective shares of capital stock so that, in
respect of any fiscal quarter, holders of shares of Company Converted Stock do
not (i) receive more than one dividend in respect of both (x) shares of Company
Converted Stock and (y) shares of Parent Common Stock received pursuant to the
Merger in exchange therefor or (ii) fail to receive a dividend in respect of
both (x) shares of Company Converted Stock and (y) shares of Parent Common Stock
received pursuant to the Merger.
SECTION 2.10 Certain Adjustments. If between the date of this Agreement
and the Effective Time, whether or not permitted pursuant to the terms hereof,
the outstanding shares of Company Converted Stock or Parent Common Stock shall
be changed into a different number of shares or other securities by reason of
any stock split, combination, merger, consolidation, reorganization or other
transaction (other than any conversion of outstanding shares of Company Class A
Common Stock or Company Converted Preferred Stock into shares of Company Common
Stock in accordance with its terms), or any dividend payable in stock shall be
declared thereon with a record date within such period, the applicable Exchange
Ratios (and the number of shares of Parent Common Stock issuable in the Merger)
and the form of securities issuable in the Merger shall be appropriately
adjusted to provide the holders of shares of Company Converted Stock the same
economic effect as contemplated by this Agreement prior to such event.
ARTICLE III
Except as set forth in the corresponding sections or subsections of the
disclosure letter, dated the date of this Agreement, delivered by the Company to
Parent (the "Company Disclosure Letter"), the Company hereby represents and
warrants to Parent as follows:
SECTION 3.1 Organization and Qualification; Subsidiaries. (a) The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of the Subsidiaries of the Company is a
corporation or other business entity duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization, and each of the Company and its Subsidiaries has the requisite
corporate or similar organizational power and authority to own, operate or lease
its properties and to carry on its business as it is now being conducted, and is
duly qualified as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of its properties owned, operated or
leased or the nature of its activities makes such qualification necessary,
except as would not, in the aggregate, have, or reasonably be expected to have,
a Company Material Adverse Effect (as defined in Section 9.4).
(b) Except as disclosed in the Company SEC Reports (as defined in Section
3.6) filed prior to the date of this Agreement, and except as would not, in the
aggregate, have, or reasonably be expected to have, a Company Material Adverse
Effect, (i) other than the 12,000,000 outstanding 8.375% Trust Originated
Preferred Securities of Coastal Finance I (the "Company Trust Securities") and
the 4,000,000 outstanding shares of Participating Cumulative Variable Rate
Voting Preferred Stock of Coastal Securities Company Limited (the "Coastal
Limited Preferred Stock"), all of the outstanding shares of capital stock and
other equity securities of the Subsidiaries of the Company are owned, directly
or indirectly, by the Company free and clear of all liens, pledges, security
interests, or other encumbrances, (ii) all of the outstanding shares of capital
stock or other equity securities of the Subsidiaries of the Company have been
validly issued and are fully paid and nonassessable, and (iii) there are no
subscriptions, options, warrants, calls, commitments, agreements, conversion
rights or other rights of any character (contingent or otherwise) entitling any
person to purchase or otherwise acquire from the Company or any of its
Subsidiaries at any time, or upon the happening of any stated event, any shares
of capital stock or other equity securities of any of the Subsidiaries of the
Company. There are no outstanding obligations, contingent or otherwise, of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock or other equity securities, or any securities
convertible, exchangeable or exercisable for or into, shares of capital stock or
other equity securities of any Subsidiary of the Company.
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SECTION 3.2 Restated Certificate of Incorporation and By-laws. The Company
has furnished or otherwise made available to Parent a complete and correct copy
of the Company's Restated Certificate of Incorporation and Amended and Restated
By-laws, in each case as amended to the date of this Agreement. Such Restated
Certificate of Incorporation and Amended and Restated By-laws and all similar
organizational documents of the Subsidiaries of the Company are in full force
and effect. The Company is not in violation of its Restated Certificate of
Incorporation or Amended and Restated By-laws and, except as would not, in the
aggregate, have, or reasonably be expected to have, a Company Material Adverse
Effect, none of the Subsidiaries of the Company is in violation of any similar
organizational documents of Subsidiaries of the Company.
SECTION 3.3 Capitalization. (a) The authorized capital stock of the
Company consists of 500,000,000 shares of Company Common Stock, 2,700,000 shares
of Company Class A Common Stock and 50,000,000 shares of serial Preferred Stock,
par value $.33 1/3 per share (the "Company Preferred Stock"). 123,169 shares of
Company Preferred Stock have been designated as "$1.19 Cumulative Convertible
Preferred Stock, Series A" ("Series A Company Preferred Stock"); 348,015 shares
of Company Preferred Stock have been designated as "$1.83 Cumulative Convertible
Preferred Stock, Series B" ("Series B Company Preferred Stock"); 100,000 shares
of Company Preferred Stock have been designated as "$5.00 Cumulative Convertible
Preferred Stock, Series C" ("Series C Company Preferred Stock"); 8,000,000
shares of Company Preferred Stock have been designated as "$2.125 Cumulative
Preferred Stock, Series H"; and no other shares of Company Preferred Stock are
subject to any designation. At the close of business on January 14, 2000, (i)
213,309,958 shares of Company Common Stock were issued and outstanding, (ii)
344,508 shares of Company Class A Common Stock were issued and outstanding,
(iii) 52,938 shares of Series A Company Preferred Stock were issued and
outstanding, (iv) 58,155 shares of Series B Company Preferred Stock were issued
and outstanding, (v) 26,680 shares of Series C Company Preferred Stock were
issued and outstanding, and (vi) no other shares of capital stock of the Company
were issued and outstanding. At the close of business on January 14, 2000,
4,395,950 shares of Company Common Stock, and no other shares of capital stock
of the Company were held by the Company in its treasury. No shares of capital
stock of the Company are held by any of the Company's Subsidiaries. All of the
issued and outstanding shares of Company Common Stock, Company Class A Common
Stock and Company Preferred Stock are validly issued, fully paid, nonassessable
and free of preemptive rights. At the close of business on January 12, 2000,
Company Options exercisable for 7,016,983 shares of Company Common Stock, in the
aggregate, and no shares of Company Class A Common Stock, in the aggregate, were
outstanding. As of the date of this Agreement, other than (i) the option granted
pursuant to the Company Stock Option Agreement, (ii) shares of Company Class A
Common Stock, each of which is convertible into one share of Company Common
Stock, (iii) shares of Series A Company Preferred Stock, each of which is
convertible into 7.325 shares of Company Common Stock and .01 shares of Company
Class A Common Stock, (iv) shares of Series B Company Preferred Stock, each of
which is convertible into 7.325 shares of Company Common Stock and .01 shares of
Company Class A Common Stock, (v) shares of Series C Company Preferred Stock,
each of which is convertible into 14.421 shares of Company Common Stock and
0.197 shares of Company Class A Common Stock, and (vi) 18,400,000 "FELINE
PRIDES" of the Company (consisting of 17,000,000 "Income PRIDES" and 1,400,000
"Growth PRIDES"), in respect of which between 9,906,560 and 12,085,120 shares of
Company Common Stock, in the aggregate, are issuable (the "Feline Prides"), and
(vii) Company Options, the Company did not have outstanding any subscriptions,
options, warrants, calls, commitments, agreements, conversion rights or other
rights of any character (contingent or otherwise) entitling any person to
purchase or otherwise acquire from the Company or any of its Subsidiaries at any
time, or upon the happening of any stated event, any shares of the capital stock
of the Company (each of the foregoing, a "Company Equity Equivalent Security").
From the close of business on January 14, 2000, no shares of Company Common
Stock or Company Equity Equivalent Securities (other than the option granted
pursuant to the Stock Option Agreement) have been issued, sold or otherwise
transferred by the Company (except in connection with the exercise, conversion
or exchange of outstanding Company Equity Equivalent Securities).
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(b) As of the date of this Agreement, there are no outstanding obligations,
contingent or otherwise, of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
any Company Equity Equivalent Securities (except in connection with the
exercise, conversion or exchange of outstanding Company Equity Equivalent
Securities). As of the date of this Agreement, there are no bonds, debentures,
notes or other indebtedness issued and outstanding having the right to vote
together with the Company's stockholders on any matter in respect of which the
Company's stockholders are entitled to vote.
SECTION 3.4 Power and Authority; Authorization; Valid and Binding. The
Company has the necessary corporate power and authority to execute and deliver
this Agreement and the Stock Option Agreements and to perform its obligations
hereunder and thereunder, as applicable, except that the consummation of the
Merger is subject to the adoption of this Agreement by the Company's
stockholders as set forth in Section 3.13(b). The execution and delivery of this
Agreement and the Stock Option Agreements by the Company and the performance by
it of its obligations hereunder and thereunder, as applicable, have been duly
authorized by all necessary corporate action on the part of the Company, except
that the consummation of the Merger is subject to the adoption of this Agreement
by the Company's stockholders as set forth in Section 3.13(b). This Agreement
and the Stock Option Agreements have been duly executed and delivered by the
Company, and assuming the corporate authority of, and the due authorization,
execution and delivery by, Parent and Merger Sub, each of such agreements
constitutes a legal, valid and binding obligation of the Company enforceable
against it in accordance with the terms hereof and thereof, as applicable,
subject to bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 3.5 No Conflict; Required Filings and Consents. (a) The execution
and delivery by the Company of this Agreement and the Stock Option Agreements do
not and will not, and the performance by Company of its obligations hereunder
and thereunder do not and will not, (i) violate or conflict with the Restated
Certificate of Incorporation or the Amended and Restated By-laws of the Company,
(ii) subject to obtaining or making the notices, reports, filings, waivers,
consents, approvals or authorizations referred to in paragraph (b) below and to
the adoption of this Agreement by the stockholders of the Company as set forth
in Section 3.13(b), conflict with or violate any law, regulation, order,
judgment or decree applicable to the Company or any of its Subsidiaries or by
which any of their respective property is bound or affected, (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, impair the Company's or any of its
Subsidiaries' rights under or alter the rights or obligations of any other party
to, give to others any rights of termination, cancellation, vesting,
modification, alteration or acceleration of any obligation under, result in the
creation of a lien, claim or encumbrance on any of the properties or assets of
the Company or any of its Subsidiaries pursuant to, require the consent of any
other party to, or result in any obligation on the part of the Company or any of
its Subsidiaries to repurchase (with respect to a debenture, bond or note),
pursuant to any agreement, contract, instrument, debenture, bond, note,
indenture, permit, license or franchise to which the Company or any of its
Subsidiaries is a party or by which the Company, any of its Subsidiaries or any
of their respective property is bound or affected, except, in the case of
clauses (ii) and (iii) above, as would not, in the aggregate, have, or
reasonably be expected to have, a Company Material Adverse Effect.
(b) Except for (i) applicable filings required under the premerger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder (the "HSR Act"), (ii)
required filings with and the approval of the Federal Energy Regulatory
Commission (the "FERC"), (iii) applicable filings and approvals under federal,
state, local or foreign regulatory laws, and applicable requirements of foreign,
state or local public utility or similar commissions or agencies, all of which
are set forth in the Company Disclosure Letter, (iv) the filing of a certificate
of merger with respect to the Merger as required by the DGCL, (v) filings with
the SEC under the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), and
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the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), (vi) applicable filings with the NYSE, and
(vii) any filings required or approvals necessary pursuant to any state
securities or "blue sky" laws, neither the Company nor any of its Subsidiaries
is required to submit any notice, report or other filing to any governmental or
regulatory authority, court, agency, commission or other governmental entity or
any securities exchange or other self-regulatory body, domestic or foreign
("Governmental Entity"), and no waiver, consent, approval, order or
authorization of any Governmental Entity is required to be obtained by the
Company or any of its Subsidiaries, in connection with the execution, delivery
or performance of this Agreement except for such notices, reports, filings,
waivers, consents, approvals or authorizations that, if not made or obtained,
would not, in the aggregate, have, or reasonably be expected to have, a Company
Material Adverse Effect.
SECTION 3.6 SEC Reports; Financial Statements. (a) The Company has filed
all forms, reports, statements and other documents (including all annexes,
exhibits, schedules, amendments and supplements thereto) required to be filed by
it with the SEC since January 1, 1997, has delivered or made available to Parent
all forms, reports, statements, schedules and other documents (except for
preliminary materials) (including all annexes, exhibits, schedules, amendments
and supplements thereto) filed by it with the SEC since January 1, 1997 (such
forms, reports, statements, schedules and documents filed by the Company with
the SEC, including any such forms, reports, statements and other documents filed
by the Company with the SEC after the date of this Agreement and prior to the
Closing Date are referred to herein, collectively, as the "Company SEC Reports")
and with respect to the Company SEC Reports filed by the Company after the date
of this Agreement and prior to the Closing Date, will deliver or make available
to Parent all of such Company SEC Reports in the form filed with the SEC. As of
their respective filing dates, the Company SEC Reports (including all
information incorporated therein by reference) (i) complied as to form in all
material respects with the requirements of the Securities Act or the Exchange
Act, as applicable, and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) Each of the consolidated balance sheets of the Company and its
Subsidiaries (including all related notes) included in the financial statements
contained in the Company SEC Reports (or incorporated therein by reference)
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiaries as of the respective dates indicated, and each
of the statements of consolidated operations, statements of consolidated cash
flows and statements of consolidated common stock and other stockholders' equity
of the Company and its subsidiaries (including all related notes) contained in
such financial statements present fairly, in all material respects, the
consolidated results of operations and cash flows of the Company and its
subsidiaries for the respective periods indicated, in each case in conformity
with GAAP applied on a consistent basis throughout the periods involved (except
for changes in accounting principles disclosed in the notes thereto) and the
rules and regulations of the SEC, except that unaudited interim financial
statements are subject to normal and recurring year-end adjustments and any
other adjustments described therein and do not include certain notes and other
information which may be required by GAAP but which are not required under the
Exchange Act. The financial statements included in the Company SEC Reports are
in all material respects in accordance with the books and records of the Company
and its Subsidiaries.
(c) Notwithstanding the foregoing, no representation or warranty is being
made in this Section 3.6 with respect to information or statements (including
financial information and statements) that are provided by Parent and set forth
in any Company SEC Report filed after the date hereof or with respect to any
Parent SEC Reports (as defined in Section 4.6) incorporated therein by
reference.
SECTION 3.7 Absence of Certain Changes. Except as disclosed in the Company
SEC Reports filed prior to the date of this Agreement and as otherwise
contemplated or permitted hereby, since September 30, 1999 (a) the Company and
its Subsidiaries have conducted their respective businesses in all material
respects in the ordinary course of such businesses and there have not been any
changes to the condition (financial or otherwise), assets, liabilities, business
or results of operations of the Company and its Subsidiaries, or any other
developments with respect to the Company or any of its Subsidiaries, in each
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case whether or not in the ordinary course of business, that, in the aggregate
with all other changes and developments, have had, or would reasonably be
expected to have, a Company Material Adverse Effect, and (b) there has not been
(i) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) in respect of any shares of
the capital stock or other equity securities, or any securities convertible,
exercisable or exchangeable for or into shares of capital stock or other equity
securities, of the Company or any of its Subsidiaries, other than (v) quarterly
cash dividends of $.0625 per share in respect of the outstanding shares of
Company Common Stock, (w) quarterly cash dividends of $.05625 per share in
respect of the outstanding shares of Company Class A Common Stock, (x) dividends
and distributions in respect of the outstanding shares of Company Preferred
Stock, Feline Prides and Company Trust Securities in accordance with their
respective terms, (y) quarterly dividends in respect of the outstanding shares
of the Coastal Limited Preferred Stock in accordance with the terms thereof, and
(z) dividends and distributions by Subsidiaries of the Company; (ii) any change
by the Company to its accounting policies, practices or methods; (iii) other
than in connection with the exercise, exchange or conversion of Company Equity
Equivalent Securities, any repurchase, redemption or other acquisition of any
shares of capital stock or other equity securities or any securities
convertible, exchangeable or exercisable for or into shares of capital stock or
other equity securities, of the Company or any of its Subsidiaries; (iv) except
as required by applicable law or pursuant to contractual obligations existing as
of September 30, 1999, (w) any execution, establishment, adoption or amendment
of, or acceleration of rights or benefits under, any agreement relating to
severance, any Company Employee Plan (as defined in Section 3.10), any
employment or consulting agreement or any collective bargaining agreement, (x)
any increase in the compensation payable or to become payable to any officer,
director or employee of the Company or any of its Subsidiaries (except increases
in the ordinary course of business), (y) any grant of any severance or
termination pay to any officer or director of the Company, or (z) any grant of
any stock options or other equity related awards (other than in the ordinary
course consistent with past practice); or (v) any agreement or commitment
entered into with respect to the foregoing.
SECTION 3.8 Litigation; Liabilities. (a) Except as disclosed in the
Company SEC Reports filed prior to the date of this Agreement, there are no
civil, criminal or administrative actions, suits, claims, proceedings or
investigations pending or, to the knowledge of the Company, threatened, against
the Company or any of its Subsidiaries or any of their respective assets or
properties, except as would not, in the aggregate, have, or reasonably be
expected to have, a Company Material Adverse Effect.
(b) Except as set forth in the Company SEC Reports filed prior to the date
of this Agreement, neither the Company nor any of its Subsidiaries has or is
subject to any liabilities (absolute, accrued, contingent or otherwise), except
liabilities (a) adequately reflected on the unaudited consolidated balance sheet
of the Company and its Subsidiaries (including any related notes thereto) as of
September 30, 1999 included in the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, or (b) which, in the aggregate, would not
have, or reasonably be expected to have, a Company Material Adverse Effect.
SECTION 3.9 Compliance; Permits. (a) Except as disclosed in the Company
SEC Reports filed prior to the date of this Agreement, neither the Company nor
any of its Subsidiaries is in conflict with, or in default or violation of, (i)
any law, rule, regulation, order, judgment or decree applicable to the Company
or any of its Subsidiaries or by which its or any of their respective assets or
properties is bound or affected or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise, easement, right-of-way
or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
its or any of their respective assets or properties is bound or affected, except
for such conflicts, defaults or violations which, in the aggregate, would not
have, or reasonably be expected to have, a Company Material Adverse Effect.
(b) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement, the Company and its Subsidiaries hold all permits, licenses,
easements, rights-of-way, variances, exemptions, consents, certificates, orders
and approvals which are material to the operation of the businesses of the
Company and its Subsidiaries (collectively, the "Company Permits"), except where
the failure to hold
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such Company Permits, in the aggregate, would not have, or reasonably be
expected to have, a Company Material Adverse Effect. The Company and its
Subsidiaries are in compliance with the terms of the Company Permits, except as
described in the Company SEC Reports filed prior to the date of this Agreement
or where the failure to so comply, in the aggregate, would not have, or
reasonably be expected to have, a Company Material Adverse Effect.
SECTION 3.10 Employee Matters; ERISA. (a) The Company Disclosure Letter
lists all employee pension benefit plans (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder ("ERISA")), all employee welfare benefit
plans (as defined in Section 3(1) of ERISA), all bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other or similar material fringe or employee benefit plans, programs or
arrangements, all consulting agreements with former officers and directors of
the Company and all employment, termination, change-in-control or severance
agreements, in each case, pursuant to which the Company or any of its
Subsidiaries may have any liability that is material to the Company and its
Subsidiaries, taken as a whole (together, the "Company Employee Plans"),
excluding, however, employee benefit plans that are primarily subject to the
laws of any jurisdiction outside of the United States.
(b) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement, no material liability under Title IV of ERISA has been or is
reasonably expected to be incurred by the Company or any Subsidiary of the
Company or any entity which is considered a single employer with the Company or
any Subsidiary of the Company under Section 4001(a)(15) of ERISA or Section 414
of the Code (a "Company ERISA Affiliate"), other than liabilities for premium
payments to the Pension Benefit Guaranty Corporation ("PBGC") and liabilities
that have previously been satisfied.
(c) Except as disclosed in the Company SEC Reports filed prior to the date
hereof, none of the Company Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person, other than health continuation
coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA,
and none of the Company Employee Plans is a "multiemployer plan" as such term is
defined in Section 3(37) of ERISA. Except as set forth in the Company SEC
Reports filed prior to the date of this Agreement and except, in the aggregate,
as would not have, or reasonably be expected to have, a Company Material Adverse
Effect, (i) no party in interest or disqualified person (as defined in Section
3(14) of ERISA and Section 4975 of the Code) has at any time engaged in a
transaction with respect to any Company Employee Plan which could subject the
Company or any Company ERISA Affiliate, directly or indirectly, to any tax,
penalty or other liability for prohibited transactions under ERISA or Section
4975 of the Code; (ii) no fiduciary of any Company Employee Plan has breached
any of the responsibilities or obligations imposed upon fiduciaries under Title
I of ERISA; (iii) all Company Employee Plans have been established and
maintained substantially in accordance with their terms and have operated in
compliance with the requirements of applicable law, and the Company and its
Subsidiaries have performed all obligations required to be performed by them
under and are not in default under or in violation of any of the Company
Employee Plans; (iv) each Company Employee Plan which is intended to be
qualified under Section 401(a) of the Code is so qualified, is the subject of a
favorable determination letter from the Internal Revenue Service ("IRS"), and,
to the Company's knowledge, nothing has occurred which may reasonably be
expected to result in the revocation of such determination; (v) all
contributions required to be made with respect to any Company Employee Plan
pursuant to Section 412 of the Code and Section 302 of ERISA, or pursuant to the
terms of the Company Employee Plan or any collective bargaining agreement, have
been made on or before their due dates (including any extensions thereof); (vi)
with respect to each Company Employee Plan, no "reportable event" within the
meaning of Section 4043 of ERISA (excluding any such event for which the 30 day
notice requirement has been waived under the regulations to Section 4043 of
ERISA) has occurred for which there is any outstanding liability to the Company
or any Company ERISA Affiliate, nor would the execution, delivery or
consummation of the transactions contemplated hereby constitute a reportable
event for which the 30-day requirement has not been waived; and (vii) no Company
Employee Plan is under audit or
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investigation by the IRS, the Department of Labor or the PBGC nor, to the
knowledge of the Company, is any such audit or investigation threatened.
(d) The Company Disclosure Letter sets forth a true and complete list of
each current or former employee, officer or director of the Company or any of
its Subsidiaries who holds (i) any Company Option as of the date of this
Agreement, together with the number of shares of Company Common Stock subject to
such option, the exercise price of such option, the vested and unvested portion
of such option, and the expiration date of such option or (ii) any shares of
Company Common Stock that are restricted and the date(s) of lapse of such
restrictions. In addition, the Company Disclosure Letter sets forth, in the
aggregate, (i) the number of shares of Company Common Stock underlying all other
outstanding rights under Company Employee Plans (other than plans that are
qualified plans under Section 401(a) of the Code) to receive shares of Company
Common Stock, to the extent that such shares of Company Common Stock are not
included in the number of shares set forth in the third sentence of Section 3.3,
and (ii) compensation based on the value of shares of Company Common Stock.
(e) The PBGC has not notified the Company regarding the institution of
proceedings to terminate any Company Employee Plan that is subject to Title IV
of ERISA (each, a "Company Defined Benefit Plan"). The Company Defined Benefit
Plans have no accumulated or waived funding deficiencies within the meaning of
Section 412 of the Code nor have any extensions of any amortization period
within the meaning of Section 412 of the Code or 302 of ERISA been applied for
with respect thereto.
(f) To the knowledge of the Company, all employee benefit plans of the
Company and any of its Subsidiaries that are primarily subject to the laws of
any jurisdiction outside of the United States have been maintained in compliance
with all applicable law (including, if they are intended to qualify for special
tax treatment, applicable tax laws), except for noncompliance that would not
individually or in the aggregate have, or reasonably be expected to have, a
Company Material Adverse Effect.
(g) The execution and delivery of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) (i) constitute an event under any Company
Employee Plan, trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any current or former employee of the Company or any Subsidiary of the
Company, or (ii) result in the triggering or imposition of any restrictions or
limitations on the right of the Company or any Subsidiary of the Company to
amend or terminate any Company Employee Plan.
SECTION 3.11 Labor Matters. Except as set forth in the Company SEC Reports
filed prior to the date of this Agreement, (i) there are no controversies
pending or, to the knowledge of the Company, threatened between the Company or
any of its Subsidiaries and any of their respective employees, which
controversies, in the aggregate, have had, or would reasonably be expected to
have, a Company Material Adverse Effect; (ii) neither the Company nor any of its
Subsidiaries is in breach of any material collective bargaining agreement or
other labor union contract applicable to persons employed by the Company or its
Subsidiaries which, in the aggregate, would have, or reasonably be expected to
have, a Company Material Adverse Effect, nor does the Company know of any
activities or proceedings of any labor union to organize any significant number
of such employees; and (iii) neither the Company nor any of its Subsidiaries is
in breach of any material collective bargaining agreement or other labor union
contract, nor does the Company have any knowledge of any strikes, slowdowns,
work stops, lockouts, or threats thereof, by or with respect to any employees of
the Company or any of its Subsidiaries except, in the aggregate, as would not
have, or reasonably be expected to have, a Company Material Adverse Effect.
SECTION 3.12 Environmental Matters. Except as set forth in the Company SEC
Reports filed prior to the date of this Agreement and except for those matters,
in the aggregate, that would not have, or reasonably be expected to have, a
Company Material Adverse Effect:
(a) The Company and each of its Subsidiaries, and, to the knowledge of
the Company, their respective predecessors, if any, have been at all times
operated, and are, in full compliance in all
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material respects with all applicable Environmental Laws, including all
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in all
applicable Environmental Laws.
(b) The Company and each of its Subsidiaries have obtained, are in
compliance with, and have made all appropriate filings for issuance or
renewal of, all material permits, licenses, authorizations, registrations
and other governmental consents required by, applicable Environmental Laws
("Environmental Permits"), including, without limitation, those regulating
emissions, discharges or releases of Hazardous Substances, or the use,
storage, treatment, transportation, release, emission and disposal of raw
materials, by-products, wastes and other substances used or produced by or
otherwise relating to the business of the Company or any of its
Subsidiaries.
(c) All of the Company's and its Subsidiaries' owned and, to the
knowledge of the Company, leased real property are free of any Hazardous
Substances (except those authorized pursuant to and in accordance with
Environmental Permits held by the Company and its Subsidiaries) and free of
all contamination arising from, relating to or resulting from any release,
discharge or emission of Hazardous Substances.
(d) There are no claims, notices, civil, criminal or administrative
actions, suits, hearings, investigations, inquiries or proceedings pending
or, to the knowledge of the Company, threatened against the Company or any
of its Subsidiaries that are based on or related to any Environmental
Matters or the failure to have any required Environmental Permits.
(e) There are no past or present conditions, events, circumstances,
facts, activities, practices, incidents, actions, omissions or plans: (1)
that are reasonably likely to give rise to any liability or other
obligation under any Environmental Laws that is reasonably likely to
require the Company or any of its Subsidiaries to incur any actual or
potential Environmental Costs, or (2) that are reasonably likely to form
the basis of any claim, action, suit, proceeding, hearing, investigation or
inquiry against or involving the Company or any of its Subsidiaries based
on or related to any Environmental Matter or that could require the Company
or any of its Subsidiaries to incur any Environmental Costs.
(f) There are no underground or aboveground storage tanks,
incinerators or surface impoundments at, on, or about, under or within any
real property owned, operated or controlled in whole or in part by the
Company or any of its Subsidiaries.
(g) Neither the Company nor any of its Subsidiaries has received any
notice (written or oral) or other communication that any of them is or may
be a potentially responsible person or otherwise liable in connection with
any waste disposal site allegedly containing any Hazardous Substances, or
other location used for the disposal of any Hazardous Substances, or notice
of any failure of the Company or any of its Subsidiaries to comply in any
material respect with any Environmental Law or the requirements of any
Environmental Permit.
(h) Neither the Company nor any of its Subsidiaries has used any waste
disposal site, or otherwise disposed of, transported, or arranged for the
transportation of, any Hazardous Substances to any place or location, or in
violation of any Environmental Laws.
(i) Neither the Company nor any of its Subsidiaries has been in
violation of any Environmental Laws, nor has it been requested or required
by any Governmental Entity to perform any investigatory or remedial
activity or other action in connection with any actual or alleged release
of Hazardous Substances or any other Environmental Matter.
For the purposes of this Agreement, the following terms shall have the
meanings indicated:
"Environmental Costs" means, without limitation, any actual or potential
cleanup costs, remediation, removal or other response costs (which without
limitation shall include costs to cause the representing party or its
Subsidiaries to come into compliance with Environmental Laws), investigation
costs (including
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without limitation fees of consultants, counsel and other experts in connection
with any environmental investigation, testing, audits or studies), losses,
liabilities or obligations (including without limitation, liabilities or
obligations under any lease or other contract), payments, damages (including
without limitation any actual, punitive or consequential damages under any
statutory laws, common law cause of action or contractual obligations or
otherwise, including without limitation damages (a) to third parties for
personal injury or property damage, or (b) to natural resources), civil or
criminal fines or penalties, judgments and amounts paid in settlement arising
out of or relating to or resulting from any Environmental Matter.
"Environmental Matter" means any matter arising out of, relating to, or
resulting from pollution, contamination, protection of the environment, human
health or safety, health or safety of employees, sanitation, and any matters
relating to emissions, discharges, disseminations, releases or threatened
releases, of Hazardous Substances into the air (indoor and outdoor), surface
water, groundwater, soil, land surface or subsurface, buildings, facilities,
real or personal property or fixtures or otherwise arising out of, relating to,
or resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, handling, release or threatened release of
Hazardous Substances.
"Hazardous Substances" means any pollutants, contaminants, toxic or
hazardous or extremely hazardous substances, materials, wastes, constituents,
compounds, chemicals, natural or man-made elements or forces (including, without
limitation, petroleum or any by-products or fractions thereof, any form of
natural gas, Bevill Amendment materials, lead, asbestos and asbestos-containing
materials), building construction materials and debris, polychlorinated
biphenyls ("PCBs") and PCB-containing equipment, radon and other radioactive
elements, ionizing radiation, electromagnetic field radiation and other
non-ionizing radiation, sonic forces and other natural forces, infectious,
carcinogenic, mutagenic, or etiologic agents, pesticides, defoliants,
explosives, flammables, corrosives and urea formaldehyde foam insulation that
are regulated by, or may now or in the future form the basis of liability under,
any Environmental Laws.
"Environmental Laws" means, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. sec.sec. 9601
et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42
U.S.C. sec.sec. 11001 et seq., the Resource Conservation and Recovery Act, 42
U.S.C. sec.sec. 6901 et seq., the Toxic Substances Control Act, 15 U.S.C.
sec.sec. 2601 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act,
7 U.S.C. sec.sec. 136 et seq., the Clean Air Act, 42 U.S.C. sec.sec. 7401 et.
seq., the Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C.
sec.sec. 1251 et seq., the Safe Drinking Water Act, 42 U.S.C. sec.sec. 300f et
seq., the Occupational Safety and Health Act, 29 U.S.C. sec.sec. 641, et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. sec.sec. 1801, et seq., as
any of the above statutes have been or may be amended from time to time, all
rules and regulations promulgated pursuant to any of the above statutes, and any
other foreign, federal, state or local law, statute, ordinance, rule or
regulation governing Environmental Matters, as the same have been or may be
amended from time to time, including any common law cause of action providing
any right or remedy relating to Environmental Matters, all indemnity agreements
and other contractual obligations (including leases, asset purchase and merger
agreements) relating to environmental matters, and all applicable judicial and
administrative decisions, orders, and decrees relating to Environmental Matters.
SECTION 3.13 Board Action; Vote Required. (a) The Company's Board of
Directors has unanimously approved (including, with respect to Parent, Merger
Sub and their respective affiliates and associates, for purposes of rendering
inapplicable Section 203 of the DGCL to) this Agreement, the Stock Option
Agreements and the transactions contemplated hereby and thereby, has determined
that the transactions contemplated hereby and thereby are fair to and in the
best interests of Company and its stockholders and has resolved to recommend to
stockholders that they vote in favor of approving and adopting this Agreement
and the Merger. No "fair price," "moratorium," "control share acquisition" or
other similar anti-takeover statute applicable to the Company will prevent or
otherwise delay the consummation of transactions contemplated hereby.
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(b) In accordance with the DGCL, the affirmative vote of the holders of a
majority of the voting power of all outstanding shares of Company Common Stock,
Company Class A Common Stock, Series A Company Preferred Stock, Series B Company
Preferred Stock and Series C Company Preferred Stock, voting together as a
single class (with each share of Company Common Stock and each share of each
such series of Company Preferred Stock entitling the holder thereof to one vote
and each share of Company Class A Common Stock entitling the holder thereof to
100 votes) is necessary to approve and adopt this Agreement and the Merger. Such
vote is the only vote or approval of holders of shares of any class or series of
the Company's capital stock required in connection with this Agreement, the
Stock Option Agreements and the transactions contemplated hereby and thereby.
SECTION 3.14 Opinion of Financial Advisor. The Board of Directors of the
Company has received the written opinion of Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), dated as of the date of this Agreement, to
the effect that, subject to the qualifications and limitations contained
therein, as of the date of this Agreement, the Exchange Ratios are fair from a
financial point of view to the holders of shares of Company Converted Stock
(other than Parent and its affiliates).
SECTION 3.15 Brokers. Merrill Lynch is the only broker, finder, investment
banker or other person entitled to any brokerage, finder's, investment banking
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company or any of its Subsidiaries. The Company has previously provided to
Parent a copy of the letter agreement, dated January 3, 2000, between Merrill
Lynch and the Company giving rise to a fee to Merrill Lynch.
SECTION 3.16 Tax Matters. (a) Except as would not, in the aggregate, have,
or reasonably be expected to have, a Company Material Adverse Effect, the
Company and its Subsidiaries (i) have timely filed all federal, state and
foreign Tax returns required to be filed by any of them for Tax years ended
prior to the date of this Agreement or requests for extensions have been timely
filed and any such request has been granted and has not expired, and all such
returns are correct and complete and (ii) have paid or accrued in accordance
with GAAP all Taxes shown to be due and payable on such returns.
(b) Except as would not, in the aggregate, have, or reasonably be expected
to have, a Company Material Adverse Effect, there is no dispute or claim
concerning any Tax liability of any of the Company and its Subsidiaries claimed
or raised by any authority in writing.
(c) No written claims that, in the aggregate, could reasonably be expected
to have a Company Material Adverse Effect have been made by an authority in a
jurisdiction where any of the Company and its Subsidiaries does not file Tax
returns that it is or may be subject to Taxation by that jurisdiction.
(d) Except as would not, in the aggregate, have or reasonably be expected
to have a Company Material Adverse Effect, none of the Company and its
Subsidiaries has waived any statute of limitations in respect of income Taxes or
agreed to any extension of time with respect to an income Tax assessment or
deficiency.
(e) Neither the Company nor any of its Subsidiaries has taken or agreed to
take any action, nor does the Company have any knowledge of any fact, agreement,
plan or other circumstance with respect to the Company or its Subsidiaries,
which would reasonably be expected to prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368 of the Code.
SECTION 3.17 Public Utility Holding Company Act of 1935. The Company is
not a "holding company," a "subsidiary company" of a "holding company," an
"affiliate of a holding company," or a "public utility company," as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended, and
rules and regulations thereunder (the "Holding Company Act").
SECTION 3.18 Restrictions on Business Activities. Except for this
Agreement or as set forth in the Company SEC Reports filed prior to the date of
this Agreement, there is no judgment, injunction, order or decree or material
agreement (including, without limitation, agreements containing provisions
restricting the Company or any of its Subsidiaries from entering or engaging in
any line of business, agreements
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containing geographic restrictions on the Company's or any of its Subsidiaries'
ability to operate their respective businesses and agreements containing rights
of first refusal, rights of first offer, exclusivity, "requirements" or similar
provisions) binding upon the Company or any of its Subsidiaries which has or
would reasonably be expected to have the effect of materially prohibiting or
impairing the conduct of the businesses of the Company or any of its
Subsidiaries or, to the Company's knowledge, after the Effective Time, Parent or
any of its Subsidiaries, taken together.
SECTION 3.19 Year 2000. Except as set forth in the Company SEC Reports
filed prior to the date of this Agreement, the systems operated or used by the
Company or any of its Subsidiaries have been providing, and are capable of
continuing to provide, uninterrupted millennium functionality on and after
January 1, 2000 to share, record, process and present data in substantially the
same manner and with the same functionality as such systems share, record,
process and present such data on and before December 31, 1999, except, in the
aggregate, as would not have, or reasonably be expected to have, a Company
Material Adverse Effect.
SECTION 3.20 Accounting Matters. Neither the Company nor any of its
Subsidiaries has taken or agreed to take action, nor does the Company have any
knowledge of any fact or circumstance with respect to the Company or its
Subsidiaries, which would prevent the Merger from being accounted for as a
pooling-of-interests under GAAP or the rules and regulations of the SEC. D&T has
advised the Company that it is not aware as of the date of this Agreement of any
reason why D&T would be unable to deliver at the Closing the letter referred to
in the second sentence of Section 6.13(b).
ARTICLE IV
Except as set forth in the corresponding sections or subsections of the
disclosure letter, dated the date of this Agreement, delivered by Parent to the
Company (the "Parent Disclosure Letter"), Parent hereby represents and warrants
to the Company as follows:
SECTION 4.1 Organization and Qualification; Subsidiaries. (a) Each of
Parent and Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of the Subsidiaries
of Parent is a corporation or other business entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, and each of Parent and its Subsidiaries has the
requisite corporate or similar organizational power and authority to own,
operate or lease its properties and to carry on its business as it is now being
conducted, and is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned, operated or leased or the nature of its activities makes such
qualification necessary, except as would not, in the aggregate, have, or
reasonably be expected to have, a Parent Material Adverse Effect (as defined in
Section 9.4). Since the date of its incorporation, Merger Sub has not engaged in
any activities other than in connection with or as contemplated by this
Agreement.
(b) Except as disclosed in the Parent SEC Reports (as defined in Section
4.6) filed prior to the date hereof, and except as would not, in the aggregate,
have, or reasonably be expected to have, a Parent Material Adverse Effect, (i)
other than preference and common units representing limited partner interests in
El Paso Energy Partners, L.P. (formerly known as Leviathan Gas Pipeline, L.P.)
("Leviathan") held by the public and 6,000,000 outstanding shares of 8 1/4%
Cumulative Preferred Stock, Series A, par value $50 per share, of El Paso
Tennessee Pipeline Co. (the "EPTPC Preferred Stock"), all of the outstanding
shares of capital stock and other equity securities of the Subsidiaries of
Parent are owned, directly or indirectly, by Parent free and clear of all liens,
pledges, security interests, or other encumbrances, (ii) all of the outstanding
shares of capital stock or other equity securities of the Subsidiaries of Parent
have been validly issued and are fully paid and nonassessable, (iii) other than
options and other rights to purchase preference or common units representing
limited partner interests in Leviathan awarded to employees, officers,
directors, advisors and consultants of Leviathan ("Leviathan Employee Options"),
there are no subscriptions, options, warrants, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or otherwise)
entitling any person to purchase or otherwise acquire from Parent or any of its
Subsidiaries at any time, or upon the happening of any stated event, any shares
of capital stock
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or other equity securities of any of the Subsidiaries of Parent and there are no
outstanding obligations, contingent or otherwise, of Parent or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock or other equity securities, or any securities convertible, exchangeable or
exercisable for or into shares of capital stock or other equity securities, of
any Subsidiary of Parent. There are no outstanding obligations, contingent or
otherwise, of Parent or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock or other equity securities, or any
securities convertible, exchangeable or exercisable for or into, shares of
capital stock or other equity securities of any Subsidiary of Parent (except in
connection with the exercise of Leviathan Employee Options).
SECTION 4.2 Restated Certificate of Incorporation and By-laws of Parent
and Merger Sub. Parent has furnished or otherwise made available to the Company
a complete and correct copy of Parent's Restated Certificate of Incorporation
and By-laws and Merger Sub's Certificate of Incorporation and By-laws, in each
case as amended to the date of this Agreement. The Restated Certificate of
Incorporation and By-laws of Parent and all similar organizational documents of
Subsidiaries of Parent are in full force and effect. Parent is not in violation
of its Restated Certificate of Incorporation or By-laws and Merger Sub is not in
violation of its Certificate of Incorporation or By-laws and, except as would
not, in the aggregate, have, or reasonably be expected to have, a Parent
Material Adverse Effect, none of the Subsidiaries of Parent (other than Merger
Sub) is in violation of any similar organizational documents of Subsidiaries of
Parent.
SECTION 4.3 Capitalization. (a) The authorized capital stock of Parent
consists of 750,000,000 shares of Parent Common Stock and 50,000,000 shares of
serial Preferred Stock, par value $.01 per share (the "Parent Preferred Stock").
The 7,500,000 shares of the Parent Preferred Stock have been designated as
"Series A Junior Participating Preferred Stock" and, other than as contemplated
or permitted hereby, no other shares of Parent Preferred Stock are subject to
any designation. At the close of business on December 31, 1999, 235,440,039
shares of Parent Common Stock (including 5,845,269 shares held in Parent's
Benefit Protection Trust), and no shares of Parent Preferred Stock, were issued
and outstanding. At the close of business on January 12, 2000, 3,102,296 shares
of Parent Common Stock and no shares of Parent Preferred Stock were held by
Parent in its treasury. No shares of capital stock of Parent are held by any of
Parent's Subsidiaries. All of the issued and outstanding shares of Parent Common
Stock are validly issued, fully paid, nonassessable and free of preemptive
rights. At the close of business on December 31, 1999, 22,581,204 options to
purchase shares of Parent Common Stock ("Parent Options"), exercisable for
22,581,204 shares of Parent Common Stock, in the aggregate, were outstanding. As
of the date of this Agreement, other than (i) the option granted pursuant to the
Parent Stock Option Agreement, (ii) preferred stock purchase rights (none of
which are exercisable) issued pursuant to the Amended and Restated Shareholder
Rights Agreement (the "Parent Rights Agreement"), effective January 20, 1999,
between the Parent and BankBoston, N.A., as rights agent, (iii) 6,500,000 4 3/4%
Trust Convertible Preferred Securities of El Paso Energy Capital Trust I (the
"Parent Trust Securities") (and the underlying 4 3/4% Subordinated Convertible
Debentures due 2028 of Parent in the aggregate principal amount of $325 million)
convertible into 8,048,730 shares of Parent Common Stock, in the aggregate, and
(iv) Parent Options, Parent does not have outstanding any subscriptions,
options, warrants, calls, commitments, agreements, conversion rights or other
rights of any character (contingent or otherwise) entitling any person to
purchase or otherwise acquire from Parent or any of its Subsidiaries at any
time, or upon the happening of any stated event, any shares of the capital stock
of Parent (each of the foregoing, a "Parent Equity Equivalent Security"). From
the close of business on December 31, 1999 through the date of this Agreement,
no shares of Parent Common Stock, and from the close of business on January 12,
2000 through the date of this Agreement, no Parent Equity Equivalent Securities,
have been issued, sold or otherwise transferred by Parent (except in connection
with the exercise, conversion or exchange of outstanding Parent Equity
Equivalent Securities).
(b) As of the date of this Agreement, there are no outstanding obligations,
contingent or otherwise, of Parent or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of Parent Common Stock or any Parent
Equity Equivalent Securities (except in connection with the exercise, conversion
or exchange of outstanding Parent Equity Equivalent Securities). As of the date
of this
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Agreement, there are no bonds, debentures, notes or other indebtedness issued
and outstanding having the right to vote together with Parent's stockholders on
any matter in respect of which the Parent's stockholders are entitled to vote.
SECTION 4.4 Power and Authority; Authorization; Valid and Binding. Each of
Parent and Merger Sub has the necessary corporate power and authority to execute
and deliver this Agreement and the Stock Option Agreements, as applicable, and
to perform its obligations hereunder and thereunder, as applicable, except that
the issuance of the shares of Parent Common Stock pursuant to the Merger (the
"Parent Stock Issuance") is subject to the approval of the stockholders of
Parent as set forth in Section 4.13(c). The execution and delivery of this
Agreement by Parent and Merger Sub and of the Stock Option Agreements by Parent,
and the performance by each of its respective obligations hereunder and
thereunder, as applicable, have been duly authorized by all necessary corporate
action on the part of Parent and Merger Sub, except that the Parent Stock
Issuance is subject to the approval of the stockholders of Parent as set forth
in Section 4.13(c). This Agreement has been duly executed and delivered by
Parent and Merger Sub, and the Stock Option Agreements have been duly executed
and delivered by Parent, and assuming the corporate authority of, and the due
authorization, execution and delivery by, the Company, each of such agreements
constitutes a legal, valid and binding obligation of Parent and Merger Sub, as
applicable, enforceable against Parent and Merger Sub, as applicable, in
accordance with the terms hereof or thereof, as applicable, subject to
bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
SECTION 4.5 No Conflict; Required Filings and Consents. (a) The execution
and delivery by Parent and Merger Sub of this Agreement, and the execution and
delivery by Parent of the Stock Option Agreements, do not and will not, and the
performance by Parent and Merger Sub of its obligations hereunder and
thereunder, as applicable, do not and will not, (i) violate or conflict with the
Restated Certificate of Incorporation or By-laws of Parent or the Certificate of
Incorporation or By-laws of Merger Sub, (ii) subject to obtaining or making the
notices, reports, filings, waivers, consents, approvals or authorizations
referred to in paragraph (b) below and to the approval by Parent's stockholders
of the Parent Stock Issuance as set forth in Section 4.13(c), conflict with or
violate any law, regulation, order, judgment or decree applicable to Parent or
any of its Subsidiaries or by which any of their respective property is bound or
affected, (iii) subject to the approval by Parent's stockholders of the Parent
Stock Issuance as set forth in Section 4.13(c), result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, impair Parent's or any of its Subsidiaries'
rights under or alter the rights or obligations of any other party to, give to
others any rights of termination, cancellation, vesting, modification,
alteration or acceleration of any obligation under, result in the creation of a
lien, claim or encumbrance on any of the properties or assets of Parent or any
of its Subsidiaries pursuant to, require the consent of any other party to, or
result in any obligation on the part of Parent or any of its Subsidiaries to
repurchase (with respect to a debenture, bond or note), pursuant to any
agreement, contract, instrument, debenture, bond, note, indenture, permit,
license or franchise to which Parent or any of its Subsidiaries is a party or by
which Parent, any of its Subsidiaries or any of their respective property is
bound or affected, except, in the case of clauses (ii) and (iii) above, as would
not, in the aggregate, have, or reasonably be expected to have, a Parent
Material Adverse Effect.
(b) Except for (i) applicable filings required under the premerger
notification requirements of the HSR Act, (ii) required filings with and
approvals of the FERC, (iii) applicable filings and approvals under federal,
state, local or foreign regulatory laws, and applicable requirements of foreign,
state or local public utility or similar commissions or agencies, all of which
are set forth in the Parent Disclosure Letter, (iv) the filing of a certificate
of merger with respect to the Merger as required by the DGCL, (v) filings with
the SEC under the Securities Act and the Exchange Act, (vi) applicable filings
with the NYSE, and (vii) any filings required or approvals necessary pursuant to
any state securities or "blue sky" laws, neither Parent nor any of its
Subsidiaries is required to submit any notice, report or other filing to any
Governmental Entity, and no waiver, consent, approval, order or authorization of
any Governmental Entity
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is required to be obtained by Parent or any of its Subsidiaries, in connection
with the execution, delivery or performance of this Agreement except for such
notices, reports, filings, waivers, consents, approvals or authorizations that,
if not made or obtained, would not, in the aggregate, have, or reasonably be
expected to have, a Parent Material Adverse Effect.
SECTION 4.6 SEC Reports; Financial Statements. (a) Parent (with respect to
the period prior to August 1, 1998, for purposes of this Section 4.6, all
references to the "Parent" shall be deemed to refer to El Paso Natural Gas
Company) has filed all forms, reports, statements, schedules and other documents
(including all annexes, exhibits, schedules, amendments and supplements thereto)
required to be filed by it with the SEC since January 1, 1997, has delivered or
made available to the Company all forms, reports, statements, schedules and
other documents (except for preliminary materials) (including all annexes,
exhibits, schedules, amendments and supplements thereto) filed by it with the
SEC since January 1, 1997 (such forms, reports, statements, schedules and
documents filed by Parent with the SEC, including any such forms, reports,
statements, schedules and other documents filed by Parent with the SEC after the
date of this Agreement and prior to the Closing Date, are referred to herein,
collectively, as the "Parent SEC Reports") and with respect to the Parent SEC
Reports filed by Parent after the date of this Agreement and prior to the
Closing Date, will deliver or make available to the Company all of such Parent
SEC Reports in the form filed with the SEC. As of their respective filing dates,
the Parent SEC Reports (including all information incorporated therein by
reference) (i) complied as to form in all material respects with the
requirements of the Securities Act or the Exchange Act, as applicable, and (ii)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) Each of the consolidated balance sheets of Parent and its Subsidiaries
(including all related notes) included in the financial statements contained in
the Parent SEC Reports (or incorporated therein by reference) present fairly, in
all material respects, the consolidated financial position of Parent as of the
respective dates indicated, and each of the consolidated statements of income,
consolidated statements of cash flows and consolidated statements of changes in
stockholders' equity of Parent (including all related notes) contained in such
financial statements present fairly, in all material respects, the consolidated
results of operations and cash flows of Parent and its Subsidiaries for the
respective periods indicated, in each case in conformity with GAAP applied on a
consistent basis throughout the periods involved (except for changes in
accounting principles disclosed in the notes thereto) and the rules and
regulations of the SEC, except that unaudited interim financial statements are
subject to normal and recurring year-end adjustments and any other adjustments
described therein and do not include certain notes and other information which
may be required by GAAP but which are not required under the Exchange Act. The
financial statements included in the Parent SEC Reports are in all material
respects in accordance with the books and records of Parent and its
Subsidiaries.
(c) Notwithstanding the foregoing, no representation or warranty is being
made in this Section 4.6 with respect to information or statements (including
financial information and statements) that are provided by the Company and set
forth in any Parent SEC Report filed after the date hereof or with respect to
any Company SEC Reports incorporated therein by reference.
SECTION 4.7 Absence of Certain Changes. Except as disclosed in the Parent
SEC Reports filed prior to the date of this Agreement and as otherwise
contemplated or permitted hereby, since September 30, 1999, (a) Parent and its
Subsidiaries have conducted their respective businesses in all material respects
in the ordinary course of such businesses and there have not been any changes to
the condition (financial or otherwise), assets, liabilities, business or results
of operations of Parent and its Subsidiaries, or any other developments with
respect to Parent or any of its Subsidiaries, in each case whether or not in the
ordinary course of business, that, in the aggregate with all other changes and
developments, have had, or would reasonably be expected to have, a Parent
Material Adverse Effect, and (b) there has not been (i) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or property) in respect of any shares of the capital stock or other equity
securities, or any securities convertible, exercisable or exchangeable for or
into shares of capital stock or other equity
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securities, of Parent or any of its Subsidiaries, other than (v) regular
quarterly cash dividends of $.206 per share in respect of the outstanding shares
of Parent Common Stock, (w) dividends and distributions in respect of the Parent
Trust Securities in accordance with the terms thereof, (x) regular distributions
in respect of the outstanding preference and common units representing partner
interests in Leviathan, (y) regular quarterly dividends in respect of the
outstanding EPTPC Preferred Stock in accordance with the terms thereof and (z)
dividends and distributions by Subsidiaries of Parent; (ii) any change by Parent
to its accounting policies, practices or methods; (iii) other than in connection
with the exercise, exchange or conversion of Parent Equity Equivalent Securities
and Leviathan Employee Options, any repurchase, redemption or other acquisition
of any shares of capital stock or other equity securities or any securities
convertible, exchangeable or exercisable for or into shares of capital stock or
other equity securities, of Parent or any of its Subsidiaries; or (iv) except as
required by applicable law or pursuant to contractual obligations existing as of
September 30, 1999, (w) any execution, establishment, adoption or amendment of,
or acceleration of rights or benefits under, any agreement relating to
severance, any Parent Employee Plan, any employment or consulting agreement or
any collective bargaining agreement, (x) any increase in the compensation
payable or to become payable to any officer, director or employee of Parent or
any of its Subsidiaries (except increases in the ordinary course of business),
(y) any grant of any severance or termination pay to any officer or director of
Parent, or (z) any grant of any stock options or other equity related awards
other than in the ordinary course consistent with past practice; or (v) any
agreement or commitment entered into with respect to the foregoing.
SECTION 4.8 Litigation; Liabilities. (a) Except as disclosed in the Parent
SEC Reports filed prior to the date of this Agreement, there are no civil,
criminal or administrative actions, suits, claims, proceedings, or
investigations pending or, to the knowledge of Parent, threatened, against
Parent or any of its Subsidiaries or any of their respective assets or
properties, except as would not, in the aggregate, have, or reasonably be
expected to have, a Parent Material Adverse Effect.
(b) Except as set forth in the Parent SEC Reports filed prior to the date
of this Agreement, neither Parent nor any of its Subsidiaries has or is subject
to any liabilities (absolute, accrued, contingent or otherwise), except
liabilities (a) adequately reflected on the unaudited consolidated balance sheet
of Parent and its Subsidiaries (including any related notes thereto) as of
September 30, 1999 included in Parent's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, or (b) which, in the aggregate, would not
have, or reasonably be expected to have, a Parent Material Adverse Effect.
SECTION 4.9 Compliance; Permits. (a) Except as disclosed in the Parent SEC
Reports filed prior to the date of this Agreement, neither Parent nor any of its
Subsidiaries is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to Parent or any of its
Subsidiaries or by which its or any of their respective assets or properties is
bound or affected or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise, easement, right-of-way or other
instrument or obligation to which Parent or any of its Subsidiaries is a party
or by which Parent or any of its Subsidiaries or its or any of their respective
assets or properties is bound or affected, except for such conflicts, defaults
or violations which, in the aggregate, would not have, or reasonably be expected
to have, a Parent Material Adverse Effect.
(b) Except as disclosed in the Parent SEC Reports filed prior to the date
of this Agreement, Parent and its Subsidiaries hold all permits, licenses,
easements, rights-of-way, variances, exemptions, consents, certificates, orders
and approvals which are material to the operation of the businesses of Parent
and its Subsidiaries (collectively, the "Parent Permits"), except where the
failure to hold such Parent Permits, in the aggregate, would not have, or
reasonably be expected to have, a Parent Material Adverse Effect. Parent and its
Subsidiaries are in compliance with the terms of the Parent Permits, except as
described in the Parent SEC Reports filed prior to the date hereof or where the
failure to so comply, in the aggregate, would not have, or reasonably be
expected to have, a Parent Material Adverse Effect.
SECTION 4.10 Employee Matters; ERISA. (a) The Parent Disclosure Letter
lists all employee pension benefit plans (as defined in Section 3(2) of ERISA),
all employee welfare benefit plans (as defined in Section 3(1) of ERISA), all
bonus, stock option, stock purchase, incentive, deferred
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compensation, supplemental retirement, severance and other or similar material
fringe or employee benefit plans, programs or arrangements, all consulting
agreements with former officers and directors of Parent and all employment,
termination, change-in-control or severance agreements, in each case, pursuant
to which Parent or any of its Subsidiaries may have any liability material to
Parent and its Subsidiaries, taken as a whole (together, the "Parent Employee
Plans"), excluding, however, employee benefit plans that are primarily subject
to the laws of any jurisdiction outside the United States.
(b) Except as disclosed in the Parent SEC Reports filed prior to the date
hereof, no material liability under Title IV of ERISA has been or is reasonably
expected to be incurred by the Parent or any Subsidiary of the Parent or any
entity which is considered a single employer with the Parent or any Subsidiary
of the Parent under Section 4001(a)(15) of ERISA or Section 414 of the Code (a
"Parent ERISA Affiliate"), other than liabilities for premium payments to the
PBGC and liabilities that have previously been satisfied.
(c) Except as disclosed in the Parent SEC Reports filed prior to the date
of this Agreement, none of the Parent Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person, other than
health continuation coverage as required by Section 4980B of the Code or Part 6
of Title I of ERISA, and none of the Parent Employee Plans is a "multiemployer
plan" as such term is defined in Section 3(37) of ERISA. Except as set forth in
the Parent SEC Reports filed prior to the date of this Agreement and except, in
the aggregate, as would not have, or reasonably be expected to have, a Parent
Material Adverse Effect, (i) no party in interest or disqualified person (as
defined in Section 3(14) of ERISA and Section 4975 of the Code) has at any time
engaged in a transaction with respect to any Parent Employee Plan which could
subject Parent or any Parent ERISA Affiliate, directly or indirectly, to any
tax, penalty or other liability for prohibited transactions under ERISA or
Section 4975 of the Code; (ii) no fiduciary of any Parent Employee Plan has
breached any of the responsibilities or obligations imposed upon fiduciaries
under Title I of ERISA; (iii) all Parent Employee Plans have been established
and maintained substantially in accordance with their terms and have operated in
compliance with the requirements of applicable law, and Parent and its
Subsidiaries have performed all obligations required to be performed by them
under and are not in default under or in violation of any of Parent Employee
Plans; (iv) each Parent Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified, is the subject of a favorable
determination letter from the IRS, and, to Parent's knowledge, nothing has
occurred which may reasonably be expected to result in the revocation of such
determination; (v) all contributions required to be made with respect to any
Parent Employee Plan pursuant to Section 412 of the Code and Section 302 of
ERISA, or pursuant to the terms of Parent Employee Plan or any collective
bargaining agreement, have been made on or before their due dates (including any
extensions thereof); (vi) with respect to each Parent Employee Plan, no
"reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the 30 day notice requirement has been waived under the
regulations to Section 4043 of ERISA) has occurred for which there is any
outstanding liability to Parent or any Parent ERISA Affiliate, nor would the
execution, delivery or consummation of the transactions contemplated hereby
constitute a reportable event for which the 30-day requirement has not been
waived; and (vii) no Parent Employee Plan is under audit or investigation by the
IRS, the Department of Labor or the PBGC nor, to the knowledge of Parent, is any
such audit or investigation threatened.
(d) The Parent Disclosure Letter sets forth a true and complete list of
each current or former officer or director of Parent or any of its Subsidiaries
who holds (i) any Parent Option as of the date of this Agreement, together with
the number of shares of Parent Common Stock subject to such option, the exercise
price of such option, the vested and unvested portion of such option, and the
expiration date of such option; or (ii) any shares of Parent Common Stock that
are restricted and the date(s) of lapse of such restrictions. In addition, the
Parent Disclosure Letter sets forth, in the aggregate, (i) the number of shares
of Parent Common Stock underlying all other outstanding rights under Parent
Employee Plans (other than plans that are qualified plans under Section 401(a)
of the Code) to receive shares of Parent Common Stock, to the extent that such
shares of Parent Common Stock are not included in the number
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of shares set forth in the third sentence of Section 4.3, and (ii) compensation
based on the value of shares of Parent Common Stock.
(e) The PBGC has not notified Parent regarding the institution of
proceedings to terminate any Parent Employee Plan that is subject to Title IV of
ERISA (each, a "Parent Defined Benefit Plan"). The Parent Defined Benefit Plans
have no accumulated or waived funding deficiencies within the meaning of Section
412 of the Code nor have any extensions of any amortization period within the
meaning of Section 412 of the Code or 302 of ERISA been applied for with respect
thereto.
(f) To the knowledge of Parent, all employee benefit plans of Parent and
any of its Subsidiaries that are primarily subject to the laws of any
jurisdiction outside of the United States have been maintained in compliance
with all applicable law (including, if they are intended to qualify for special
tax treatment, applicable tax laws), except for noncompliance that would not
individually or in the aggregate have, or reasonably be expected to have, a
Parent Material Adverse Effect.
(g) The execution and delivery of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) (i) constitute an event under any Parent
Employee Plan, trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any current or former employee of Parent or any Subsidiary of Parent, or (ii)
result in the triggering or imposition of any restrictions or limitations on the
right of the Parent or any Subsidiary of Parent to amend or terminate any Parent
Employee Plan.
SECTION 4.11 Labor Matters. Except as set forth in the Parent SEC Reports
filed prior to the date of this Agreement, (i) there are no controversies
pending or, to the knowledge of Parent, threatened, between Parent or any of its
Subsidiaries and any of their respective employees, which controversies, in the
aggregate, have had, or would reasonably be expected to have, a Parent Material
Adverse Effect; (ii) neither Parent nor any of its Subsidiaries is in breach of
any material collective bargaining agreement or other labor union contract
applicable to persons employed by Parent or its Subsidiaries which, in the
aggregate, would have, or reasonably be expected to have, a Parent Material
Adverse Effect, nor does Parent know of any activities or proceedings of any
labor union to organize any significant number of such employees; and (iii)
neither Parent nor any of its Subsidiaries is in breach of any material
collective bargaining agreement or other labor union contract, nor does Parent
have any knowledge of any strikes, slowdowns, work stops, lockouts, or threats
thereof, by or with respect to any employees of Parent or any of its
Subsidiaries except, in the aggregate, as would not have, or reasonably be
expected to have, a Parent Material Adverse Effect.
SECTION 4.12 Environmental Matters. Except as set forth in the Parent SEC
Reports filed prior to the date of this Agreement and except for those matters,
in the aggregate, that would not have, or reasonably be expected to have, a
Parent Material Adverse Effect:
(a) Parent and each of its Subsidiaries, and, to the knowledge of
Parent, their respective predecessors, if any, have been at all times
operated, and are, in full compliance in all material respects with all
applicable Environmental Laws, including all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules
and timetables contained in all applicable Environmental Laws.
(b) Parent and each of its Subsidiaries have obtained, are in
compliance with, and have made all appropriate filings for issuance or
renewal of, all material Environmental Permits, including, without
limitation, those regulating emissions, discharges, or releases of
Hazardous Substances, or the use, storage, treatment, transportation,
release, emission and disposal of raw materials, by-products, wastes and
other substances used or produced by or otherwise relating to the business
of Parent or any of its Subsidiaries.
(c) All of Parent's and its Subsidiaries' owned and, to the knowledge
of Parent, leased real property are free of any Hazardous Substances
(except those authorized pursuant to and in
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accordance with Environmental Permits held by Parent and its Subsidiaries)
and free of all contamination arising from, relating to, or resulting from
any release, discharge or emission of Hazardous Substances.
(d) There are no claims, notices, civil, criminal or administrative
actions, suits, hearings, investigations, inquiries or proceedings pending
or, to the knowledge of Parent, threatened against Parent or any of its
Subsidiaries that are based on or related to any Environmental Matters or
the failure to have any required Environmental Permits.
(e) There are no past or present conditions, events, circumstances,
facts, activities, practices, incidents, actions, omissions or plans: (1)
that are reasonably likely to give rise to any liability or other
obligation under any Environmental Laws that may require Parent or any of
its Subsidiaries to incur any actual or potential Environmental Costs, or
(2) that are reasonably likely to form the basis of any claim, action,
suit, proceeding, hearing, investigation or inquiry against or involving
Parent or any of its Subsidiaries based on or related to any Environmental
Matter or that could require Parent or any of its Subsidiaries to incur any
Environmental Costs.
(f) There are no underground or aboveground storage tanks,
incinerators or surface impoundments at, on, or about, under or within any
real property owned, operated or controlled in whole or in part by Parent
or any of its Subsidiaries.
(g) Neither Parent nor any of its Subsidiaries has received any notice
(written or oral) or other communication that any of them is or may be a
potentially responsible person or otherwise liable in connection with any
waste disposal site allegedly containing any Hazardous Substances, or other
location used for the disposal of any Hazardous Substances, or notice of
any failure of Parent or any of its Subsidiaries to comply in any material
respect with any Environmental Law or the requirements of any Environmental
Permit.
(h) Neither Parent nor any of its Subsidiaries has used any waste
disposal site, or otherwise disposed of, transported, or arranged for the
transportation of, any Hazardous Substances to any place or location, or in
violation of any Environmental Laws.
(i) Neither Parent nor any of its Subsidiaries has been in violation
of any Environmental Laws, nor has it been requested or required by any
Governmental Entity to perform any investigatory or remedial activity or
other action in connection with any actual or alleged release of Hazardous
Substances or any other Environmental Matter.
SECTION 4.13 Board Action; Vote Required. (a) Parent's Board of Directors
has unanimously approved (including, with respect to the Company and its
affiliates and associates, for purposes of rendering inapplicable Section 203 of
the DGCL and Article 12 of Parent's Restated Certificate of Incorporation to)
this Agreement and the Stock Option Agreements, and the transactions
contemplated hereby and thereby, has determined that the transactions
contemplated hereby and the Parent Stock Issuance are fair to and in the best
interests of Parent and its stockholders and has resolved to recommend to its
stockholders that they vote in favor of the Parent Stock Issuance. No "fair
price," "moratorium," "control share acquisition" or other similar anti-takeover
statute applicable to Parent will prevent or otherwise delay the consummation of
the transaction as contemplated hereby.
(b) The Board of Directors of Parent has taken all necessary actions such
that, (i) none of the Company or any of its "Affiliates" shall become an
"Acquiring Person" (each as defined in the Parent Rights Agreement), and (ii) no
"Distribution Date," "Stock Acquisition Date" or "Triggering Event" (each as
defined in the Parent Rights Agreement) shall have occurred or shall occur, in
each case by reason of the execution, delivery or performance of this Agreement
or the Stock Option Agreements or any announcement thereof.
(c) In accordance with the rules and regulations of the NYSE, the
affirmative vote in favor of the Parent Stock Issuance of a majority of the
votes cast by holders of outstanding shares of Parent Common Stock (provided
that the total number of the votes cast represents over 50% of all of the votes
eligible to
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be cast by holders of shares of Parent Common Stock) is necessary to approve the
Parent Stock Issuance. Such vote is the only vote or approval of holders of
shares of any class or series of Parent's capital stock required in connection
with this Agreement, the Stock Option Agreements and the transactions
contemplated hereby and thereby.
SECTION 4.14 Opinion of Financial Advisor. The Board of Directors of
Parent has received the written opinion of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), dated as of the date of this Agreement, to the
effect that, subject to the qualifications and limitations contained therein, as
of the date of this Agreement, the Common Exchange Ratio is fair to Parent from
a financial point of view.
SECTION 4.15 Brokers. DLJ is the only broker, finder or investment banker
or other person entitled to any brokerage, finder's, investment banking or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent or any of
its Subsidiaries. Parent has previously provided to the Company a copy of the
letter agreement between DLJ and Parent giving rise to a fee to DLJ.
SECTION 4.16 Tax Matters. (a) Except as would not, in the aggregate, have,
or reasonably be expected to have a Parent Material Adverse Effect, Parent and
its Subsidiaries (i) have timely filed all federal, state and foreign Tax
returns required to be filed by any of them for Tax years ended prior to the
date of this Agreement or requests for extensions have been timely filed and any
such request has been granted and has not expired, and all such returns are
correct and complete and (ii) have paid or accrued in accordance with GAAP all
Taxes shown to be due and payable on such returns.
(b) Except as would not, in the aggregate, have, or reasonably be expected
to have a Parent Material Adverse Effect, there is no dispute or claim
concerning any Tax liability of any of Parent and its Subsidiaries claimed or
raised by any authority in writing.
(c) No written claims that, in the aggregate, could reasonably be expected
to have a Parent Material Adverse Effect have been made by an authority in a
jurisdiction where any of Parent and its Subsidiaries does not file Tax returns
that it is or may be subject to Taxation by that jurisdiction.
(d) Except as would not, in the aggregate, have, or reasonably be expected
to have, a Parent Material Adverse Effect, none of Parent and its Subsidiaries
has waived any statute of limitations in respect of income Taxes or agreed to
any extension of time with respect to an income Tax assessment or deficiency.
(e) Neither Parent nor any of its Subsidiaries has taken or agreed to take
any action, nor does Parent have any knowledge of any fact, agreement, plan or
other circumstance with respect to Parent or its Subsidiaries, which would
reasonably be expected to prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368 of the Code.
SECTION 4.17 Public Utility Holding Company Act of 1935. Parent is not a
"holding company," a "subsidiary company" of a "holding company," an "affiliate
of a holding company," or a "public utility company," as such terms are defined
in the Holding Company Act.
SECTION 4.18 Restrictions on Business Activities. Except for this
Agreement or as set forth in Parent SEC Reports filed prior to the date of this
Agreement, there is no judgment, injunction, order or decree or material
agreement (including, without limitation, agreements containing provisions
restricting Parent or any of its Subsidiaries from entering or engaging in any
line of business, agreements containing geographic restrictions on Parent's or
any of its Subsidiaries' ability to operate their respective businesses and
agreements containing rights of first refusal, rights of first offer,
exclusivity, "requirements" or similar provisions) binding upon Parent or any of
its Subsidiaries which has or would reasonably be expected to have the effect of
materially prohibiting or impairing the conduct of the business of Parent or any
of its Subsidiaries or, to the knowledge of Parent, after the Effective Time,
Parent or any of its Subsidiaries, including the Company, taken together.
SECTION 4.19 Year 2000. Except as set forth in the Parent SEC Reports
filed prior to the date of this Agreement, the systems operated or used by
Parent or any of its Subsidiaries have been providing and
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are capable of continuing to provide uninterrupted millennium functionality on
and after January 1, 2000 to share, record, process and present data in
substantially the same manner and with the same functionality as such systems
share, record, process and present such data falling on and before December 31,
1999, except, in the aggregate, as would not have, or reasonably be expected to
have, a Parent Material Adverse Effect.
SECTION 4.20 Accounting Matters. Neither Parent nor any of its
Subsidiaries has taken or agreed to take any action, nor does Parent have any
knowledge of any fact or circumstance with respect to Parent or its
Subsidiaries, which would prevent the Merger from being accounted for as a
pooling-of-interests under GAAP or the rules and regulations of the SEC. PwC has
advised Parent that it is not aware as of the date of this Agreement of any
reason why PwC would be unable to deliver at the Closing the letter referred to
in the second sentence of Section 6.13(a).
ARTICLE V
SECTION 5.1 Interim Operations of the Company. Between the date of this
Agreement and the Effective Time, the Company shall, and shall cause each of its
Subsidiaries to (unless Parent shall otherwise approve in writing or except as
otherwise contemplated by this Agreement or disclosed in the Company Disclosure
Letter):
(i) conduct its business in all material respects in the ordinary
course consistent with past practice and, to the extent consistent
therewith, use reasonable best efforts to (x) preserve intact its business
organization, (y) keep available the services of its officers and employees
and (z) maintain its existing relations and goodwill with customers,
suppliers, regulators, distributors, creditors, lessors and others having
business dealings with it; provided that the failure of any officer or
employee of the Company or its Subsidiaries to remain an officer or
employee of the Company or its Subsidiaries shall not constitute a breach
of this covenant;
(ii) not (A) amend the Restated Certificate of Incorporation or
Amended and Restated By-laws of the Company; (B) split, combine, subdivide
or reclassify its outstanding shares of capital stock or other equity
securities; (C) declare, set aside or pay any dividend or distribution
payable in cash, stock or property in respect of any of its shares of
capital stock or other equity securities, or securities convertible into,
exercisable for or exchangeable for, any of its shares of capital stock or
other equity securities, other than (v) quarterly cash dividends of $.0625
per share in respect of the outstanding shares of Company Common Stock,
declared, set aside and paid at such times during the quarter as is
consistent with past practice; (w) quarterly cash dividends of $.05625 per
share in respect of the outstanding shares of Company Class A Common Stock,
declared, set aside and paid at such times during the quarter as is
consistent with past practice; (x) dividends and distributions pursuant to
the terms of the Company Preferred Stock, the Company Trust Securities and
the Feline Prides; (y) regular quarterly dividends in respect of the
outstanding shares of Coastal Limited Preferred Stock in accordance with
the terms thereof; and (z) dividends and distributions by Subsidiaries of
the Company; (D) repurchase, redeem or otherwise acquire or permit any of
its Subsidiaries to purchase, redeem or otherwise acquire, any shares of
its capital stock or other equity securities, or securities convertible
into, exercisable for or exchangeable for, any of its shares of capital
stock or other equity securities (it being understood that this clause (D)
shall not prohibit the exercise, exchange or conversion of Company Equity
Equivalent Securities); or (E) enter into any agreement or letter of
intent, agreement in principle or similar arrangement to (x) sell, transfer
or otherwise dispose of, in the aggregate, a material amount of assets or
properties or any material business, by merger, consolidation, transfer or
acquisition of shares of capital stock or otherwise or (y) purchase or
otherwise acquire assets, properties and businesses except for (1)
acquisitions contemplated by and in accordance with the Company's capital
expenditures budget for the year 2000 previously delivered to Parent, (2)
acquisitions not contemplated by such capital expenditures budget not to
exceed an additional $200 million in the aggregate, and (3) subject to the
prior written consent of Parent, which
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consent shall not be unreasonably withheld or delayed, additional
acquisitions not contemplated by such capital expenditures budget not to
exceed an additional $300 million in the aggregate;
(iii) not take any action that to the knowledge of the Company would
prevent the Merger from qualifying for pooling of interests accounting
treatment under GAAP and the rules and regulations of the SEC or would
prevent the Merger from qualifying as a "reorganization" within the meaning
of Section 368 of the Code;
(iv) except as required by applicable law or pursuant to contractual
obligations in effect as of the date of this Agreement, not (A) execute,
establish, adopt or amend, or accelerate rights or benefits under, any
agreement relating to severance or change-in-control, any Company Employee
Plan, any employment or consulting agreement with current or former
officers or directors or any collective bargaining agreement, (B) increase
the compensation payable or to become payable to any of its officers,
directors or employees (except for increases in the ordinary course of
business consistent with past practices), (C) grant any severance or
termination pay to any officer or director of the Company, or (D) grant any
stock options or other equity related awards;
(v) not issue, deliver, grant, sell, pledge or otherwise dispose of
shares of any class of its capital stock, other equity securities, or any
securities convertible, exercisable or exchangeable for or into, any such
shares or other equity securities, except upon the exercise, exchange or
conversion of Company Equity Equivalent Securities;
(vi) not change its accounting policies, practices or methods except
as required by GAAP or by the rules and regulations of the SEC;
(vii) not take any action to render inapplicable, or to exempt any
third party from, any provision of the Restated Certificate of
Incorporation of the Company or any statute referred to in Section 6.14;
(viii) not take any action that would be reasonably likely to result
in any of the conditions set forth in Article VII of this Agreement not
being satisfied or that would impair the ability of the Company to
consummate the transactions contemplated hereby in accordance with the
terms hereof or delay such consummation;
(ix) not take any action to cause the shares of Company Common Stock
to cease to be listed on the NYSE;
(x) not waive any of its rights under, or release any other party from
such other party's obligation under, or amend any provision of any
standstill agreement;
(xi) not issue, deliver, grant, sell, pledge or otherwise dispose of
any bonds, debentures, notes or other indebtedness, in each case having the
right to vote together with the Company's stockholders on any matter; and
(xii) not enter into any commitments or agreements to do any of the
foregoing.
SECTION 5.2 Interim Operations of Parent. Between the date of this
Agreement and the Effective Time, Parent shall, and shall cause each of its
Subsidiaries to (unless the Company shall otherwise approve in writing or except
as otherwise expressly contemplated by this Agreement or disclosed in the Parent
Disclosure Letter):
(i) conduct its business in all material respects in the ordinary
course and to the extent consistent therewith, use reasonable best efforts
to (x) preserve intact its business organization, (y) keep available the
services of its officers and employees and (z) maintain its existing
relations and goodwill with customers, suppliers, regulators, distributors,
creditors, lessors, and others having business dealings with it; provided
that the failure of any officer or employee of Parent or its Subsidiaries
to remain an officer or employee of Parent or its Subsidiaries shall not
constitute a breach of this covenant;
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(ii) not (A) amend the Restated Certificate of Incorporation or
By-laws of Parent (other than to increase the number of authorized shares
of Parent Common Stock and/or Parent Preferred Stock); (B) split, combine,
subdivide or reclassify its outstanding shares of capital stock or other
equity securities; (C) declare, set aside or pay any dividend or
distribution (payable in cash, stock or property in respect of any of its
shares of capital stock or other equity securities, or securities
convertible into, exercisable for or exchangeable for, any of its shares of
capital stock or other equity securities, other than (v) quarterly cash
dividends of $.206 per share in respect of the outstanding shares of Parent
Common Stock, declared, set aside and paid at such times during the quarter
as is consistent with past practice, (w) dividends and distributions in
respect of the Parent Trust Securities in accordance with the terms
thereof; (x) regular distributions in respect of the outstanding preference
and common units representing partner interests in Leviathan, (y) regular
quarterly dividends in respect of the outstanding EPTPC Preferred Stock in
accordance with the terms thereof; and (z) dividends and distributions by
Subsidiaries of Parent; (D) repurchase, redeem or otherwise acquire or
permit any of its Subsidiaries to purchase, redeem or otherwise acquire,
any shares of its capital stock or other equity securities, or securities
convertible into, exercisable for or exchangeable for, any of its shares of
capital stock or other equity securities (it being understood that this
clause (D) shall not prohibit the exercise, exchange or conversion of
Parent Equity Equivalent Securities); or (E) enter into any agreement,
letter of intent, agreement in principle or similar agreement to sell,
transfer or otherwise dispose of, or purchase or otherwise acquire assets
of any business that generated net revenues or net income in the most
recently completed fiscal year constituting, or is comprised of net assets
having a book value equal to, 25% or more of the consolidated net revenue
or net income of Parent for its most recently completed fiscal year (taking
into account the merger of Sonat Inc. with and into Parent and the
restatement of the financial statement of Parent in connection therewith),
or the consolidated net assets of Parent, as applicable, by merger,
consolidation, transfer or acquisition of shares of capital stock or
otherwise;
(iii) not take any action that to the knowledge of Parent would
prevent the Merger from qualifying for pooling of interests accounting
treatment under GAAP and the rules and regulations of the SEC or would
prevent the Merger from qualifying as a "reorganization" within the meaning
of Section 368 of the Code;
(iv) except as required by applicable law or pursuant to contractual
obligations in effect as of the date of this Agreement, not (A) execute,
establish, adopt or amend, or accelerate rights or benefits under, any
agreement relating to severance or change-in-control or any Parent Employee
Plan (provided that Parent and its Subsidiaries shall be permitted
hereunder to (i) enter into or amend consulting, employment or collective
bargaining agreements and (ii) amend its Key Executive Severance Protection
Plan and Employee Severance Protection Plan to exclude the employees of the
Company and its Subsidiaries from participating therein following the
Effective Time), (B) increase the compensation payable or to become payable
to any of its officers, directors or employees (except for increases in the
ordinary course of business consistent with past practices), (C) grant any
severance or termination pay to any officer or director of Parent, or (D)
grant any stock options or other equity related awards;
(v) not issue, deliver, grant, sell, pledge or otherwise dispose of
shares of any class of its capital stock, other equity securities, or any
securities convertible, exercisable or exchangeable for or into, any such
shares or other equity securities, except (x) upon the exercise, exchange
or conversion of Parent Equity Equivalent Securities, (y) trust securities
(which are not directly or indirectly convertible into or exercisable or
exchangeable for shares of Parent Common Stock) in connection with
financing transactions and (z) in connection with a purchase or acquisition
permitted under Section 5.2 (ii)(E), provided that the issuance, delivery,
grant, sale, pledge or other disposition does not require the approval of
the stockholders of Parent under the rules of the NYSE or applicable law;
and provided, further that, without the consent of the Company (not to be
unreasonably withheld), Parent may issue or deliver in the aggregate in
connection with such permitted purchases and acquisitions, no more than
37.5 million shares of Parent Common Stock (the issuance of securities
exercisable,
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exchangeable or convertible for shares of Parent Common Stock shall, for
this purpose, be deemed an issuance of the number of shares of Parent
Common Stock into which such securities are exercisable, exchangeable or
convertible);
(vi) not change its accounting policies, practices or methods except
as required by GAAP or by the rules and regulations of the SEC;
(vii) not (x) take any action to amend the Parent Rights Agreement,
(y) redeem the rights subject to the Parent Rights Agreement or (z) take
any action to render inapplicable, or to exempt any third party from, any
provision of the Parent Rights Agreement, the Restated Certificate of
Incorporation of Parent or any statute referred to in Section 6.14;
(viii) not take any action to cause the shares of Parent Common Stock
to cease to be listed on the NYSE;
(ix) not take any action that would be reasonably likely to result in
any of the conditions set forth in Article VII hereof not being satisfied
or that would impair the ability of Parent to consummate the transactions
contemplated hereby in accordance with the terms hereof or delay such
consummation;
(x) not waive any of its rights under, or release any other party from
such other party's obligations under, or amend any provision of, any
standstill agreement;
(xi) not issue, deliver, grant, sell, pledge or otherwise dispose of
any bonds, debentures, notes or other indebtedness, in each case having the
right to vote together with Parent's stockholders on any matter; and
(xii) not enter into any commitments or agreements to do any of the
foregoing.
SECTION 5.3 No Solicitation. (a) Neither the Company nor Parent shall, nor
shall either permit its respective Subsidiaries to, or authorize any of its or
its Subsidiaries' officers, directors, employees, accountants, counsel,
investment bankers, financial advisors and other representatives
("Representatives") to, (i) directly or indirectly, initiate, solicit or
encourage, or take any action to facilitate the making of, any Takeover Proposal
(defined below), or (ii) directly or indirectly engage in negotiations with or
provide any confidential information or data to any person relating to any
Takeover Proposal; provided, however, that at any time prior to the date of the
stockholders' meetings contemplated by Section 6.1 (the "Applicable Period"),
the Company or Parent, as applicable, may, in response to a Superior Proposal
(as defined below) which was not solicited by it and which did not otherwise
result from a breach of this Section 5.3(a), and subject to providing prior
written notice of its decision to take such action to the other party (the
"Notice") and compliance with Section 5.3(c), following delivery of the Notice
(x) furnish information with respect to the Company or Parent, as applicable,
and/or its Subsidiaries to any person making a Superior Proposal pursuant to a
customary confidentiality agreement (as determined by such party after
consultation with its outside counsel) and (y) participate in discussions or
negotiations regarding such Superior Proposal.
(b) Neither the Board of Directors of the Company nor any committee
thereof, nor the Board of Directors of Parent nor any committee thereof, shall
(x) unless such Board or committee shall have determined in good faith that
adverse developments affecting the other party have caused the Merger to be
contrary to the best interests of its stockholders, withdraw or modify, or
propose to withdraw or modify, in a manner adverse to the other party, such
Board of Directors' approval or recommendation, in the case of the Company, of
the Merger or this Agreement and, in the case of Parent, of the Parent Stock
Issuance, (y) approve any letter of intent, agreement in principle, acquisition
agreement or similar agreement (other than a confidentiality agreement in
connection with a Superior Proposal which is entered into by such party in
accordance with Section 5.3(a)) relating to any Takeover Proposal (each, an
"Acquisition Agreement"), or (z) approve or recommend, or propose to approve or
recommend, any Takeover Proposal. Notwithstanding the foregoing, in response to
a Superior Proposal which was not solicited by the Company or Parent, as
applicable, and which did not otherwise result from a breach of Section 5.3(a),
the Board of
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Directors of the Company, or the Board of Directors of Parent, as applicable,
may (subject to this sentence) terminate this Agreement and concurrently with or
after such termination, if it so chooses, cause the Company or Parent, as
applicable, to enter into any Acquisition Agreement with respect to any Superior
Proposal, but only at a time that is during the Applicable Period and is after
the fifth business day following the party's delivery of written notice advising
the other party that the Board of Directors of the Company, or the Board of
Directors of Parent, as applicable, has resolved to accept a Superior Proposal
(subject to such termination), specifying the material terms and conditions of
such Superior Proposal and identifying the person making such Superior Proposal.
(c) Each party promptly shall advise the other party orally and in writing
of any Takeover Proposal or any inquiry with respect to or that could reasonably
be expected to lead to any Takeover Proposal, the identity of the person making
any such Takeover Proposal or inquiry and the material terms of any such
Takeover Proposal or inquiry. Such party shall keep the other party fully
informed of the status and material terms of any such Takeover Proposal or
inquiry.
(d) The Company and Parent shall each immediately cease and cause to be
terminated all existing discussions and negotiations, if any, with any other
persons conducted heretofore with respect to any Takeover Proposal.
For purposes of this Agreement, a "Takeover Proposal" with respect to the
Company or Parent, as applicable, means any inquiry, proposal or offer from any
person relating to (i) any direct or indirect acquisition or purchase of a
business that constitutes 25% or more of the net revenues, net income or assets
of the Company or Parent, as applicable, and its Subsidiaries, taken as a whole,
or 25% or more of the common stock or voting power (or of securities or rights
convertible into or exercisable for such common stock or voting power) of the
Company or Parent, as applicable, (ii) any tender offer or exchange offer that
if consummated would result in any person beneficially owning 25% or more of the
common stock or voting power (or of securities or rights convertible into or
exercisable for such common stock or voting power) of the Company or Parent, as
applicable, or (iii) any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or Parent, as applicable, or any of its Subsidiaries that constitutes
25% or more of the net revenues, net income or assets of the Company or Parent,
as applicable, and its Subsidiaries taken as a whole, in each case other than
the transactions contemplated by this Agreement, the Stock Option Agreements or
transactions permitted under Sections 5.1 or 5.2, as applicable. Each of the
transactions referred to in clauses (i) -- (iii) of the foregoing definition of
Takeover Proposal, other than the transactions contemplated by this Agreement or
by the Stock Option Agreements and transactions permitted under Sections 5.1 or
5.2, as applicable, is referred to herein as an "Acquisition Transaction."
For purposes of this Agreement, a "Superior Proposal" with respect to the
Company or Parent, as applicable, means any proposal made by a third party to
acquire, directly or indirectly, including pursuant to a tender offer, exchange
offer, merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction, for consideration consisting of
cash and/or securities, more than 50% of the combined voting power of the shares
of Company Common Stock or Parent Common Stock, as applicable, then outstanding
or at least 50% of the assets of the Company or Parent, as applicable, and its
Subsidiaries, taken together, and if (x) the proposal is otherwise on terms
which the Board of Directors of the Company or Parent, as applicable, determines
in its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation and such other matters as the Board of
Directors of the Company or Parent, as applicable, deems relevant) to be more
favorable to the Company's stockholders or Parent's stockholders, as applicable,
than the Merger and for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Board of Directors of the
Company or Parent, as applicable, is reasonably capable of being obtained by
such third party and (y) such Board of Directors, after considering such matters
as such Board of Directors deems relevant (including the advice of outside
counsel), determines in good faith that, in the case of the Company and Parent,
furnishing information to the third party, participating in discussions or
negotiations with respect to the Superior Proposal or withdrawing or modifying
its recommendation with respect to the Merger (in the case of the Company) or
the Parent Stock Issuance (in the case of Parent) or recommending a Takeover
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Proposal, or terminating this Agreement, is required for the Board of Directors
of the Company or Parent, as applicable, to comply with its fiduciary duties to
the Company or Parent, as applicable, and its stockholders under applicable law.
(e) Nothing contained in this Agreement shall prohibit the Company or
Parent or their respective Boards of Directors from taking and disclosing to its
stockholders a position contemplated by Rule 14d-9 and Rule 14e-2 promulgated
under the Exchange Act.
ARTICLE VI
SECTION 6.1 Meetings of Stockholders. Each of Parent and the Company will
take all action necessary in accordance with applicable law and its certificate
of incorporation and by-laws to call, give notice of, convene and hold a meeting
of its stockholders as promptly as practicable to consider and vote upon, in the
case of the Company, the approval and adoption of this Agreement and the Merger
and, in the case of Parent, the approval of the Parent Stock Issuance. Subject
to any changes permitted by Section 5.3(b), the Board of Directors of the
Company shall recommend that the stockholders of the Company vote in favor of
the approval and adoption of this Agreement and the Merger and the Board of
Directors of Parent shall recommend that the stockholders of Parent vote in
favor of the Parent Stock Issuance and such recommendations shall be included in
the Joint Proxy Statement/Prospectus (as defined in Section 6.4); provided,
however, that nothing contained in Section 5.3(b) or this Section 6.1 shall
require the Board of Directors of either party to make any recommendation or
refrain from making any recommendation with respect to a Superior Proposal,
which such Board of Directors, after considering such matters as such Board of
Directors deems relevant (including the advice of outside counsel), determines
in good faith would result in a breach of its fiduciary duty under applicable
law. Each of such parties shall take all lawful action necessary or advisable to
solicit the approval of its respective stockholders including, without
limitation, timely mailing to its stockholders the Joint Proxy Statement/
Prospectus as promptly as practicable after the Form S-4 (as defined in Section
6.4) shall be declared effective. The parties shall coordinate and cooperate
with respect to the timing of such meetings and shall, unless otherwise agreed,
hold such meetings on the same day.
SECTION 6.2 Filings; Other Action. (a) Subject to the terms and conditions
herein provided, each of the Company and Parent shall (i) cooperate with the
other in (x) determining which other notices, reports or filings are required to
be made prior to the Effective Time with, and which other waivers, consents,
approvals or authorizations are required to be obtained prior to the Effective
Time in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby; and (y) timely making all
such notices, reports or filings and timely seeking all such waivers, consents,
approvals or authorizations; and (ii) furnish the other party with such
necessary information regarding itself and its Subsidiaries and reasonable
assistance as such other party and its affiliates may reasonably request in
connection with their preparation of necessary notices, reports or filings, or
submissions of information to any Governmental Entity.
(b) Each of Parent and the Company shall give prompt notice to the other
party of the following:
(x) the occurrence of or failure to occur of any event the occurrence
or failure of which to occur would be likely to result in (i) any condition
set forth in Article VII being incapable of being satisfied or (ii) a
Company Material Adverse Effect or a Parent Material Adverse Effect, as
applicable;
(y) any failure of such party to comply in any material respect with
any of its covenants or agreements hereunder; and
(z) such party becoming aware that statements relating to such party
or any of its Subsidiaries set forth in the Joint Proxy
Statement/Prospectus or the Form S-4 contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make such statements therein, in light of
the circumstance under which they were made, not misleading.
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Notwithstanding the foregoing, the delivery of any notice pursuant to this
Section 6.2(b) shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 6.3 Publicity. The parties agree that the initial press release
with respect to this Agreement and the transactions contemplated hereby shall be
a joint press release (to include such text as the parties may mutually agree).
Thereafter, subject to their respective legal obligations (including
requirements of securities exchanges and other similar regulatory bodies),
Parent and the Company shall consult with each other and use their reasonable
best efforts to agree upon the text of any press release before issuing any such
press release or otherwise making public statements with respect to the
transactions contemplated hereby and in making any public statement or
disclosure required by any Governmental Entity, securities exchange or other
similar regulatory body with respect thereto.
SECTION 6.4 Registration Statements. The parties shall cooperate and
promptly prepare, and Parent shall file with the SEC as soon as practicable a
registration statement on Form S-4 (the "Form S-4") under the Securities Act,
with respect to the shares of Parent Common Stock issuable pursuant to the
transactions contemplated hereby, a portion of which Form S-4 shall also serve
as the joint proxy statement with respect to the meetings of the stockholders of
each of Parent and the Company in connection with this Agreement and the
transactions contemplated hereby and a prospectus with respect to the shares of
Parent Common Stock issuable pursuant to the transactions contemplated hereby
(the "Joint Proxy Statement/Prospectus"). The parties will cause the Joint Proxy
Statement/Prospectus and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act and the Exchange
Act. The parties agree to use reasonable best efforts and shall cooperate to
have the Form S-4 declared effective by the SEC as promptly as practicable and
to keep the Form S-4 effective as long as is necessary to consummate the Merger
and Parent shall use reasonable best efforts to obtain, prior to the effective
date of the Form S-4, all necessary state securities law or "blue sky" permits
or approvals required in connection with the issuance of shares of Parent Common
Stock pursuant to the transactions contemplated hereby (provided that Parent
shall not be required to qualify to do business in any jurisdiction in which it
is not now so qualified). Each of Parent and the Company agrees that the
information provided by it for inclusion in the Form S-4 and the Joint Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof to stockholders, at the time of the respective meetings of the
stockholders of the parties, and at the time it is filed or becomes effective,
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of Parent and the Company will advise the other promptly after
it receives notice thereof of the time when the Form S-4 has or is to become
effective or when any supplement or amendment has been filed, the issuance of
any stop order, or any request by the SEC for amendment of the Joint Proxy
Statement/Prospectus or the Form S-4. Each of Parent and the Company will
provide the other with reasonable opportunity to review and comment on any
amendments or supplements to the Form S-4 and/or the Joint Proxy
Statement/Prospectus prior to filing such amendments or supplements with the
SEC, and further agree that each party will be provided with such number of
copies of all filings made with the SEC as such party shall reasonably request.
No filings of the Form S-4 or the Joint Proxy Statement/Prospectus (or any
amendments or supplements to either of them) shall be made without the approval
of Parent and the Company (which consent shall not be unreasonably withheld).
SECTION 6.5 Listing Application. Parent shall promptly prepare and submit
to the NYSE a listing application with respect to the shares of Parent Common
Stock issuable pursuant to the transactions contemplated hereby, and Parent
shall use reasonable best efforts to obtain, prior to the Effective Time,
approval for the listing of such shares of Parent Common Stock on the NYSE,
subject to official notice of issuance.
SECTION 6.6 Reserved.
SECTION 6.7 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party hereto incurring such costs or
expenses except as expressly provided herein and except that (a) the
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filing fees in respect of filings made pursuant to HSR Act, (b) filing fees in
connection with the filing of the Form S-4 and Proxy Statement/Prospectus with
the SEC, (c) all filing fees in connection with any filings, permits or
approvals made or obtained under applicable state securities and "blue sky"
laws, (d) all printing, mailing and related expenses incurred in connection with
the printing and mailing of the Proxy Statement/Prospectus and (e) all other
expenses not directly attributable to any one of the parties, shall be shared
equally by Parent and the Company.
SECTION 6.8 Access to Information. (a) From the date of this Agreement to
the Effective Time, each of Parent and the Company shall, and shall cause its
respective Subsidiaries, and its and their Representatives to, afford the
Representatives of the other party reasonable access at reasonable times upon
reasonable notice to each of the party's and its Subsidiaries' officers,
employees, auditors, counsel, agents, properties, offices and other facilities
and to all of their respective books and records, and shall furnish the other
party with all financial, operating and other data and information as such other
party may reasonably request, in each case only to the extent, in the judgment
of counsel to such party, permitted by law, including antitrust law.
(b) Each of Parent and the Company agrees that all information so received
from the other party shall be deemed received pursuant to the Confidentiality
Agreement, and that party shall, and shall cause its affiliates and each of its
and their Representatives to, comply with the provisions of the Confidentiality
Agreement, dated November 17, 1999, between Parent and the Company (the
"Confidentiality Agreement") with respect to such information, and the
provisions of the Confidentiality Agreement are hereby incorporated herein by
reference with the same effect as if fully set forth in this Agreement.
SECTION 6.9 Insurance; Indemnity. (a) Parent shall cause the Surviving
Corporation to obtain and maintain in effect for not less than six years after
the Effective Time a directors' and officers' insurance policy or policies
insuring the Company's directors and officers for all liabilities and costs
(which policy or policies shall be substantially equivalent to Parent's current
policy or policies) with respect to acts or failures to act prior to or as of
the Effective Time (other than to the extent the available limit of any such
insurance policy may be reduced or exhausted by reason of the payment of claims
thereunder); provided, however, that in order to maintain or procure such
coverage, neither Parent nor the Surviving Corporation, as applicable, shall be
required to pay, in the aggregate, an annual premium in excess of 200% of the
current annual premium paid by Parent for its existing coverage (the "Cap
Amount"); and provided, further, that if equivalent coverage cannot be obtained,
or can be obtained only by paying an annual premium in excess of the Cap Amount,
the Parent and the Surviving Corporation shall only be required to obtain as
much coverage as can be obtained by paying, in the aggregate, an annual premium
equal to the Cap Amount. From and after the Effective Time, the Surviving
Corporation shall, and, if applicable, Parent shall cause the Surviving
Corporation to, indemnify and hold harmless, and provide advancement of expenses
to, to the fullest extent permitted under applicable law, each person who is a
current or former officer or director of the Company or any of its Subsidiaries
(each, an "Indemnified Party") against all losses, claims, damages, liabilities,
costs or expenses (including reasonable attorneys' fees), judgments, fines,
penalties and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation arising out of or pertaining to acts or
omissions, or alleged acts or omissions, by them in their capacities as such,
which acts or omissions occurred prior to or as of the Effective Time. In the
event of any such claim, action, suit, proceeding or investigation (an
"Action"), the indemnifying party shall control the defense of such Action with
counsel selected by it; provided, however, that the Indemnified Party shall be
permitted to participate in the defense of such Action through counsel selected
by it at the Indemnified Party's expense. Unless rendered by a court of
competent jurisdiction, any required determination as to whether or not an
Indemnified Party has met any applicable standard for indemnification under
applicable law shall be made by independent counsel selected by such Indemnified
Party and reasonably satisfactory to Parent, whose fees and expenses shall be
borne by Parent.
(b) Parent agrees that the provisions of the Company's Restated Certificate
of Incorporation and Amended and Restated By-laws in effect as of the date of
this Agreement affecting the Indemnified Parties' rights to indemnification,
limitation of liability and advancement of expenses shall survive the
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consummation of the Merger and shall continue in full force and effect, without
any amendment thereto (unless required by law), for a period of six years from
the Effective Time.
(c) The provisions of this Section 6.9 are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, their heirs
and their representatives.
SECTION 6.10 Employee Benefit Plans. (a) From and after the Effective
Time, subject to applicable law, Parent shall assume and honor the obligations
of the Company and its Subsidiaries under all existing Company Employee Plans
and shall perform the obligations of the Company and its Subsidiaries under such
Company Employee Plans in the same manner and to the same extent that the
Company and its Subsidiaries would have been required to perform thereunder;
provided, however, that, except as otherwise explicitly provided, nothing herein
shall be construed to prevent, on or following the Effective Time, (i) the
termination of employment of any individual who immediately prior to the
Effective Time was an employee of the Company or any of its Subsidiaries (such
employees, the "Company Employees") or (ii) the amendment and termination of any
Company Employee Plan to the extent permitted by the terms thereof and
applicable law.
(b) Following the Effective Time, subject to applicable law, Parent intends
to, or intends to cause one or more of its Subsidiaries to, provide compensation
and employee benefits to the Company Employees which will be substantially
similar, in the aggregate, to the compensation and employee benefits that Parent
provides to similarly situated employees other than the Company Employees (the
employees other than the Company Employees, the "Parent Employees") (excluding,
however, participation in the El Paso Energy Corporation Key Executive Severance
Protection Plan and the El Paso Energy Corporation Employee Severance Protection
Plan), including, without limitation, participation in the El Paso Energy
Corporation Employee Stock Purchase Plan.
(c) To the extent that any employee benefit plan is made available to
Company Employees on or following the Effective Time, Parent shall, or shall
cause one of its Subsidiaries to, grant Company Employees credit for all service
with the Company and its Subsidiaries prior to the Effective Time for purposes
of eligibility and vesting (but not benefit accrual), to the extent that service
of Parent Employees is recognized for any such purpose. In addition, and without
limiting the generality of the foregoing: (i) each Company Employee shall be
immediately eligible to participate, without any waiting time, in any and all
Parent Employee Plans, or any other employee benefit plans sponsored by Parent
and its Subsidiaries (such plans, collectively, the "New Plans") to the extent
coverage under such plan replaces coverage under a comparable Company Employee
Plan in which such employee participates immediately before or at any time after
the Effective Time (such plans, collectively, the "Old Plans"); and (ii) for
purposes of each New Plan providing medical, dental, pharmaceutical, vision
and/or disability benefits to any Company Employee, Parent shall cause all
pre-existing condition exclusions and actively-at-work requirements of such New
Plan to be waived for such employee and his or her covered dependents, and
Parent shall cause any eligible expenses incurred by such employee and his or
her covered dependents during the portion of the plan year of the Old Plan
ending on the date such employee's participation in the corresponding New Plan
begins to be given full credit under such New Plan for purposes of satisfying
all deductible, coinsurance and maximum out-of-pocket requirements applicable to
such employee and his or her covered dependents for the applicable plan year as
if such amounts had been paid in accordance with such New Plan.
(d) (i) No written communication shall be made to Company Employees
regarding the compensation and employee benefits to be provided at and following
the Effective Time without the express consent of Parent, which consent shall
not be unreasonably withheld; and (ii) the Company shall cause no oral
communication to be made regarding compensation and employee benefits that (x)
establishes obligations of Parent or the Surviving Corporation or any of their
Subsidiaries other than as set forth herein or (y) increases any such
obligations.
(e) Without limiting the generality of the foregoing, Parent and the
Company agree to the matters set forth on Section 6.10 of the Parent Disclosure
Letter.
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SECTION 6.11 Governance Matters. (a) Prior to the Effective Time, the
Board of Directors of Parent shall take all action necessary to cause the
By-laws of Parent to be amended as of the Effective Time to incorporate the
provisions set forth in Exhibit B (this amendment, the "By-laws Amendment," and
Parent's By-laws as so amended, the "Amended By-laws").
(b) Prior to the Effective Time, the Board of Directors of Parent shall
take all action necessary to (i) cause the Board of Directors of Parent to
consist, as of the Effective Time, of 12 directors, (x) seven of whom shall be
persons designated by Parent prior to the Effective Time from the then current
directors of Parent, and (y) five of whom shall be persons designated by the
Company prior to the Effective Time from the then current directors of the
Company, and (ii) establish, as of the Effective Time, a nominating committee of
the Board of Directors of Parent (referred to herein as the "Parent Directors'
Nominating Committee") comprised of the seven designees of Parent and a second
nominating committee of the Board of Directors of Parent (referred to herein as
the "Company Directors' Nominating Committee") comprised of the five designees
of the Company. Parent's designees shall include William A. Wise and, if the
Effective Time occurs prior to December 31, 2000, Ronald L. Kuehn, Jr.; and the
Company's designees shall include David A. Arledge. For purposes of this
Agreement, the term "Company Director" means, so long as such person is a
director of Parent, (i) any person designated by the Company pursuant to this
paragraph (b) who becomes a director of Parent at the Effective Time and (ii)
any person (other than a Combination Director (as defined below)) who
subsequently becomes a director of Parent and who is recommended or designated
by the Company Directors' Nominating Committee pursuant to paragraph (c) below,
provided that no more than one Company Director then in office shall have been
presently or formerly employed as an executive officer or other employee of the
Company; the term "Parent Director" means, so long as such person is a director
of Parent, (i) any person designated by Parent pursuant to this paragraph (b)
who is a director of Parent at the Effective Time and (ii) any person (other
than a Combination Director) who subsequently becomes a director of Parent and
who is recommended or designated by the Parent Directors' Nominating Committee
pursuant to paragraph (c) below; and the term "Combination Director" means, so
long as a person is a director of Parent, (i) any person first elected or
appointed as a director of Parent in connection with a Combination Transaction
(defined below) and (ii) any person who becomes a director of Parent who is
nominated or designated by the Board to replace any Combination Director.
"Combination Transaction" means any merger, consolidation or other business
combination transaction the definitive agreement for which is first approved by
Parent's Board of Directors after the Effective Time (including any acquisition
of any business or Person pursuant to a stock or asset purchase or otherwise) by
or involving Parent or any Subsidiary of Parent.
(c) From and after the Effective Time and until December 31, 2002 (the
"Initial Period"), the Board of Directors of Parent shall maintain the existence
of (i) the Company Directors' Nominating Committee which shall at all times be
comprised of all (and only) the Company Directors and (ii) the Parent Directors'
Nominating Committee which shall at all times be comprised of all (and only) the
Parent Directors. The Company Directors' Nominating Committee shall be vested
with the power and authority (i) to recommend to the Board of Directors of
Parent up to five candidates for nomination by such Board of Directors for
election at each annual meeting of the stockholders of Parent and (ii) to
designate persons to fill vacancies on such Board of Directors as set forth
below. The Parent Directors' Nominating Committee shall be vested with the power
and authority (i) to recommend to the Board of Directors of Parent up to seven
candidates for nomination by such Board of Directors for election at each annual
meeting of the stockholders of Parent and (ii) to designate persons to fill
vacancies on such Board of Directors as set forth below. The Board of Directors
shall nominate for election at each annual meeting of stockholders of Parent,
and identify as candidates for election as directors on the applicable notice of
meeting required by the Amended By-laws or accompanying document, and subject to
the next sentence may only nominate: (x) up to five candidates designated by the
Company Directors' Nominating Committee and (y) up to seven candidates
designated by the Parent Directors' Nominating Committee. In connection with any
annual meeting of the stockholders of Parent occurring after the completion of a
Combination Transaction, the Board of Directors of Parent may nominate, in
addition to the candidates nominated pursuant to the prior sentence, candidates
who, if elected, would be Combination Directors. In
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the event that at any time during the Initial Period, a Company Director shall
resign from the Board of Directors of Parent, during the Initial Period, the
Company Directors' Nominating Committee shall have the sole power and authority
to fill the vacancy created by such resignation. In the event that at any time
during the Initial Period a Parent Director shall resign from the Board of
Directors of Parent, during the Initial Period, the Parent Directors' Nominating
Committee shall have the sole power and authority to fill the vacancy created by
such resignation. In the event that any Combination Director shall resign from
the Board of Directors of Parent, the Board of Directors may designate a person
to fill the vacancy created by such resignation. During the Initial Period, no
special meeting of the stockholders of Parent may be called for the purpose of
removing or electing one or more directors of Parent (other than Combination
Directors or candidates who, if elected, would be Combination Directors) without
the approval of at least two-thirds of all of the Parent Directors and Company
Directors, voting together. During the Initial Period, the Board of Directors of
Parent shall consist of 12 directors; provided, however, that the Board of
Directors of Parent may increase the number of directors solely in connection
with one or more Combination Transactions. During the Initial Period, the Board
of Directors of Parent may take action inconsistent with this paragraph (c) only
with the approval of at least two-thirds of all of the Parent Directors and
Company Directors respectively.
(d) The Board of Directors of Parent shall take all action necessary so
that, (w) if the Effective Time occurs prior to December 31, 2000, Ronald L.
Kuehn, Jr. shall hold the position of Chairman of the Board of Directors of
Parent during the period from the Effective Time through December 31, 2000, and
William A. Wise shall hold the position of Chairman of the Board of Directors of
Parent from and after January 1, 2001 (or any earlier time at which Ronald L.
Kuehn, Jr. is no longer Chairman of the Board of Directors of Parent), (x) if
the Effective Time occurs on or after December 31, 2000 (or any earlier time at
which Ronald L. Kuehn, Jr. shall resign as Chairman of the Board of Directors of
Parent), William A. Wise shall hold the position of Chairman of the Board of
Directors of Parent from the Effective Time, (y) William A. Wise shall also hold
the positions of Chief Executive Officer and President of Parent from the
Effective Time and (z) as of the Effective Time, David A. Arledge shall hold the
position of Vice Chairman of the Board of Directors of Parent and all senior
officers of Parent and its Subsidiaries involved in the operation of Parent's
and its Subsidiaries' non-regulated businesses shall report to David A. Arledge
with respect to such non-regulated businesses, or David A. Arledge shall have
such other authority and responsibilities as he and Parent mutually agree upon.
During the Initial Period, (a) William A. Wise may not be removed as Chief
Executive Officer or President of Parent, (b) the power and authority of the
Chief Executive Officer, President or Vice Chairman of Parent may not be
reduced, (c) no action may be taken to deny William A. Wise the position of
Chairman of the Board of Directors of Parent in accordance with the foregoing
sentence or to deny David A. Arledge the position of Vice Chairman of the Board
of Directors of Parent in accordance with the foregoing sentence, (d) David A.
Arledge shall not be removed as Vice Chairman of the Board of Directors of
Parent, (e) William A. Wise may not be removed as Chairman of the Board of
Directors of Parent, and (f) the power and authority of the Chairman or Vice
Chairman may not be reduced, in each case without the approval of at least
two-thirds of all Parent Directors and Company Directors, voting together.
SECTION 6.12 Affiliates. (a) Not less than 45 days prior to the Closing
Date, the Company shall have delivered to Parent a letter identifying all
Persons who, in the opinion of the Company may be, as of the date this Agreement
and the Merger are submitted for approval by the Company's stockholders, its
"affiliates" for purposes of SEC Accounting Series Release No. 135 and/or for
purposes of Rule 145 under the Securities Act and Parent shall have delivered to
the Company a letter identifying all Persons who in the opinion of Parent may
be, as of the date the Parent Stock Issuance is submitted for approval of
Parent's stockholders, its "affiliates" for purposes of SEC Accounting Series
Release No. 135. Each of the Company and Parent shall use its reasonable best
efforts to cause each Person who is identified as an "affiliate" of it in the
letter delivered by it pursuant to the prior sentences to deliver, as promptly
as practicable but in no event later than 30 days prior to the Closing (or such
later date as the parties may agree), a signed agreement, in the case of
affiliates of the Company, to the Company and Parent substantially in the form
attached as Exhibit C hereto, and in the case of affiliates of Parent, if
applicable, to Parent substantially in the form attached as Exhibit D hereto.
Each of Parent and the Company shall,
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after the date hereof and prior to the Closing, notify the other party from time
to time after it has delivered the letter described in the prior sentences of
any Person not identified in such letter who then is, or may be, such an
"affiliate" and use reasonable best efforts to cause each additional Person who
is identified as an "affiliate" to execute a signed agreement as set forth in
this Section 6.12(a).
(b) Parent shall use its reasonable best efforts to publish or cause to be
published no later than 30 days after the end of the first month after the
Effective Time (which month may be the month in which the Effective Time occurs)
in which there are at least 30 days of post-Merger combined operations, combined
sales and net income figures as contemplated by and in accordance with the terms
of SEC Accounting Series Release No. 135.
SECTION 6.13 Pooling-of-Interests. (a) Parent shall use reasonable best
efforts to cause to be delivered to the Company two letters from PwC, one dated
the date on which the Form S-4 shall become effective and one dated the Closing
Date, each addressed to Parent and the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for comfort
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4. Parent shall use reasonable
best efforts to cause to be delivered to the Company a letter from PwC, dated as
of the Closing Date, stating that PwC concurs with Parent's management's
conclusion that accounting for the Merger as a pooling-of-interests under
Opinion 16 of the Accounting Principles Board is appropriate if the Merger is
closed and consummated in accordance with the terms hereof.
(b) The Company shall use reasonable best efforts to cause to be delivered
to Parent two letters from D&T, one dated the date on which the Form S-4 shall
become effective and one dated the Closing Date, each addressed to the Company
and Parent, in form and substance reasonably satisfactory to Parent and
customary in scope and substance for comfort letters delivered by independent
public accountants in connection with registration statement similar to the Form
S-4. The Company shall use reasonable best efforts to cause to be delivered to
Parent a letter from D&T, dated as of the Closing Date, stating that D&T concurs
with the Company's management's conclusion that the Company is eligible to
participate in a transaction accounted for as a pooling-of-interests under
Opinion 16 of the Accounting Principles Board.
(c) Each of the parties will use reasonable best efforts to cause the
Merger to be accounted for as a pooling-of-interests in accordance with GAAP and
the rules and regulations of the SEC, and each party agrees that it will not
take any action that it knows, or could reasonably expect, will cause such
accounting treatment not to be obtained.
SECTION 6.14 Takeover Statutes. If any "fair price," "moratorium,"
"control share acquisition" or other similar anti-takeover statute or regulation
is or may become applicable to the transactions contemplated hereby, each of the
parties hereto and its Board of Directors shall grant such approvals and take
all such actions as are legally permissible so that the transactions
contemplated hereby may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
any such statute or regulation on the transactions contemplated hereby.
SECTION 6.15 Tax-Free Merger. Each of the parties will use reasonable best
efforts to cause the Merger to qualify as a tax-free "reorganization" under
Section 368 of the Code. None of Parent, Merger Sub, the Company or any of their
respective Subsidiaries over which they exercise control, shall knowingly take
any action, or knowingly fail to take any action, that would reasonably be
expected to cause the Merger not to qualify as a tax-free "reorganization" under
Section 368 of the Code.
SECTION 6.16 Section 16(b). Parent and the Company shall take all such
steps as may be required to cause the transactions contemplated hereby and any
other dispositions of equity securities of the Company (including derivative
securities) or acquisitions of Parent equity securities (including derivative
securities) in connection with this Agreement by each individual who (a) is a
director or officer of the Company or (b) at the Effective Time, will become a
director or officer of Parent, to be exempt under Rule 16b-3 promulgated under
the Exchange Act.
SECTION 6.17 Reasonable Best Efforts. (a) Subject to the terms and
conditions of this Agreement, each party will use its reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause
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to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the Merger and the other transactions contemplated by
this Agreement as soon as practicable after the date hereof, including (i)
preparing and filing as promptly as practicable all documentation to effect all
necessary applications, notices, petitions, filings, tax ruling requests and
other documents and to obtain as promptly as practicable all consents, waivers,
licenses, orders, registrations, approvals, permits, tax rulings and
authorizations necessary or advisable to be obtained from any third party and/or
any Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement and (ii) taking all reasonable steps
as may be necessary to obtain all such material consents, waivers, licenses,
registrations, permits, authorizations, tax rulings, orders and approvals. In
furtherance and not in limitation of the foregoing, each party hereto agrees to
make an appropriate filing of a Notification and Report Form pursuant to the HSR
Act and any other Regulatory Law (as defined below) with respect to the
transactions contemplated hereby as promptly as practicable after the date
hereof and to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act and any other
Regulatory Law and to take all other actions necessary to cause the expiration
or termination of the applicable waiting periods under the HSR Act as soon as
practicable. Nothing in this Section 6.17 shall require any of Parent and its
Subsidiaries or the Company and its Subsidiaries to sell, hold separate or
otherwise dispose of or conduct their business in a specified manner, or agree
to sell, hold separate or otherwise dispose of or conduct their business in a
specified manner, or permit the sale, holding separate or other disposition of,
any assets of Parent, the Company or their respective Subsidiaries or the
conduct of their business in a specified manner, whether as a condition to
obtaining any approval from a Governmental Entity or any other Person or for any
other reason, if such sales, holdings separate of assets or other dispositions
or the conduct of their business in a specified manner, individually or in the
aggregate, are not conditioned on the Closing or would, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, assets, results of operations or condition (financial or otherwise) of
Parent and its Subsidiaries (including the Surviving Corporation and its
Subsidiaries), taken together, after giving effect to the Merger (a "Post-Merger
Material Adverse Effect"); it being understood that Parent and its Subsidiaries
shall not be obligated pursuant to this Agreement to take any action that would
reasonably be likely to have a material adverse effect on or with respect to
Tennessee Gas Pipeline Company or ANR Pipeline Company and any such material
adverse effect shall constitute a "Post-Merger Material Adverse Effect", and
that without the consent of Parent, the Company shall not take any action that
would reasonably be likely to have a Post-Merger Material Adverse Effect.
(b) Each of Parent and the Company shall, in connection with the efforts
referenced in Section 6.17(a) to obtain all requisite material approvals and
authorizations for the transactions contemplated by this Agreement under the HSR
Act or any other Regulatory Law, use its reasonable best efforts to (i)
cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry, including
any proceeding initiated by a party, (ii) promptly inform the other party of any
communication received by such party from, or given by such party to, the
Antitrust Division of the Department of Justice (the "DOJ") or any other
Governmental Entity and of any material communication received or given in
connection with any proceeding by a private party, in each case regarding any of
the transactions contemplated hereby, and (iii) permit the other party to review
any communication given by it to, and consult with each other in advance of any
meeting or conference with, the DOJ or any such other Governmental Entity or, in
connection with any proceeding by a private party, with any other Person, and to
the extent permitted by the DOJ or such other applicable Governmental Entity or
other Person, give the other party the opportunity to attend and participate in
such meetings and conferences. For purposes of this Agreement, "Regulatory Law"
means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the
Federal Trade Commission Act, as amended, and all other federal, state and
foreign, if any, statutes, rules, regulations, orders, decrees, administrative
and judicial doctrines and other laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade or lessening of the competition.
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(c) Subject to the terms and conditions of this Agreement, in furtherance
and not in limitation of the covenants of the parties contained in Sections
6.17(a) and 6.17(b), if any administrative or judicial action or proceeding,
including any proceeding by a private party, is instituted (or threatened to be
instituted) challenging any transaction contemplated by this Agreement as
violative of any Regulatory Law, each of Parent and the Company shall cooperate
in all respects with each other and use its respective reasonable best efforts
to contest and resist any such action or proceeding and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent, that is in effect and that prohibits,
prevents or restricts consummation of the transactions contemplated by this
Agreement. Notwithstanding the foregoing or any other provision of this
Agreement, nothing in this Section 6.17 shall limit a party's right to terminate
this Agreement pursuant to Article VIII. Each of the parties will comply in all
material respects with all applicable laws and with all applicable rules and
regulations of any Governmental Entity in connection with its execution,
delivery and performance of this Agreement and the Stock Option Agreements and
the transactions contemplated hereby and thereby.
(d) If any objections are asserted with respect to the transactions
contemplated hereby under any Regulatory Law or if any suit is instituted by any
Governmental Entity or any private party challenging any of the transactions
contemplated hereby as violative of any Regulatory Law, each of Parent and the
Company shall use reasonable best efforts to resolve any such objections or
challenge as such Governmental Entity or private party may have to such
transactions under such Regulatory Law so as to permit consummation of the
transactions contemplated by this Agreement.
ARTICLE VII
SECTION 7.1 Conditions to Obligations of the Parties. The respective
obligation of each of the parties hereto to consummate the transactions
contemplated hereby shall be subject to the satisfaction of each of the
following conditions:
(a) Stockholders' Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of the
Company in accordance with the DGCL and the Parent Stock Issuance shall
have been approved by the requisite vote of the stockholders of Parent in
accordance with the rules and regulations of the NYSE.
(b) Legality. No statute, rule, regulation or other law and no order,
decree or injunction shall have been enacted, issued, promulgated, entered
or issued by any Governmental Entity of competent jurisdiction which is in
effect and has the effect of making the consummation of the Merger illegal
or prevents or prohibits consummation of the transactions contemplated
hereby. Each party agrees that, in the event that any such order, decree or
injunction shall be entered or issued, it shall use all reasonable best
efforts to cause such order, decree or injunction to be lifted or vacated.
(c) HSR Act. The waiting period (or any extension thereof) under the
HSR Act applicable to transactions contemplated hereby shall have expired
or been terminated.
(d) Regulatory Consents. All waivers, consents, approvals, orders and
authorizations of, and notices, reports and filings with, Governmental
Entities necessary for the consummation of the transactions contemplated
hereby (other than those matters addressed in Section 7.1(c)) shall have
been obtained or made and shall be in full force and effect without the
imposition of any terms, conditions, restrictions or limitations, except
for the imposition of any terms, conditions, restrictions and limitations
in respect of, and failures to have obtained or made, or failures to be in
full force and effect of, such waivers, consents, approvals, orders,
authorizations, notices, reports or filings which, in the aggregate, would
not have, or reasonably be expected to have a Post-Merger Material Adverse
Effect.
(e) Form S-4 Effective; State Securities Approvals. The Form S-4 shall
have become effective, and no stop order suspending the effectiveness of
the Form S-4 shall then be in effect and no proceeding for that purpose
shall have been initiated or, to the knowledge of Parent or the Company,
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threatened, and all material necessary approvals and permits under state
securities or "blue sky" laws relating to the issuance of shares of Parent
Common Stock, shall have been obtained.
(f) NYSE Listing. The shares of Parent Common Stock to be issued
pursuant to the transactions contemplated hereby shall have been duly
approved for listing on the NYSE, subject to official notice of issuance.
(g) Pooling Letters. The Company shall have received and delivered to
Parent and Parent's independent public accountants, a letter from D&T,
dated as of the Closing Date, stating that D&T concurs with the Company's
management's conclusion that the Company is eligible to participate in a
transaction with Parent accounted for as a pooling-of-interests under
Opinion 16 of the Accounting Principles Board, and Parent shall have
received and delivered to the Company and the Company's independent public
accountants, a letter from PwC, dated as of the Closing Date, stating that
PwC concurs with Parent's management's conclusion that accounting for the
Merger as a pooling-of-interests under Opinion 16 of the Accounting
Principles Board is appropriate if the Merger is closed and consummated in
accordance with the terms hereof.
SECTION 7.2 Additional Conditions to Obligations of Parent. The
obligations of Parent to consummate the transactions contemplated hereby shall
also be subject to the satisfaction or waiver of each of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall be true and correct when
made and as of the Closing Date as if made on and as of such date (provided
that such representations and warranties which are by their express
provisions made as of a specific date need be true and correct only as of
such specific date), except to the extent that any failures of such
representations and warranties to be so true and correct, in the aggregate,
would not have, or reasonably be expected to have, a Company Material
Adverse Effect (disregarding for these purposes any materiality
qualifications therein contained).
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, except that the Company shall have performed
or complied in all respects with the covenants and agreements contained in
Section 5.1(ii).
(c) Certificate. Parent shall have received a certificate of an
executive officer of the Company that the conditions set forth in
paragraphs (a) and (b) above have been satisfied.
(d) Tax Opinions. Parent shall have received an opinion of Fried,
Frank, Harris, Shriver & Jacobson, tax counsel to Parent, dated as of the
Closing Date, in form and substance reasonably satisfactory to it,
substantially to the effect that, on the basis of the facts and assumptions
described in the opinion, the Merger will constitute a tax-free
reorganization under Section 368 of the Code. The issuance of such opinion
shall be conditioned on the receipt by such tax counsel of customary
representation letters from each of Parent, Merger Sub and the Company, in
each case, in form and substance reasonably satisfactory to such tax
counsel. Each such representation letter shall be dated on or before the
date of such opinion and shall not have been withdrawn or modified in any
respect. The opinion condition referred to in this Section 7.2(d) shall not
be waivable after receipt of the approval of the stockholders of the
Company referred to in Section 7.1(a), unless further stockholder approval
is obtained with appropriate disclosure.
SECTION 7.3 Additional Conditions to Obligations of the Company. The
obligations of the Company to consummate the transactions contemplated hereby
shall also be subject to the satisfaction or waiver of each of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Parent contained in this Agreement shall be true and correct when made,
and as of the Closing Date as if made on and as of such date (provided that
such representations and warranties which are expressly made as of a
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specific date need be true and correct only as of such specific date),
except to the extent that any failures of such representations and
warranties to be so true and correct, in the aggregate, would not have, or
reasonably be expected to have, a Parent Material Adverse Effect
(disregarding for these purposes any materiality qualifications therein
contained).
(b) Agreements and Covenants. Each of Parent and Merger Sub shall have
performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Effective Time, except that Parent shall have performed or complied in all
respects with the covenants contained in Section 5.2(ii).
(c) Certificate. The Company shall have received a certificate of an
executive officer of Parent that the conditions set forth in the paragraphs
(a) and (b) above have been satisfied.
(d) Tax Opinion. The Company shall have received the opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to the Company, dated
as of the Closing Date, in form and substance reasonably satisfactory to
it, substantially to the effect that, on the basis of the facts and
assumptions described in the opinion, the Merger will constitute a tax-free
reorganization under Section 368 of the Code. The issuance of such opinion
shall be conditioned on the receipt by such tax counsel of customary
representation letters from each of Parent, Merger Sub and the Company, in
each case, in form and substance reasonably satisfactory to such tax
counsel. Each such representation letter shall be dated on or before the
date of such opinion and shall not have been withdrawn or modified in any
respect. The opinion condition referred to in this Section 7.3(d) shall not
be waivable after receipt of the approval of the stockholders of the
Company referred to in Section 7.1(a), unless further stockholder approval
is obtained with appropriate disclosure.
ARTICLE VIII
SECTION 8.1 Termination. This Agreement may be terminated at any time
before the Effective Time, whether before or after this Agreement and the Merger
have been approved and adopted by the stockholders of the Company and/or the
Parent Stock Issuance has been approved by the stockholders of Parent, as
follows:
(a) by mutual written consent of each of Parent and the Company;
(b) by Parent or the Company, if the Effective Time shall not have
occurred by the conclusion of the twelfth month after the date of this
Agreement (the "Termination Date"); provided, however, that if (x) the
Effective Time has not occurred by such date by reason of nonsatisfaction
of any of the conditions set forth in Section 7.1(c) or Section 7.1(d), and
(y) all other conditions set forth in Article VII have been satisfied or
waived or are as of such date capable of being satisfied, than this
Agreement may only be terminated by Parent or the Company pursuant to this
clause (b) if the Effective Time shall not have occurred by the conclusion
of the fifteenth month after the date of this Agreement (which shall, in
such circumstances, be the "Termination Date"); and provided, further, that
the right to terminate this Agreement under this Section 8.1(b) shall not
be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date;
(c) by Parent or the Company, if a Governmental Entity of competent
jurisdiction shall have issued an order, decree or injunction or taken any
other action (in each case, which the terminating party has used reasonable
best efforts to resist, resolve or lift, as applicable, in accordance with
Section 6.17) having the effect of making the transactions contemplated
hereby illegal or permanently prohibiting the consummation thereof, and
such order, decree or injunction shall have become final and nonappealable
(but only if such party shall have used all reasonable best efforts to
cause such order, decree or injunction to be lifted or vacated in
accordance with Section 6.17);
(d) by either Company or Parent, if there shall have been a material
breach by the other of any of the other's representations, warranties,
covenants or agreements contained in this Agreement, which
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breach would result in the failure to satisfy one or more of the conditions
set forth in Section 7.2(a) or (b) (in the case of a breach by the Company)
or Section 7.3(a) or (b) (in the case of a breach by Parent), and such
breach shall be incapable of being cured or, if capable of being cured,
shall not have been cured within 20 days after written notice thereof shall
have been received by the party alleged to be in breach;
(e) (i) by Parent, if the Board of Directors of the Company or any
committee of the Board of Directors of the Company, whether or not
permitted pursuant to the terms hereof, (w) shall fail to reaffirm its
approval or recommendation of this Agreement and the Merger within 15 days
after a request by Parent (provided that Parent may make such request only
once with respect to any Takeover Proposal), (x) shall withdraw or modify
in any manner adverse to Parent its approval or recommendation of this
Agreement or the Merger, (y) shall approve or recommend any Takeover
Proposal or Acquisition Transaction involving the Company or (z) shall
resolve to take any of the actions specified in clauses (w), (x) or (y)
above;
(ii) by the Company, if the Board of Directors of Parent or any
committee of the Board of Directors of Parent, whether or not permitted
pursuant to the terms thereof, (w) shall fail to reaffirm its approval
of this Agreement, the Merger and the Parent Stock Issuance or its
recommendation of the Parent Stock Issuance within 15 days after a
request by the Company (provided that the Company may make such request
only once with respect to any Takeover Proposal), (x) shall withdraw or
modify in any manner adverse to the Company its approval of this
Agreement, the Merger and the Parent Stock Issuance or its
recommendation of the Parent Stock Issuance, (y) shall approve or
recommend any Takeover Proposal or Acquisition Transaction involving
Parent or (z) shall resolve to take any of the actions specified in
clauses (w), (x) or (y) above;
(f) (i) by either Parent or the Company, if the required approval and
adoption of this Agreement and the Merger by the stockholders of the
Company shall not have been obtained at a duly held stockholders' meeting
called for the purpose of obtaining such approval, including any
adjournments or postponements thereof;
(ii) by either Parent or the Company if the required approval of
the Parent Stock Issuance by the stockholders of Parent shall not have
been obtained at a duly held stockholders' meeting called for the
purpose of obtaining such approval, including any adjournments or
postponements thereof; or
(g) (i) by the Company, in accordance with Section 5.3(b), provided,
however, in order for the termination of this Agreement pursuant to this
clause (i) of this Section (g) to be deemed effective, the Company shall
have complied with all provisions contained in Sections 5.3(a), (b) and
(c), including the notice provisions therein, and with applicable
requirements of Section 8.2, including the payment of the Company
Termination Fee; or
(ii) by Parent, in accordance with Section 5.3(b), provided,
however, in order for the termination of this Agreement pursuant to this
clause (ii) of this Section (g) to be deemed effective, Parent shall
have complied with all provisions contained in Sections 5.3(a), (b) and
(c), including the notice provisions therein, and with applicable
requirements of Section 8.2, including the payment of the Parent
Termination Fee.
SECTION 8.2 Effect of Termination. (a) (i) In the event that (w) (1) any
Person shall have made a Takeover Proposal to the Company or to its stockholders
after the date hereof and thereafter this Agreement is terminated (i) by either
party pursuant to Section 8.1(b) or (ii) by either party pursuant to Section
8.1(f)(i) and (2) within 12 months after the termination of this Agreement any
Acquisition Transaction involving the Company shall have been consummated or any
Acquisition Agreement with respect to an Acquisition Transaction involving the
Company shall have been entered into, (x) any Person shall have made a Takeover
Proposal to the Company or its stockholders after the date hereof and thereafter
this Agreement is terminated by Parent pursuant to Section 8.1(e)(i), (y) (1)
this Agreement
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is terminated by Parent pursuant to Section 8.1(e)(i) (and no Person shall have
made a Takeover Proposal to the Company or its stockholders after the date
hereof and prior to termination of this Agreement) and (2) within 3 months after
the termination of this Agreement, any Acquisition Transaction involving the
Company shall have been consummated or any Acquisition Agreement with respect to
an Acquisition Transaction involving the Company shall have been entered into,
or (z) this Agreement is terminated by the Company pursuant to Section
8.1(g)(i), then, in any such case, the Company shall in no event later than (i)
the date an Acquisition Agreement is entered into with respect to an Acquisition
Transaction involving the Company, or if no such agreement is entered into, upon
the date of consummation of such Acquisition Transaction involving the Company,
in the case of a termination described in clauses (w) or (y), (ii) two days
after such termination, in the case of a termination described in clause (x), or
(iii) concurrently with such termination, in the case of a termination described
in clause (z), pay Parent a fee of $300 million (the "Company Termination Fee"),
which amount shall be payable by wire transfer of same day funds to a bank
account designated by Parent.
(ii) In the event that (w) any person shall have made a Takeover Proposal
to the Company or its stockholders after the date hereof and thereafter this
Agreement is terminated by either party pursuant to Section 8.1(b) and within 12
months after such termination any Acquisition Transaction involving the Company
shall have been consummated or any Acquisition Agreement with respect to an
Acquisition Transaction involving the Company shall have been entered into, (x)
(1) this Agreement is terminated by Parent pursuant to Section 8.1(e)(i) (and no
Person shall have made a Takeover Proposal to the Company or its stockholders
after the date hereof and prior to termination of this Agreement) and (2) within
3 months after the termination of this Agreement, any Acquisition Transaction
involving the Company shall have been consummated or any Acquisition Agreement
with respect to an Acquisition Transaction involving the Company shall have been
entered into, (y) any Person shall have made a Takeover Proposal to the Company
or its stockholders and thereafter this Agreement is terminated by Parent
pursuant to Section 8.1(e)(i), or (z) this Agreement is terminated by either
party pursuant to Section 8.1(f)(i) or by the Company pursuant to Section
8.1(g)(i), after any such termination, the Company shall reimburse Parent,
promptly after being requested to do so by Parent, for all out-of-pocket costs
and expenses incurred by Parent in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, reasonable fees
and expenses of accountants, attorneys and financial advisors and reasonable
fees and expenses otherwise allocated to Parent pursuant to Section 6.7, up to
an aggregate of $10 million.
(b) (i) In the event that (w) (1) any Person shall have made a Takeover
Proposal to Parent or to its stockholders after the date hereof and thereafter
this Agreement is terminated (i) by either party pursuant to Section 8.1(b) or
(ii) by either party pursuant to Section 8.1(f)(ii) and (2) within 12 months
after the termination of this Agreement any Acquisition Transaction involving
Parent shall have been consummated or any Acquisition Agreement with respect to
an Acquisition Transaction involving Parent shall have been entered into, (x)
any Person shall have made a Takeover Proposal to Parent or stockholders after
the date hereof and thereafter this Agreement is terminated by the Company
pursuant to Section 8.1(e)(ii), (y) (1) this Agreement is terminated by the
Company pursuant to Section 8.1(e)(ii) (and no Person shall have made a Takeover
Proposal to Parent or its stockholders after the date hereof and prior to
termination of this Agreement) and (2) within 3 months after the termination of
this Agreement, any Acquisition Transaction involving Parent shall have been
consummated or any Acquisition Agreement with respect to an Acquisition
Transaction involving Parent shall have been entered into, or (z) this Agreement
is terminated by Parent pursuant to Section 8.1(g)(ii), then, in any such case,
Parent shall in no event later than (i) the date an Acquisition Agreement is
entered into with respect to an Acquisition Transaction involving Parent, or if
no such agreement is entered into, upon the date of consummation of such
Acquisition Transaction involving Parent, in the case of a termination described
in clauses (w) or (y), (ii) two days after such termination, in the case of a
termination described in clause (x), or (iii) concurrently with such
termination, in the case of a termination described in clause (z), pay the
Company a fee of $300 million (the "Parent Termination Fee"), which amount shall
be payable by wire transfer of same day funds to a bank account designated by
the Company.
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(ii) In the event that (w) any person shall have made a Takeover Proposal
to Parent or its stockholders after the date hereof and thereafter this
Agreement is terminated by either party pursuant to Section 8.1(b) and within 12
months after such termination any Acquisition Transaction involving Parent shall
have been consummated or any Acquisition Agreement with respect to an
Acquisition Transaction involving Parent shall have been entered into, (x) (1)
this Agreement is terminated by the Company pursuant to Section 8.1(e)(ii) (and
no Person shall have made a Takeover Proposal to Parent or its stockholders
after the date hereof and prior to termination of this Agreement) and (2) within
3 months after the termination of this Agreement, any Acquisition Transaction
involving Parent shall have been consummated or any Acquisition Agreement with
respect to an Acquisition Transaction involving Parent shall have been entered
into, (y) any Person shall have made a Takeover Proposal to Parent or its
stockholders and thereafter this Agreement is terminated by the Company pursuant
to Section 8.1(e)(ii), or (z) this Agreement is terminated by either party
pursuant to Section 8.1(f)(ii) or by Parent pursuant to Section 8.1(g)(ii),
after any such termination, Parent shall reimburse the Company, promptly after
being requested to do so by the Company, for all out-of-pocket costs and
expenses incurred by the Company in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, reasonable fees
and expenses of accountants, attorneys and financial advisors and reasonable
fees and expenses otherwise allocated to the Company pursuant to Section 6.7, up
to an aggregate of $10 million.
(c) Each of the parties acknowledges that the agreements contained in this
Section 8.2 are an integral part of the transactions contemplated in this
Agreement and that, without these agreements, the parties would not enter into
this Agreement; accordingly, if either party fails to promptly pay the amount
due from it pursuant to this Section 8.2, and in order to obtain such payment
the other party commences a suit which results in a judgment for the fees and
expenses set forth in this Section 8.2, the other party shall pay to the party
bringing such suit its costs and expenses (including reasonable attorneys' fees)
in connection with such suit.
(d) In the event of termination of this Agreement pursuant to this Article
VIII, this Agreement (other than as set forth in Section 9.1) shall become void
and of no effect with no liability (other than as set forth in this Section 8.2)
on the part of any party hereto; provided, however, no such termination (and no
payment made pursuant to Section 8.2(a) or 8.2(b)) shall relieve any party
hereto from any liability for damages resulting from any willful or intentional
breach of this Agreement.
SECTION 8.3 Amendment. This Agreement may be amended by the parties hereto
pursuant to action of their respective Boards of Directors, at any time before
or after approval of the matters and transactions contemplated hereby by the
stockholders of Parent and/or the Company and prior to the Effective Time, but
after such approvals, no such amendment shall be made which, by law or in
accordance with the rules of any relevant stock exchange, requires further
approval by such stockholders without such further approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
SECTION 8.4 Extension; Waiver. At any time prior to the Effective Time,
any party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties of the other parties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions for such party's benefit
contained herein. Any agreement to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by a duly authorized
officer of the party to be bound thereby. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE IX
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties, covenants and agreements in this
Agreement shall terminate at the Effective Time or upon the termination of this
Agreement pursuant to Section 8.1, as the case may be, except that (a) the
agreements
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set forth in Sections 6.9, 6.10, 6.11, 6.13(c) and 6.15 and such other
agreements to be performed in whole or in part after the Effective Time shall
survive the Effective Time, and (b) the agreements set forth in Sections 6.7,
6.8(b), 8.2 and 8.3 and this Article IX shall survive termination indefinitely.
SECTION 9.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO ITS CONFLICT OF LAWS RULES OR PRINCIPLES.
SECTION 9.3 Notices. All notices or other communications under this
Agreement shall be in writing and shall be deemed given (a) on the date of
delivery, if delivered in person or by telecopy or facsimile (upon confirmation
of receipt), (b) on the first business day following the date of dispatch, if
delivered by a recognized next-day courier service, or (c) on the seventh
business day following the date of mailing, if delivered by registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
The Coastal Corporation
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046
Attention: Carl A. Corrallo, Esq.
Facsimile no.: (713) 877-1609
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Blaine V. Fogg, Esq.
Facsimile No.: (212) 735-2000
If to Parent:
El Paso Energy Corporation
1001 Louisiana Street
Houston, Texas 77002
Attention: Britton White Jr., Esq.
Facsimile No.: (713) 420-4993
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Gary P. Cooperstein, Esq.
Warren de Wied, Esq.
Facsimile No.: (212) 859-4000
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
SECTION 9.4 Certain Definitions; Interpretation. (a) For purposes of this
Agreement, the following terms shall have the following meanings:
(i) "Company Material Adverse Effect" means any changes in or effects
that in the aggregate together with all other changes and effects (x) are
materially adverse to the business, assets, liabilities, results of
operations or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole, or (y) will prevent the Company's
consummating the transactions contemplated hereby or materially delay the
Company's ability to consummate the transactions
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contemplated hereby, provided that, in determining whether a Company
Material Adverse Effect has occurred, changes or effects relating to the
natural gas pipeline industry and/or the oil and gas exploration and
production industry and/or any other industry in which the Company or its
Subsidiaries are engaged generally or to United States or global economic
conditions or financial markets in general shall not be considered.
(ii) "Parent Material Adverse Effect" means any changes in or effects
that in the aggregate together with all other changes and effects (x) are
materially adverse to the business, assets, liabilities, results of
operations or condition (financial or otherwise) of Parent and its
Subsidiaries taken as a whole or (y) will prevent Parent's or Merger Sub's
consummating the transactions contemplated hereby or materially delay
Parent's or Merger Sub's ability to consummate the transactions
contemplated hereby, provided that, in determining whether a Parent
Material Adverse Effect has occurred, changes or effects relating to the
natural gas pipeline industry and/or the oil and gas exploration and
production industry and/or any other industry in which Parent or its
Subsidiaries are engaged generally or to United States or global economic
conditions or financial markets in general shall not be considered.
(iii) "affiliate" of a Person means (for all purposes other than
Section 6.12 in which Section "affiliate" shall have the meaning designated
therein) a Person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control
with, the first mentioned Person.
(iv) "control" (including the terms "controlled by" and "under common
control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of stock, as trustee or executor, by contract
or credit arrangement or otherwise.
(v) "knowledge" of any party shall mean the actual knowledge of the
executive officers of that party.
(vi) "Person" and "person" means an individual, corporation,
partnership, limited liability company, association, trust, unincorporated
organization, entity or group (as defined in the Exchange Act).
(vii) "Subsidiary" of a Person means any corporation or other legal
entity of which such Person (either alone or through or together with any
other Subsidiary or Subsidiaries) is the general partner or managing entity
or of which 50% or more of the capital stock or other equity interests the
holders of which are generally entitled to vote for the election of the
board of directors or others performing similar functions of such
corporation or other legal entity is directly or indirectly owned or
controlled by such Person (either alone or through or together with any
other Subsidiary or Subsidiaries).
(viii) "Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Code), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or
other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not, and including any liability for
the Taxes of any Person under Treas. Reg. sec. 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
(b) When a reference is made in this Agreement to Articles, Sections,
Disclosure Letters or Exhibits, such reference is to an Article or a Section of,
or an Exhibit to, this Agreement, unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be understood to be followed by the words "without
limitation."
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SECTION 9.5 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.6 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon a determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the maximum extent possible.
SECTION 9.7 Assignment; Binding Effect; No Third Party
Beneficiaries. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of Parent and
the Company. Subject to the preceding sentence, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Notwithstanding anything contained in this Agreement to
the contrary, except for Articles I and II and Sections 6.9 (Insurance;
Indemnity) and 6.11(Governance Matters), nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
SECTION 9.8 ENFORCEMENT. THE PARTIES HERETO AGREE THAT IRREPARABLE DAMAGE
WOULD OCCUR IN THE EVENT THAT ANY OF THE PROVISIONS OF THIS AGREEMENT WERE NOT
PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED. IT
IS ACCORDINGLY AGREED THAT, SUBJECT TO THE NEXT SENTENCE HEREOF, THE PARTIES
SHALL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OF THIS
AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS HEREOF IN ANY
COURT OF THE UNITED STATES OR ANY STATE HAVING JURISDICTION, THIS BEING IN
ADDITION TO ANY OTHER REMEDY TO WHICH THEY ARE ENTITLED AT LAW OR IN EQUITY.
EACH OF THE PARTIES HERETO (I) CONSENTS TO SUBMIT ITSELF TO THE PERSONAL
JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE STATE OF DELAWARE OR ANY
DELAWARE STATE COURT IN THE EVENT ANY DISPUTE ARISES OUT OF THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (II) AGREES THAT IT
SHALL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR
OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, AND (III) AGREES THAT IT SHALL NOT
BRING ANY ACTION RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT IN ANY COURT OTHER THAN A FEDERAL COURT SITTING
IN THE STATE OF DELAWARE OR A DELAWARE STATE COURT.
SECTION 9.9 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
SECTION 9.10 Entire Agreement. This Agreement, the Confidentiality
Agreement and the Stock Option Agreements constitute the entire agreement
between the parties hereto and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the day and year first written above.
EL PASO ENERGY CORPORATION
By: /s/ WILLIAM A. WISE
----------------------------------
Name: William A. Wise
Title: President and Chief
Executive Officer
EL PASO MERGER COMPANY
By: /s/ H. BRENT AUSTIN
----------------------------------
Name: H. Brent Austin
Title: President
THE COASTAL CORPORATION
By: /s/ DAVID A. ARLEDGE
----------------------------------
Name: David A. Arledge
Title: Chairman, President and
Chief Executive Officer
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EXHIBIT A
METHODOLOGY FOR VALUATION OF COMPANY OPTIONS
January 16, 2000
RE: Valuation of Employee Options
In reference to the pending transaction (the "Transaction") involving The
Coastal Corporation, we have been asked to propose a valuation methodology for
existing employee options. The relevant issues for discussion and agreement fall
into two broad categories:
1) Option Valuation using Black/Scholes methodology
2) Treatment of unvested options
1) OPTION VALUATION:
Merrill Lynch proposes the following input parameters for valuation of the
options on the Transaction closing date:
<TABLE>
<S> <C>
Option Style: American
Term: maturity date of option grant
Rate: term Swap Rate (for each independent option maturity)
Dividends: $0.0625 per quarter per option (fixed dollar amount)
Volatility: 30%
Valuation Price: Average of the closing stock prices for 10 trading
days prior to the day before the Closing Date.
Strike Price: Price as established pursuant to option grant
</TABLE>
2) UNVESTED OPTIONS:
Pooling accounting requirements may dictate a differentiation between vested and
unvested options. The following proposal aims to establish a fair discount that
can be applied to unvested options. Merrill Lynch proposes an attrition-based
analysis applied to the existing option vesting schedule:
<TABLE>
<S> <C>
Management Attrition %: 5.0% per annum
Annual Unvested Option: shall be determined based on the vesting schedule.
Each year's unvested options will be subject to
cancellation per the formula. Options cancelled in a
prior year will be removed from the schedule for
subsequent years.
Options Assumed Cancelled: Management Attrition % x Annual Unvested Options
</TABLE>
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<PAGE> 159
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of January 17, 2000 (this "Agreement"), by
and between The Coastal Corporation, a Delaware corporation (the "Company"), and
El Paso Energy Corporation, a Delaware corporation ("Parent").
RECITALS
A. The Company, Parent and a wholly owned subsidiary of Parent ("Merger
Sub") have entered into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), providing for, among other things, the merger
of Merger Sub with and into the Company.
B. As a condition and inducement to Parent's willingness to enter into the
Merger Agreement, Parent has requested that the Company agree, and the Company
has agreed, to grant Parent the option contemplated hereby.
C. Capitalized terms not defined herein shall have the meanings set forth
in the Merger Agreement.
D. This Agreement and the Merger Agreement are being entered into
simultaneously.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
Company and Parent agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
herein, the Company hereby grants to Parent an irrevocable option (the
"Option") to purchase up to 31,834,515 (as adjusted as set forth herein)
shares (the "Option Shares") of the Company's Common Stock, par value
$.33 1/3 per share ("Company Stock"), at a purchase price of $34.14375 (as
adjusted as set forth herein) per Option Share (the "Purchase Price").
2. Exercise of Option. (a) Parent may exercise the Option, in whole or
in part, at any time or from time to time after the occurrence of any event
as a result of which Parent is entitled to receive the Company Termination
Fee pursuant to Section 8.2 of the Merger Agreement and the Merger
Agreement is being or has been terminated (an "Exercise Event"); provided,
however, that except as provided in the last sentence of this Section 2(a),
the Option shall terminate and be of no further force and effect upon the
earliest to occur of (A) the Effective Time and (B) nine months after the
first occurrence of an Exercise Event. Notwithstanding the termination of
the Option, Parent shall be entitled to purchase the Option Shares if it
has exercised the Option in accordance with the terms hereof prior to the
termination of the Option and the termination of the Option shall not
affect any rights hereunder which by their terms do not terminate or expire
prior to or as of such termination.
(b) Notice of Exercise. In the event that Parent wishes to exercise
the Option, it shall send to the Company a written notice (the date of each
such notice being herein referred to as a "Notice Date") to that effect,
which notice also specifies a date not earlier than three business days nor
later than 30 business days from the Notice Date for the closing of such
purchase (an "Option Closing Date"); provided, however, that (i) if the
closing of a purchase and sale pursuant to the Option (an "Option Closing")
cannot be consummated by reason of any applicable judgment, decree, order,
law or regulation, the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which such restriction on
consummation has expired or been terminated and (ii) without limiting the
foregoing, if prior notification to or approval of any regulatory authority
is required in connection with such purchase, Parent and the Company shall
promptly file the required notice or application for approval and shall
cooperate in the expeditious filing of such notice or application, and the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which, as the case may be, (A) any required
notification period has expired or been terminated or (B) any required
approval has been obtained, and in either event, any requisite
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<PAGE> 160
waiting period has expired or been terminated. Each of Parent and the
Company agrees to use commercially reasonable efforts to cooperate with and
provide information to the other, for the purpose of any required notice or
application for approval. Any exercise of the Option shall be deemed to
occur on the Notice Date relating thereto. The place of any Option Closing
shall be at the offices of Fried, Frank, Harris, Shriver & Jacobson, One
New York Plaza, New York, New York, and the time of the Option Closing
shall be 10:00 a.m. (Eastern Time) on the applicable Option Closing Date.
3. Payment and Delivery of Certificates. (a) At any Option Closing,
Parent shall pay to the Company in immediately available funds by wire
transfer to a bank account designated in writing by the Company an amount
equal to the Purchase Price multiplied by the number of Option Shares for
which the Option is being exercised; provided, that failure or refusal of
the Company to designate a bank account shall not preclude Parent from
exercising the Option, in whole or in part.
(b) At any Option Closing, simultaneously with the delivery of
immediately available funds as provided in Section 3(a), the Company shall
deliver to Parent a certificate or certificates representing the Option
Shares to be purchased at such Option Closing, which Option Shares shall be
free and clear of all liens, claims, charges and encumbrances of any kind
whatsoever. If at the time of issuance of the Option Shares pursuant to the
exercise of the Option hereunder, the Company shall have issued, and not
redeemed. "poison pill" rights or similar securities rights ("Company
Rights"), then each Option Share issued pursuant to such exercise shall be
accompanied by a corresponding Company Right.
(c) Restrictive Legend. Certificates for the Option Shares delivered
at any Option Closing shall have typed or printed thereon a restrictive
legend which shall read substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE."
It is understood and agreed that the foregoing legend shall be removed by
delivery of substitute certificate(s) without such legend upon the sale of
the Option Shares pursuant to a registered public offering or Rule 144
under the Securities Act or any other sale as a result of which such legend
is no longer required.
4. Adjustment upon Changes in Capitalization, Etc. (a) In the event of
any change in Company Stock by reason of a stock dividend, split-up,
merger, recapitalization, combination, exchange of shares or similar
transaction, the type and number of shares or securities subject to the
Option, and the Purchase Price therefor, shall be adjusted appropriately,
and proper provision shall be made in the agreements governing such
transaction, so that Parent shall receive upon exercise of the Option the
number and class of shares or other securities or property that Parent
would have received in respect of Company Stock if the Option had been
exercised immediately prior to such event or the record date therefor, as
applicable.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, in the event that the Company enters into an
agreement (i) to consolidate with or merge into any Person, other than
Parent or one of its Subsidiaries, and the Company shall not be the
continuing or surviving corporation in such consolidation or merger, (ii)
to permit any Person, other than Parent or one of its Subsidiaries, to
merge into or consolidate with the Company and the Company shall be the
continuing or surviving corporation, but in connection with such merger or
consolidation, the shares of Company Stock outstanding immediately prior to
the consummation of such merger or consolidation shall be changed into or
exchanged for stock or other securities of the Company or any other person
or cash or any other property, or the shares of Company Stock outstanding
immediately prior to the consummation of such merger or consolidation
shall, after such merger or consolidation, represent less
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than 50% of the outstanding voting securities of the merged or consolidated
company, or (iii) to sell or otherwise transfer all or substantially all of
its assets to any person, other than Parent or one of its subsidiaries,
then, and in each such case, the agreement governing such transaction shall
make proper provision so that the Option shall, upon the consummation of
any such transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option with identical terms
appropriately adjusted to acquire the number and class of shares or other
securities, cash or property that Parent would have received in respect of
Company Stock if the Option had been exercised immediately prior to such
consolidation, merger, sale or transfer, or the record date therefor, as
applicable.
(c) If, prior to the termination of the Option in accordance with
Section 2, the Company enters into any agreement (x) pursuant to which all
outstanding shares of Company Stock are to be purchased for, or converted
into the right to receive in whole or in part (other than in respect of
fractional shares) cash or (y) with respect to any transaction described in
clauses (i), (ii) and (iii) of paragraph (b) (each of (x) and (y), a
"Transaction"), in the case of each of clauses (x) and (y), the Option is
then exercisable, the Company covenants that proper provision shall be made
in such agreement to provide that, if the Option shall not theretofore have
been exercised, then upon the consummation of the Transaction (which in the
case of a Transaction involving a tender offer shall be when shares of
Company Stock are accepted for payment), Parent shall have the right, at
its election, by not less than two business days' prior written notice to
the Company, to receive in exchange for the cancellation of the Option an
amount in cash equal to the Spread. For purposes of this Agreement, the
term "Spread" means the number of Option Shares multiplied by the excess of
(A) the higher of (i) the average of the closing prices of the shares of
Company Stock on the principal securities exchange or quotation system on
which the Company Stock is then listed or traded as reported by The Wall
Street Journal over the ten-trading day period beginning on the trading day
immediately following the announcement of such agreement or (ii) the
average of the closing prices of the shares of Company Stock on the
principal securities exchange or quotation system on which the Company
Stock is then listed or traded as reported by The Wall Street Journal over
the ten-trading day period ending on the trading day immediately prior to
the consummation of such Transaction, over (B) the Purchase Price.
Notwithstanding the foregoing, the amount of the Spread, when added to any
Company Termination Fee paid or payable to Parent and Offset Amounts (as
defined in Section 4(d)(i) below), shall not exceed $325 million.
(d) Following exercise of the Option by Parent, in the event that
Parent sells, pledges or otherwise disposes of (including, without
limitation, by merger or exchange) any of the Option Shares (a "Sale"),
then:
(i) any Company Termination Fee due and payable by the Company
following such time shall be reduced by an amount, if any, equal to the
excess of (1) the total of (A) the Company Termination Fee, (B) the
excess of (w) the aggregate amounts received (whether in cash,
securities or otherwise) by Parent in all Sales, over (x) the aggregate
Purchase Price of the Option Shares sold in such Sales (such excess in
this sub-clause (B) being the "Offset Amounts") and (C) cash received
pursuant to Section 4(c), over (2) $325 million.
(ii) if the Company has paid to Parent the Company Termination Fee
prior to the Sale, then Parent shall immediately remit to the Company,
as additional Purchase Price for the Option Shares, the excess, if any,
of (y) the total of the Company Termination Fee, the Offset Amounts of
all Sales and cash received pursuant to Section 4(c) over (z) $325
million.
(e) Notwithstanding anything to the contrary in this Agreement or the
Merger Agreement, in no event shall the aggregate of any Company
Termination Fee, all Offset Amounts and cash received pursuant to Section
4(c) exceed $325 million.
5. Covenants of the Company and Parent. (a) The Company covenants (i)
to maintain, free from preemptive rights, sufficient authorized but
unissued or treasury shares of Company Stock so
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that the Option may be fully exercised without additional authorization of
Company Stock after giving effect to all other options, warrants,
convertible securities and other rights of third parties to purchase shares
of Company Stock; (ii) not to seek to avoid the observance or performance
of any of the covenants, agreements or conditions to be observed or
performed hereunder by the Company and not to take any action which would
cause any of its representations or warranties not to be true; and (iii)
not to engage in any action or omit to take any action which would have the
effect of preventing or disabling the Company from delivering the Option
Shares to the Parent upon exercise of the Option or otherwise performing
its obligations under this Agreement.
(b) Parent covenants not to sell, assign, transfer or otherwise
dispose of the Option, any part thereof, or any of its other rights
hereunder to any third party without the prior written consent of the
Company which consent shall not be unreasonably withheld or delayed. Parent
may offer or sell Option Shares only pursuant to a registration under the
Securities Act or an exemption therefrom.
6. Listing. If Company Stock or any other securities to be acquired
upon exercise of the Option are then listed on the NYSE (or any other
national securities exchange or national securities quotation system), the
Company, upon the request of Parent, shall promptly file an application to
list the shares of Company Stock or other securities to be acquired upon
exercise of the Option on the NYSE (and any such other national securities
exchange or national securities quotation system) and shall use reasonable
best efforts to obtain approval of such listing as promptly as practicable.
7. Loss or Mutilation. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation
of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and
cancellation of this Agreement, if mutilated, the Company shall execute and
deliver a new Agreement of like tenor and date. Any such new Agreement
executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not the Agreement so
lost, stolen, destroyed, or mutilated shall at any time be enforceable by
anyone.
8. Registration Rights. The Company shall, if requested by Parent at
any time and from time to time within two years after the date of first
exercise of the Option, as expeditiously as possible prepare and file up to
two registration statements under the Securities Act if such registration
is necessary in order to permit the sale or other disposition of any or all
securities that have been acquired by exercise by Parent of the Option, in
accordance with the intended method of sale or other disposition stated by
Parent, including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision; and the Company shall use
commercially reasonable efforts to qualify such securities under any
applicable state securities laws. Parent agrees to use reasonable best
efforts to cause, and to cause any underwriters of any sale or other
disposition to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely distributed basis. The
Company shall use reasonable best efforts to cause each such registration
statement to become effective, to obtain all consents or waivers of other
parties which are required therefor, and to keep such registration
statement effective for such period not in excess of 90 calendar days from
the day such registration statement first becomes effective as may be
reasonably necessary to effect such sale or other disposition. The
obligations of the Company to file a registration statement and to maintain
its effectiveness may be suspended for one or more periods of time not
exceeding 90 calendar days in the aggregate with respect to any
registration statement if the Board of Directors of the Company shall have
determined that the filing of such registration statement or the
maintenance of its effectiveness would require disclosure of nonpublic
information that would materially and adversely affect the Company or would
interfere with a planned merger, sale of material assets, recapitalization
or other significant corporate action (other than the issuance of equity
securities). Any registration statement prepared and filed under this
Section 8, and any sale covered thereby, shall be at the Company's expense
except for underwriting discounts or commissions and brokers' fees, which
shall be borne solely by Parent. Parent shall provide in writing all
information reasonably requested by the Company for inclusion in any
registration statement to be filed hereunder. If, during the time periods
referred to in the first sentence of this Section, the Company effects a
registration under the
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Securities Act of the Company's equity securities for its own account or
for any other of its stockholders (other than on Form S-4 or Form S-8, or
any successor form), it shall allow Parent the right to participate in such
registration; provided however, that, if the managing underwriters of such
offering advise the Company that in their opinion the number of securities
requested to be included in such registration exceeds the number which can
be sold in such offering on a commercially reasonable basis, priority shall
be given to the securities intended to be included therein by the Company
for its own account and, thereafter, the Company shall include the
securities requested to be included therein by Parent pro rata with the
securities intended to be included therein by other stockholders of the
Company. In connection with any registration pursuant to this Section,
Parent and the Company shall provide each other and any underwriter of the
offering with customary representations, warranties, covenants,
indemnification, and contribution in connection with such registration.
9. Miscellaneous.
(a) Fees and Expenses. Except as otherwise provided in the Merger
Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the
party incurring such expenses.
(b) Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO
ITS CONFLICT OF LAWS RULES OR PRINCIPLES.
(d) Notices. All notices or other communications under this Agreement
shall be in writing and shall be given (and shall be deemed to have been
duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
The Coastal Corporation
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046
Attention: Carl A. Corrallo, Esq.
Facsimile No.: (713) 877-1609
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Blaine V. Fogg, Esq.
Facsimile No.: (212) 735-2000
If to Parent:
El Paso Energy Corporation
El Paso Energy Building
1001 Louisiana
Houston, Texas 77002
Attention: Britton White Jr.
Facsimile No.: (713) 420-4993
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With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Gary P. Cooperstein, Esq.
Warren de Wied, Esq.
Facsimile No.: (212) 859-4000
or to such other address as any party may have furnished to the other
parties in writing in accordance with this Section.
(e) Assignment; Binding Effect; No Third Party Beneficiaries. Neither
this Agreement nor any of the rights, interests or obligations hereunder
shall be sold, assigned, disposed of or otherwise transferred by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, nothing in this
Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective successors and assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
(f) Further Assurances. In the event of any exercise of the Option by
Parent, the Company and Parent shall execute and deliver all such documents
and instruments and take all such further action that may be reasonably
necessary in order to consummate the transactions provided for by such
exercise.
(g) Survival. All the Company's representations, warranties and
covenants contained herein shall survive each Option Closing.
(h) ENFORCEMENT. THE PARTIES HERETO AGREE THAT IRREPARABLE DAMAGE
WOULD OCCUR IN THE EVENT THAT ANY OF THE PROVISIONS OF THIS AGREEMENT WERE
NOT PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE
BREACHED. IT IS ACCORDINGLY AGREED THAT SUBJECT TO THE NEXT SENTENCE, THE
PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT
BREACHES OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND
PROVISIONS HEREOF IN ANY COURT OF THE UNITED STATES OR ANY STATE HAVING
JURISDICTION, THIS BEING IN ADDITION TO ANY OTHER REMEDY TO WHICH THEY ARE
ENTITLED AT LAW OR IN EQUITY. EACH OF THE PARTIES HERETO (I) CONSENTS TO
SUBMIT ITSELF TO THE PERSONAL JURISDICTION OF ANY FEDERAL COURT LOCATED IN
THE STATE OF DELAWARE OR ANY DELAWARE STATE COURT IN THE EVENT ANY DISPUTE
ARISES OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT, (II) AGREES THAT IT SHALL NOT ATTEMPT TO DENY OR DEFEAT
SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY
SUCH COURT, AND (III) AGREES THAT IT SHALL NOT BRING ANY ACTION RELATING TO
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN
ANY COURT OTHER THAN A FEDERAL COURT SITTING IN THE STATE OF DELAWARE OR A
DELAWARE STATE COURT.
(i) Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute
one and the same instrument. Each counterpart may consist of a number of
copies hereof each signed by less than all, but together signed by all of
the parties hereto.
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IN WITNESS WHEREOF, the Company and Parent have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first written above.
THE COASTAL CORPORATION
By: /s/ DAVID A. ARLEDGE
----------------------------------
Name: David A. Arledge
Title: Chairman, President and Chief
Executive Officer
EL PASO ENERGY CORPORATION
By: /s/ WILLIAM A. WISE
----------------------------------
Name: William A. Wise
Title: President and Chief Executive
Officer
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ANNEX C
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of January 17, 2000 (this "Agreement"), by
and between The Coastal Corporation, a Delaware corporation (the "Company"), and
El Paso Energy Corporation, a Delaware corporation ("Parent").
RECITALS
A. The Company, Parent and a wholly owned subsidiary of Parent ("Merger
Sub") have entered into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), providing for, among other things, the merger
of Merger Sub with and into the Company.
B. As a condition and inducement to the Company's willingness to enter into
the Merger Agreement, the Company has requested that Parent agree, and Parent
has agreed, to grant the Company the option contemplated hereby.
C. Capitalized terms not defined herein shall have the meanings set forth
in the Merger Agreement.
D. This Agreement and the Merger Agreement are being entered into
simultaneously.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
Company and Parent agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
herein, Parent hereby grants to the Company an irrevocable option (the
"Option") to purchase up to 35,080,566 (as adjusted as set forth herein)
shares (the "Option Shares") of Parent's Common Stock, par value $3.00 per
share ("Parent Stock"), at a purchase price of $37.80 (as adjusted as set
forth herein) per Option Share (the "Purchase Price").
2. Exercise of Option. (a) The Company may exercise the Option, in
whole or in part, at any time or from time to time after the occurrence of
any event as a result of which the Company is entitled to receive the
Parent Termination Fee pursuant to Section 8.2 of the Merger Agreement and
the Merger Agreement is being or has been terminated (an "Exercise Event");
provided, however, that except as provided in the last sentence of this
Section 2(a), the Option shall terminate and be of no further force and
effect upon the earliest to occur of (A) the Effective Time and (B) nine
months after the first occurrence of an Exercise Event. Notwithstanding the
termination of the Option, the Company shall be entitled to purchase the
Option Shares if it has exercised the Option in accordance with the terms
hereof prior to the termination of the Option and the termination of the
Option shall not affect any rights hereunder which by their terms do not
terminate or expire prior to or as of such termination.
(b) Notice of Exercise. In the event that the Company wishes to
exercise the Option, it shall send to Parent a written notice (the date of
each such notice being herein referred to as a "Notice Date") to that
effect, which notice also specifies a date not earlier than three business
days nor later than 30 business days from the Notice Date for the closing
of such purchase (an "Option Closing Date"); provided, however, that (i) if
the closing of a purchase and sale pursuant to the Option (an "Option
Closing") cannot be consummated by reason of any applicable judgment,
decree, order, law or regulation, the period of time that otherwise would
run pursuant to this sentence shall run instead from the date on which such
restriction on consummation has expired or been terminated and (ii) without
limiting the foregoing, if prior notification to or approval of any
regulatory authority is required in connection with such purchase, Parent
and the Company shall promptly file the required notice or application for
approval and shall cooperate in the expeditious filing of such notice or
application, and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which, as the case may be,
(A) any required notification period has expired
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or been terminated or (B) any required approval has been obtained, and in
either event, any requisite waiting period has expired or been terminated.
Each of Parent and the Company agrees to use commercially reasonable
efforts to cooperate with and provide information to the other, for the
purpose of any required notice or application for approval. Any exercise of
the Option shall be deemed to occur on the Notice Date relating thereto.
The place of any Option Closing shall be at the offices of Fried, Frank,
Harris, Shriver & Jacobson, One New York Plaza, New York, New York, and the
time of the Option Closing shall be 10:00 a.m. (Eastern Time) on the
applicable Option Closing Date.
3. Payment and Delivery of Certificates. (a) At any Option Closing,
the Company shall pay to Parent in immediately available funds by wire
transfer to a bank account designated in writing by Parent an amount equal
to the Purchase Price multiplied by the number of Option Shares for which
the Option is being exercised; provided, that failure or refusal of Parent
to designate a bank account shall not preclude the Company from exercising
the Option, in whole or in part.
(b) At any Option Closing, simultaneously with the delivery of
immediately available funds as provided in Section 3(a), Parent shall
deliver to the Company a certificate or certificates representing the
Option Shares to be purchased at such Option Closing, which Option Shares
shall be free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever. If at the time of issuance of the Option Shares
pursuant to the exercise of the Option hereunder Parent shall not have
redeemed the rights issued pursuant to the Parent Rights Agreement (the
"Parent Rights"), or shall have issued and not redeemed any similar
securities, then each Option Share issued pursuant to such exercise shall
be accompanied by a corresponding Parent Right or new rights with terms
substantially the same as and at least as favorable to the Company as are
provided under the Parent Rights Agreement or any similar agreement then in
effect.
(c) Restrictive Legend. Certificates for the Option Shares delivered
at any Option Closing shall have typed or printed thereon a restrictive
legend which shall read substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE."
It is understood and agreed that the foregoing legend shall be removed by
delivery of substitute certificate(s) without such legend upon the sale of
the Option Shares pursuant to a registered public offering or Rule 144
under the Securities Act or any other sale as a result of which such legend
is no longer required.
4. Adjustment upon Changes in Capitalization, Etc. (a) In the event of
any change in Parent Stock by reason of a stock dividend, split-up, merger,
recapitalization, combination, exchange of shares or similar transaction,
the type and number of shares or securities subject to the Option, and the
Purchase Price therefor, shall be adjusted appropriately, and proper
provision shall be made in the agreements governing such transaction, so
that the Company shall receive upon exercise of the Option the number and
class of shares or other securities or property that the Company would have
received in respect of Parent Stock if the Option had been exercised
immediately prior to such event or the record date therefor, as applicable.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, in the event that Parent enters into an
agreement (i) to consolidate with or merge into any Person, other than the
Company or one of its Subsidiaries, and Parent shall not be the continuing
or surviving corporation in such consolidation or merger, (ii) to permit
any Person, other than the Company or one of its Subsidiaries, to merge
into or consolidate with Parent and Parent shall be the continuing or
surviving corporation, but in connection with such merger or consolidation,
the shares of Parent Stock outstanding immediately prior to the
consummation of such merger or consolidation shall be changed into or
exchanged for stock or other securities of Parent or any other person or
cash or any other
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property, or the shares of Parent Stock outstanding immediately prior to
the consummation of such merger or consolidation shall, after such merger
or consolidation, represent less than 50% of the outstanding voting
securities of the merged or consolidated company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person,
other than the Company or one of its subsidiaries, then, and in each such
case, the agreement governing such transaction shall make proper provision
so that the Option shall, upon the consummation of any such transaction and
upon the terms and conditions set forth herein, be converted into, or
exchanged for, an option with identical terms appropriately adjusted to
acquire the number and class of shares or other securities, cash or
property that the Company would have received in respect of Parent Stock if
the Option had been exercised immediately prior to such consolidation,
merger, sale or transfer, or the record date therefor, as applicable.
(c) If, prior to the termination of the Option in accordance with
Section 2, Parent enters into any agreement (x) pursuant to which all
outstanding shares of Parent Stock are to be purchased for, or converted
into the right to receive in whole or in part (other than in respect of
fractional shares) cash or (y) with respect to any transaction described in
clauses (i), (ii) and (iii) of paragraph (b) (each of (x) and (y), a
"Transaction"), in the case of each of clauses (x) and (y), the Option is
then exercisable, Parent covenants that proper provision shall be made in
such agreement to provide that, if the Option shall not theretofore have
been exercised, then upon the consummation of the Transaction (which in the
case of a Transaction involving a tender offer shall be when shares of
Parent Stock are accepted for payment), the Company shall have the right,
at its election, by not less than two business days' prior written notice
to Parent, to receive in exchange for the cancellation of the Option an
amount in cash equal to the Spread. For purposes of this Agreement, the
term "Spread" means the number of Option Shares multiplied by the excess of
(A) the higher of (i) the average of the closing prices of the shares of
Parent Stock on the principal securities exchange or quotation system on
which the Parent Stock is then listed or traded as reported by The Wall
Street Journal over the ten-trading day period beginning on the trading day
immediately following the announcement of such agreement or (ii) the
average of the closing prices of the shares of Parent Stock on the
principal securities exchange or quotation system on which the Parent Stock
is then listed or traded as reported by The Wall Street Journal over the
ten-trading day period ending on the trading day immediately prior to the
consummation of such Transaction, over (B) the Purchase Price.
Notwithstanding the foregoing, the amount of the Spread, when added to any
Parent Termination Fee paid or payable to the Company and Offset Amounts
(as defined in Section 4(d)(i) below), shall not exceed $325 million.
(d) Following exercise of the Option by the Company, in the event that
the Company sells, pledges or otherwise disposes of (including, without
limitation, by merger or exchange) any of the Option Shares (a "Sale"),
then:
(i) any Parent Termination Fee due and payable by Parent following
such time shall be reduced by an amount, if any, equal to the excess of
(1) the total of (A) the Parent Termination Fee, (B) the excess of (w)
the aggregate amounts received (whether in cash, securities or
otherwise) by the Company in all such Sales, over (x) the aggregate
Purchase Price of the Option Shares sold in such Sales (such excess in
this sub-clause (B) being the "Offset Amounts") and (C) cash received
pursuant to Section 4(c), over (2) $325 million.
(ii) if Parent has paid to the Company the Parent Termination Fee
prior to the Sale, then the Company shall immediately remit to Parent,
as additional Purchase Price for the Option Shares, the excess, if any,
of (y) the total of the Parent Termination Fee, the Offset Amounts of
all Sales and cash received pursuant to Section 4(c), over (z) $325
million.
(e) Notwithstanding anything to the contrary in this Agreement or the
Merger Agreement, in no event shall the aggregate of any Parent Termination
Fee, all Offset Amounts and cash received pursuant to Section 4(c) exceed
$325 million.
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5. Covenants of the Company and Parent. (a) Parent covenants (i) to
maintain, free from preemptive rights, sufficient authorized but unissued
or treasury shares of Parent Stock so that the Option may be fully
exercised without additional authorization of Parent Stock after giving
effect to all other options, warrants, convertible securities and other
rights of third parties to purchase shares of Parent Stock; (ii) not to
seek to avoid the observance or performance of any of the covenants,
agreements or conditions to be observed or performed hereunder by Parent
and not to take any action which would cause any of its representations or
warranties not to be true; and (iii) not to engage in any action or omit to
take any action which would have the effect of preventing or disabling
Parent from delivering the Option Shares to the Company upon exercise of
the Option or otherwise performing its obligations under this Agreement.
(b) The Company covenants not to sell, assign, transfer or otherwise
dispose of the Option, any part thereof, or any of its other rights
hereunder to any third party without the prior written consent of Parent
which consent shall not be unreasonably withheld or delayed. The Company
may offer or sell Option Shares only pursuant to an registration under the
Securities Act or an exemption therefrom.
6. Listing. If Parent Stock or any other securities to be acquired
upon exercise of the Option are then listed on the NYSE (or any other
national securities exchange or national securities quotation system),
Parent, upon the request of the Company, shall promptly file an application
to list the shares of Parent Stock or other securities to be acquired upon
exercise of the Option on the NYSE (and any such other national securities
exchange or national securities quotation system) and shall use reasonable
best efforts to obtain approval of such listing as promptly as practicable.
7. Loss or Mutilation. Upon receipt by Parent of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Parent shall execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Parent,
whether or not the Agreement so lost, stolen, destroyed, or mutilated shall
at any time be enforceable by anyone.
8. Registration Rights. Parent shall, if requested by the Company at
any time and from time to time within two years after the date of first
exercise of the Option, as expeditiously as possible prepare and file up to
two registration statements under the Securities Act if such registration
is necessary in order to permit the sale or other disposition of any or all
securities that have been acquired by exercise by the Company of the
Option, in accordance with the intended method of sale or other disposition
stated by the Company, including a "shelf" registration statement under
Rule 415 under the Securities Act or any successor provision; and Parent
shall use reasonable best efforts to qualify such securities under any
applicable state securities laws. The Company agrees to use reasonable best
efforts to cause, and to cause any underwriters of any sale or other
disposition to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely distributed basis. Parent
shall use reasonable best efforts to cause each such registration statement
to become effective, to obtain all consents or waivers of other parties
which are required therefor, and to keep such registration statement
effective for such period not in excess of 90 calendar days from the day
such registration statement first becomes effective as may be reasonably
necessary to effect such sale or other disposition. The obligations of the
Parent to file a registration statement and to maintain its effectiveness
may be suspended for one or more periods of time not exceeding 90 calendar
days in the aggregate with respect to any registration statement if the
Board of Directors of Parent shall have determined that the filing of such
registration statement or the maintenance of its effectiveness would
require disclosure of nonpublic information that would materially and
adversely affect Parent or would interfere with a planned merger, sale of
material assets, recapitalization or other significant corporate action
(other than the issuance of equity securities). Any registration statement
prepared and filed under this Section 8, and any sale covered thereby,
shall be at Parent's expense except for underwriting discounts or
commissions and brokers' fees, which shall be borne solely by the Company.
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The Company shall provide in writing all information reasonably requested
by Parent for inclusion in any registration statement to be filed
hereunder. If, during the time periods referred to in the first sentence of
this Section, Parent effects a registration under the Securities Act of
Parent's equity securities for its own account or for any other of its
stockholders (other than on Form S-4 or Form S-8, or any successor form),
it shall allow the Company the right to participate in such registration;
provided however, that, if the managing underwriters of such offering
advise Parent that in their opinion the number of securities requested to
be included in such registration exceeds the number which can be sold in
such offering on a commercially reasonable basis, priority shall be given
to the securities intended to be included therein by Parent for its own
account and, thereafter, Parent shall include the securities requested to
be included therein by the Company pro rata with the securities intended to
be included therein by other stockholders of Parent. In connection with any
registration pursuant to this Section, Parent and the Company shall provide
each other and any underwriter of the offering with customary
representations, warranties, covenants, indemnification, and contribution
in connection with such registration.
9. Miscellaneous.
(a) Fees and Expenses. Except as otherwise provided in the Merger
Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the
party incurring such expenses.
(b) Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO
ITS CONFLICT OF LAWS RULES OR PRINCIPLES.
(d) Notices. All notices or other communications under this Agreement
shall be in writing and shall be given (and shall be deemed to have been
duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
The Coastal Corporation
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046
Attention: Carl A. Corallo, Esq.
Facsimile No.: (713) 877-1609
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Blaine V. Fogg, Esq.
Facsimile No.: (212) 735-2000
If to Parent:
El Paso Energy Corporation
El Paso Energy Building
1001 Louisiana
Houston, Texas 77002
Attention: Britton White Jr.
Facsimile No.: (713) 420-4993
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With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Gary P. Cooperstein, Esq.
Warren de Wied, Esq.
Facsimile No.: (212) 859-4000
or to such other address as any party may have furnished to the other
parties in writing in accordance with this Section.
(e) Assignment; Binding Effect; No Third Party Beneficiaries. Neither
this Agreement nor any of the rights, interests or obligations hereunder
shall be sold, assigned, disposed of or otherwise transferred by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, nothing in this
Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective successors and assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
(f) Further Assurances. In the event of any exercise of the Option by
the Company, the Company and Parent shall execute and deliver all such
documents and instruments and take all such further action that may be
reasonably necessary in order to consummate the transactions provided for
by such exercise.
(g) Survival. All Parent's representations, warranties and covenants
contained herein shall survive each Option Closing.
(h) ENFORCEMENT. THE PARTIES HERETO AGREE THAT IRREPARABLE DAMAGE
WOULD OCCUR IN THE EVENT THAT ANY OF THE PROVISIONS OF THIS AGREEMENT WERE
NOT PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE
BREACHED. IT IS ACCORDINGLY AGREED THAT SUBJECT TO THE NEXT SENTENCE, THE
PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT
BREACHES OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND
PROVISIONS HEREOF IN ANY COURT OF THE UNITED STATES OR ANY STATE HAVING
JURISDICTION, THIS BEING IN ADDITION TO ANY OTHER REMEDY TO WHICH THEY ARE
ENTITLED AT LAW OR IN EQUITY. EACH OF THE PARTIES HERETO (I) CONSENTS TO
SUBMIT ITSELF TO THE PERSONAL JURISDICTION OF ANY FEDERAL COURT LOCATED IN
THE STATE OF DELAWARE OR ANY DELAWARE STATE COURT IN THE EVENT ANY DISPUTE
ARISES OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT, (II) AGREES THAT IT SHALL NOT ATTEMPT TO DENY OR DEFEAT
SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY
SUCH COURT, AND (III) AGREES THAT IT SHALL NOT BRING ANY ACTION RELATING TO
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN
ANY COURT OTHER THAN A FEDERAL COURT SITTING IN THE STATE OF DELAWARE OR A
DELAWARE STATE COURT.
(i) Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute
one and the same instrument. Each counterpart may consist of a number of
copies hereof each signed by less than all, but together signed by all of
the parties hereto.
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IN WITNESS WHEREOF, the Company and Parent have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first written above.
THE COASTAL CORPORATION
By: /s/ DAVID A. ARLEDGE
---------------------------------
Name: David A. Arledge
Title: Chairman, President and
Chief Executive Officer
EL PASO ENERGY CORPORATION
By: /s/ WILLIAM A. WISE
---------------------------------
Name: William A. Wise
Title: President and Chief
Executive Officer
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ANNEX D
DONALDSON, LUFKIN & JENRETTE
Donaldson, Lufkin & Jenrette Securities Corporation
Wells Fargo Bank Plaza, 1000 Louisiana, Suite 4900, Houston, TX 77002 - (713)
652-6000
January 17, 2000
Board of Directors
El Paso Energy Corporation
1001 Louisiana
Houston, Texas 77002
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to El Paso Energy Corporation (the "Company") of the Exchange Ratio (as
defined below) pursuant to the terms of the Agreement and Plan of Merger, dated
as of January 17, 2000 (the "Agreement"), among the Company, El Paso Merger
Company, a wholly owned subsidiary of the Company ("Merger Sub"), and The
Coastal Corporation ("Coastal"). Capitalized terms used and not defined herein
shall have the meanings set forth in the Agreement.
Pursuant to the Agreement, (i) Merger Sub will be merged (the "Merger")
with and into Coastal, subject to certain terms, (ii) each issued and
outstanding share of Class A common stock, par value $0.33- 1/3 per share, of
Coastal (the "Class A Common Stock") and each issued and outstanding share of
common stock, par value $0.33- 1/3 per share, of Coastal (the "Common Stock";
the Common Stock and the Class A common stock are collectively referred to
herein as the "Coastal Common Stock"), other than those shares held in treasury
by Coastal, by the Company or by any of their respective subsidiaries, will be
converted, on the terms and conditions set forth in the Agreement, into the
right to receive 1.23 shares (the "Exchange Ratio") of common stock, par value
$3.00 per share, of the Company (the "Company Common Stock"), and (iii) each
issued and outstanding share of $1.19 Cumulative Convertible Preferred Stock,
Series A ("Series A Coastal Preferred Stock"), par value $0.33- 1/3 per share,
each issued and outstanding share of $1.83 Cumulative Convertible Preferred
Stock, Series B ("Series B Coastal Preferred Stock"), par value $0.33- 1/3 per
share, and each issued and outstanding share of $5.00 Cumulative Convertible
Preferred Stock, Series C ("Series C Coastal Preferred Stock"), par value
$0.33- 1/3 per share, in each case other than those shares held in treasury by
Coastal, by the Company or by any of their respective subsidiaries, will be
converted, on the terms and conditions set forth in the Agreement, into the
right to receive (a) in the case of Series A Coastal Preferred Stock, 9.133
shares of Company Common Stock, (b) in the case of Series B Coastal Preferred
Stock, 9.133 shares of Company Common Stock, and (c) in the case of Series C
Coastal Preferred Stock, 17.980 shares of Company Common Stock.
In arriving at our opinion, we have reviewed the draft Agreement, dated
January 17, 2000, including the exhibits thereto, as well as the separate draft
Stock Option Agreements, each dated January 17, 2000, by and between the Company
and Coastal. We also have reviewed financial and other information that was
publicly available or furnished to us by the Company and Coastal including
information provided during discussions with their respective managements.
Included in the information provided during discussions with the respective
managements were certain financial projections of Coastal prepared by the
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management of Coastal and certain financial projections of the Company prepared
by the management of the Company. In addition, we have compared certain
financial and securities data of the Company and Coastal with various other
companies whose securities are traded in public markets, reviewed the historical
stock prices and trading volumes of the common stock of Coastal and the Company,
reviewed prices paid in certain other business combinations and conducted such
other financial studies, analyses and investigations as we deemed appropriate
for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and Coastal or
their respective representatives, or that was otherwise reviewed by us. In
particular, we have relied upon the estimates of the management of the Company
of the cost savings achievable as a result of the Merger and upon our discussion
of such cost savings with the management of the Company. With respect to the
financial projections supplied to us, we have relied on representations that
they have been reasonably prepared on the basis reflecting the best currently
available estimates and judgments of the management of the Company and Coastal
as to the future operating and financial performance of the Company and Coastal.
We have not assumed any responsibility for making any independent evaluation of
any assets or liabilities or for making any independent verification of any of
the information reviewed by us. We have relied as to certain legal matters,
including that the Merger will be free of federal income tax to the Company, on
advice of counsel to the Company. Further, we have assumed that the Merger will
be accounted for as a pooling of interests under generally accepted accounting
principles.
In rendering our opinion, we have also assumed that obtaining the necessary
regulatory and governmental approvals for the Merger will not significantly
delay consummation of the Merger and that, in the course of obtaining such
approvals, no restriction will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which the Company's securities will actually trade at any time. Our
opinion does not address the relative merits of the Merger and any other
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Merger. Our opinion
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to the Company from a financial
point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ D. DWIGHT SCOTT
-----------------------------------
D. Dwight Scott
Managing Director
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<PAGE> 175
[LETTERHEAD OF MERRILL LYNCH]
ANNEX E
January 17, 2000
Board of Directors The Coastal Corporation
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046
Gentlemen:
The Coastal Corporation (the "Company"), El Paso Energy Corporation ("El
Paso") and a wholly owned subsidiary of El Paso (the "Merger Sub"), propose to
enter into an agreement (the "Agreement") pursuant to which the Merger Sub will
be merged with and into the Company in a transaction (the "Merger") in which
each outstanding share of the Company Common Stock and each outstanding share of
Company Class A Common Stock will be converted into the right to receive 1.230
shares (the "Common Exchange Ratio") of the common stock of El Paso (the "El
Paso Shares"), each outstanding share of Company Series A Preferred Stock will
be converted into the right to receive 9.133 El Paso Shares, each outstanding
share of Company Series B Preferred Stock will be converted into the right to
receive 9.133 El Paso Shares, and each outstanding share of Company Series C
Preferred Stock will be converted into the right to receive 17.980 El Paso
Shares (together with the Common Exchange Ratio, the "Exchange Ratios"). In
addition, the Company's FELINE PRIDES will be convertible into El Paso Shares in
accordance with the terms of the purchase contract and at the Common Exchange
Ratio. The Merger is expected to be considered by the stockholders of the
Company and El Paso at special stockholder meetings and consummated following
such meetings upon the approval of certain regulatory authorities. (The Company
Common Stock, Company Class A Common Stock, Company Series A Preferred Stock,
Company Series B Preferred Stock, Company Series C Preferred Stock and Company
FELINE PRIDES are referred to as the "Shares"). The terms and conditions of the
Merger are more fully set forth in the Agreement.
You have asked us whether, in our opinion, the Exchange Ratios to be
received by the holders of the Shares in the Merger are fair to such holders
from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31,
1998 and the Company's Forms 10-Q and the related unaudited financial
information for the quarterly periods ending March 31, 1999, June 30,
1999 and September 30, 1999;
(2) Reviewed El Paso's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 31, 1998 and El
Paso's Forms 10-Q and the related unaudited financial information for
the quarterly periods ending March 31, 1999, June 30, 1999 and
September 30, 1999;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and
prospects of the Company and El Paso, furnished to us by the Company
and El Paso;
(4) Conducted discussions with members of senior management of the Company
and El Paso concerning their respective businesses and prospects;
(5) Reviewed the historical market prices and trading activity for the
Company Common Stock and El Paso Shares and compared them with that of
certain publicly traded companies which we deemed to be reasonably
similar to the Company and El Paso, respectively;
(6) Compared the results of operations of the Company and El Paso with
that of certain companies which we deemed to be reasonably similar to
the Company and El Paso, respectively;
(7) Compared the proposed financial terms of the transactions contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(8) Reviewed a draft of the Agreement dated January 14, 2000; and
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(9) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company and
El Paso, discussed with or reviewed by or for us, or publicly available, and we
have not assumed responsibility for independently verifying such information. We
have not undertaken an independent evaluation or appraisal of any of the assets
or liabilities, contingent or otherwise, of the Company or El Paso or any
actuarial analysis with respect to the Company or El Paso, nor have we been
furnished with any such evaluation, appraisal or actuarial analysis. In
addition, we have not assumed any obligation to conduct, nor have we conducted
any physical inspection of the properties or facilities of the Company or El
Paso. With respect to the financial forecast information of the Company and El
Paso, including, without limitation, financial forecasts, evaluation of
contingencies and projections regarding, among other things, future economic
conditions pertaining to the Company and El Paso, and the synergies and cost
savings that may result from the Merger ("Merger Benefits"), furnished to or
discussed with us by the Company and El Paso, we have assumed that they have
been reasonably prepared and reflect the best currently available estimates,
allocations and judgements of the senior management of the Company and El Paso
as to the expected future financial performance of the Company, El Paso or the
combined entity, as the case may be. We express no opinion as to such financial
forecast information, the Merger Benefits or other items or the assumptions upon
which they were based. We have further assumed that the Merger will qualify as a
tax-free reorganization for U.S. federal income tax purposes and will be
accounted for as a pooling-of-interests under generally accepted accounting
principles. We have also assumed that the final form of the Agreement will be
substantially similar to the last drafts reviewed by us and that the Merger will
be consummated in accordance with the Agreement.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of, or combination with, the Company. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services, a
significant portion of which is contingent upon the closing of the Merger. In
addition, the Company has agreed to indemnify us for certain liabilities arising
out of our engagement. We have, in the past, provided financial advisory and
financing services to the Company and El Paso and have received fees for the
rendering of such services.
In the ordinary course of our business, we may actively trade the
securities of the Company or El Paso for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger, and does not constitute a recommendation to
any stockholder of the Company as to how a stockholder should vote on the
proposed Merger or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the El
Paso Shares will trade following the consummation of the Merger or the prices at
which the Shares will trade between the date hereof and the consummation of the
Merger.
On the basis of, and subject to the foregoing, we are of the opinion that
the Exchange Ratios to be received by the holders of the Shares pursuant to the
Merger are fair to such holders from a financial point of view.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
----------------------------------------
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ANNEX F
DELAWARE GENERAL CORPORATION LAW
Section 262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of
this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to sec. 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of his shares of stock
under the circumstances described in subsections (b) and (c) of this section. As
used in this section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a nonstock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
subsection (g) of sec. 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the
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merger or consolidation, the record date shall be such effective date. If
no record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
F-3
<PAGE> 180
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
F-4
<PAGE> 181
PART II
ITEM 20. INDEMNIFICATION DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits, proceedings whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation -- a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such action, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
charter, by-laws, disinterested director vote, stockholder vote, agreement, or
otherwise.
Article X of the by-laws of El Paso requires indemnification to the full
extent permitted under Delaware law as from time to time in effect. Subject to
any restrictions imposed by Delaware law, the by-laws of El Paso provide an
unconditional right to indemnification for all expense, liability, and loss
(including attorney's fees, judgments, fines, ERISA excise taxes, or penalties
and amounts paid in settlement) actually and reasonably incurred or suffered by
any person in connection with any actual or threatened proceeding (including, to
the extent permitted by law, any derivative action) by reason of the fact that
such person is or was serving as a director or officer or employee of El Paso,
or is or was serving at the request of El Paso as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan.
The by-laws of El Paso also provide that El Paso may, by action of its board of
directors, provide indemnification to its agents with the same scope and effect
as the foregoing indemnification of directors and officers.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for (i) any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) payment of unlawful dividends or unlawful
stock purchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit.
Article 10 of El Paso's restated certificate of incorporation, as amended,
provides that to the full extent that the DGCL, as it now exists or may
hereafter be amended, permits the limitation or elimination of the liability of
directors, a director of El Paso shall not be liable to El Paso or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any amendment to or repeal of such Article 10 shall not adversely affect any
right or protection of a director of El Paso for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
El Paso maintains directors' and officers' liability insurance which
provides for payment, on behalf of the directors and officers of El Paso and its
subsidiaries, of certain losses of such persons (other than matters uninsurable
under law) arising from claims, including claims arising under the Securities
Act of 1933, as amended ("Securities Act") for acts or omissions by such persons
while acting as directors or officers of El Paso and/or its subsidiaries, as the
case may be.
II-1
<PAGE> 182
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of January 17,
2000, by and between El Paso Energy Corporation, El Paso
Merger Company and The Coastal Corporation (included in
the Joint Proxy Statement/Prospectus as Annex A).
3.1 -- Restated Certificate of Incorporation of El Paso Energy
Corporation (Exhibit 3.A to El Paso Energy Corporation's
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1999, File No. 1-14365).
3.2 -- Restated By-laws of El Paso Energy Corporation, as
amended October 26, 1999 (Exhibit 3.B to El Paso Energy
Corporation's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999, File No.
1-14365).
*3.3 -- Form of amendment to By-laws of El Paso Energy
Corporation.
4.1 -- Amended and Restated Shareholders Rights Agreement
between El Paso Energy Corporation and BankBoston, N.A.,
dated January 20, 1999 (Exhibit 1 to El Paso Energy
Corporation's Registration Statement on Form 8-A/A
Amendment No. 1 filed January 29, 1999, File No.
1-14365).
5.1 -- Opinion of Fried, Frank, Shriver, Harris & Jacobson
regarding the legality of the shares of common stock of
El Paso Energy Corporation being issued in connection
with the merger.
8.1 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson
regarding tax matters.
8.2 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding tax matters.
10.1 -- Stock Option Agreement, dated as of January 17, 2000, by
and between Coastal Corporation and El Paso Energy
Corporation (Coastal as Issuer) (included in the Joint
Proxy Statement/Prospectus as Annex B).
10.2 -- Stock Option Agreement, dated as of January 17, 2000, by
and between Coastal Corporation and El Paso Energy
Corporation (El Paso as Issuer) (included in the Joint
Proxy Statement/Prospectus as Annex C).
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2 -- Consent of Deloitte & Touche LLP.
*23.3 -- Consent of Huddleston & Co., Inc.
*23.4 -- Consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
*23.5 -- Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
23.6 -- Consents of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibits 5.1 and 8.1).
23.7 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.2).
*24 -- Power of Attorney of directors of Registrant (included on
signature page).
*99.1 -- Consent of David A. Arledge.
99.2 -- Forms of Proxy of El Paso Energy Corporation.
99.3 -- Forms of Proxy of The Coastal Corporation.
</TABLE>
- ---------------
* Previously filed as an Exhibit to the Registration Statement on Form S-4,
filed by El Paso Energy Corporation on February 24, 2000.
All supporting schedules have been omitted because they are not required or
the information required to be set forth therein is included in the consolidated
financial statements or in the notes thereto.
II-2
<PAGE> 183
ITEM 22. UNDERTAKINGS
(A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
under the Securities Act, if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration
statement or any material change to such information in this
Registration Statement; provided, however, that the
undertakings set forth in paragraphs (1)(i) and (ii) above do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act") that are incorporated by reference in
this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(B) The undersigned Registrant hereby undertakes, that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(C) The undersigned Registrant hereby undertakes:
(1) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the
II-3
<PAGE> 184
Registration Statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(D) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(E) The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 and 13 of this
Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the Registration Statement through the date of
responding to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-4
<PAGE> 185
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on March 16, 2000.
EL PASO ENERGY CORPORATION
By: /s/ H. BRENT AUSTIN
----------------------------------
H. Brent Austin
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and March 16, 2000
- ----------------------------------------------------- Director
Ronald L. Kuehn, Jr.
* President, Chief Executive March 16, 2000
- ----------------------------------------------------- Officer and Director
William A. Wise
/s/ H. BRENT AUSTIN Executive Vice President and March 16, 2000
- ----------------------------------------------------- Chief Financial Officer
H. Brent Austin
* Senior Vice President, March 16, 2000
- ----------------------------------------------------- Controller and Chief
Jeffrey I. Beason Accounting Officer
* Director March 16, 2000
- -----------------------------------------------------
Byron Allumbaugh
* Director March 16, 2000
- -----------------------------------------------------
Juan Carlos Braniff
* Director March 16, 2000
- -----------------------------------------------------
James F. Gibbons
* Director March 16, 2000
- -----------------------------------------------------
Ben F. Love
* Director March 16, 2000
- -----------------------------------------------------
Max L. Lukens
* Director March 16, 2000
- -----------------------------------------------------
Kenneth L. Smalley
</TABLE>
II-5
<PAGE> 186
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director March 16, 2000
- -----------------------------------------------------
Adrian M. Tocklin
* Director March 16, 2000
- -----------------------------------------------------
Malcolm Wallop
* Director March 16, 2000
- -----------------------------------------------------
Joe B. Wyatt
* Director March 16, 2000
- -----------------------------------------------------
Selim K. Zilkha
</TABLE>
* By: /s/ H. BRENT AUSTIN
-------------------------------
H. Brent Austin
Attorney-in-fact
II-6
<PAGE> 187
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of January 17,
2000, by and between El Paso Energy Corporation, El Paso
Merger Company and The Coastal Corporation (included in
the Joint Proxy Statement/Prospectus as Annex A).
3.1 -- Restated Certificate of Incorporation of El Paso Energy
Corporation (Exhibit 3.A to El Paso Energy Corporation's
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1999, File No. 1-14365).
3.2 -- Restated By-laws of El Paso Energy Corporation, as
amended October 26, 1999 (Exhibit 3.B to El Paso Energy
Corporation's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999, File No.
1-14365).
*3.3 -- Form of amendment to By-laws of El Paso Energy
Corporation.
4.1 -- Amended and Restated Shareholders Rights Agreement
between El Paso Energy Corporation and BankBoston, N.A.,
dated January 20, 1999 (Exhibit 1 to El Paso Energy
Corporation's Registration Statement on Form 8-A/A
Amendment No. 1 filed January 29, 1999, File No.
1-14365).
5.1 -- Opinion of Fried, Frank, Shriver, Harris & Jacobson
regarding the legality of the shares of common stock of
El Paso Energy Corporation being issued in connection
with the merger.
8.1 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson
regarding tax matters.
8.2 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding tax matters.
10.1 -- Stock Option Agreement, dated as of January 17, 2000 by
and between Coastal Corporation and El Paso Energy
Corporation (Coastal as Issuer) (included in the Joint
Proxy Statement/Prospectus as Annex B).
10.2 -- Stock Option Agreement, dated as of January 17, 2000, by
and between Coastal Corporation and El Paso Energy
Corporation (El Paso as Issuer) (included in the Joint
Proxy Statement/Prospectus as Annex C).
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2 -- Consent of Deloitte & Touche LLP.
*23.3 -- Consent of Huddleston & Co., Inc.
*23.4 -- Consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
*23.5 -- Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
23.6 -- Consents of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibits 5.1 and 8.1).
23.7 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.2).
*24 -- Power of Attorney of directors of Registrant (included on
signature page).
*99.1 -- Consent of David A. Arledge.
99.2 -- Forms of Proxy of El Paso Energy Corporation.
99.3 -- Forms of Proxy of The Coastal Corporation.
</TABLE>
- ---------------
* Previously filed as an Exhibit to the Registration Statement on Form S-4,
filed by El Paso Energy Corporation on February 24, 2000.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF FRIED, FRANK, HARRIS, SHRIVER & JACOBSON]
March 16, 2000
El Paso Energy Corporation
El Paso Energy Building
1001 Louisiana Street
Houston, Texas 77002
Ladies and Gentlemen:
We are acting as special counsel to El Paso Energy Corporation, a
Delaware corporation ("El Paso"), in connection with the Registration Statement
on Form S-4 (No. 333-31060), as amended (the "Registration Statement"), under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
issuance of shares of common stock, par value $3.00 per share, of El Paso ("El
Paso Common Stock") by El Paso in connection with the transactions contemplated
by the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
January 17, 2000, by and among El Paso, El Paso Merger Company, a Delaware
corporation and a wholly owned subsidiary of El Paso and The Coastal
Corporation, a Delaware corporation ("Coastal"). Pursuant to the Merger
Agreement, El Paso Merger Company will merge with and into Coastal, with Coastal
surviving the merger as a wholly owned subsidiary of El Paso. With your
permission, all assumptions and statements of reliance herein have been made
without any independent investigation or verification on our part except to the
extent otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon.
Pursuant to and subject to the terms and conditions of the Merger
Agreement, El Paso will issue to holders of outstanding shares of Common Stock,
par value $.33 1/3 per share, Class A Common Stock, par value $.33 1/3 per
share, $1.19 Series A Convertible Preferred Stock, par value $.33 1/3 per share,
$1.83 Series B Convertible Preferred Stock, par value $.33 1/3 per share, and
$5.00
<PAGE> 2
El Paso Energy Corporation -2- March 16, 2000
Series C Convertible Preferred Stock, par value $.33 1/3 per share, of Coastal
(collectively, the "Coastal Stock"), up to approximately 269 million shares of
El Paso Common Stock.
In connection with this opinion, we have (i) investigated such
questions of law, (ii) examined originals or certified, conformed or
reproduction copies of such agreements, instruments, documents and records of El
Paso, such certificates of public officials and such other documents and (iii)
received such information from officers and representatives of El Paso as we
have deemed necessary or appropriate for the purposes of this opinion. We have
examined, among other documents, the Merger Agreement and the Registration
Statement, including all Exhibits thereto.
In all such examinations, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of original
and certified documents and the conformity to original or certified documents of
all copies submitted to us as conformed or reproduction copies. As to various
questions of fact relevant to the opinions expressed herein, we have relied
upon, and assume the accuracy of, representations and warranties contained in
the Merger Agreement and certificates and oral or written statements and other
information of or from representatives of El Paso and others and assume
compliance on the part of all parties to the Merger Agreement with their
covenants and agreements contained herein.
Based upon the foregoing and subject to the limitations set forth
herein, we are of the opinion that assuming all the outstanding shares of
Coastal Stock in respect of which shares of El Paso Common Stock are to be
issued as described in the Registration Statement are validly issued, fully paid
and nonassessable, the shares of El Paso Common Stock, when issued as described
in the Registration Statement, will be validly issued, fully paid and
nonassessable.
The opinion expressed above is based on the General Corporation Law of
the State of Delaware as currently in effect, together with the applicable
provisions of the Constitution of the State of Delaware and relevant decisional
law. The opinion expressed herein is given as of the date hereof, and we
undertake no obligation to supplement this letter, if any applicable laws change
after the date hereof or if we become aware of any facts that might change the
opinions expressed herein or for any other reason.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the caption
"Legal Matters" in the Joint Proxy Statement - Prospectus forming a part of the
-2-
<PAGE> 3
El Paso Energy Corporation -3- March 16, 2000
Registration Statement as having passed upon the validity of the issuance of the
El Paso Common Stock. In giving this consent, we do not hereby admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ GARY P. COOPERSTEIN
--------------------------------------
-3-
<PAGE> 1
EXHIBIT 8.1
[Letterhead of Fried, Frank, Harris, Shriver & Jacobson]
March 16, 2000
El Paso Energy Corporation
El Paso Energy Building
1001 Louisiana Street
Houston, TX 77002
Ladies and Gentlemen:
We are acting as your counsel in connection with the acquisition by El
Paso Energy Corporation ("El Paso") of The Coastal Corporation ("Coastal")
pursuant to the proposed merger (the "Merger") of El Paso Merger Company, a
wholly-owned subsidiary of El Paso ("Merger Sub"), into Coastal, with Coastal
surviving the Merger. The Merger will be consummated pursuant to the Agreement
and Plan of Merger dated as of January 17, 2000 by and among El Paso, Merger Sub
and Coastal (the "Merger Agreement"). For purposes of this opinion, capitalized
terms used and not otherwise defined herein shall have the meaning ascribed
thereto in the Merger Agreement.
El Paso has filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act"), a registration statement on
Form S-4 (the "Registration Statement"), with respect to the common shares of El
Paso to be issued to holders of shares of Coastal common stock, Class A common
stock, $1.19 Series A convertible preferred stock, $1.83 Series B convertible
preferred stock and $5.00 Series C convertible preferred stock (collectively,
"Coastal Shares") in connection with the Merger. In addition, El Paso has
prepared, and we have reviewed, a Joint Proxy Statement/Prospectus which is
contained in and made a part of the Registration Statement (the "Joint Proxy
Statement"), and the Appendices thereto, including the Merger Agreement. In
rendering the opinion set forth below, we have relied upon the facts stated in
the Joint Proxy Statement and upon such other documents as we have deemed
appropriate.
We have assumed that (i) all parties to the Merger Agreement, and to
any other documents reviewed by us, have acted, and will act, in accordance with
the terms of the Merger Agreement and such other documents, (ii) the Merger will
be consummated at the effective time pursuant to the terms and conditions set
forth in the Merger Agreement
<PAGE> 2
without the waiver or modification of any such terms and conditions, and (iii)
the Merger is authorized by and will be effected pursuant to applicable state
law.
Based upon and subject to the foregoing, and to the qualifications,
limitations, representations and assumptions contained in the portion of the
Joint Proxy Statement captioned "Description of Material United States Federal
Income Tax Consequences of the Merger," the portion of the Joint Proxy Statement
captioned "Description of Material United States Federal Income Tax Consequences
of the Merger" is accurate in all material respects. No opinion is expressed on
any matters other than those specifically referred to herein.
This opinion is furnished to you for use in connection with the
Registration Statement and may not be used for any other purpose without our
prior express written consent. We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement and to the use of our name in that
portion of the Joint Proxy Statement captioned "Description of Material United
States Federal Income Tax Consequences of the Merger." In giving such consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the 1933 Act.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER &
JACOBSON
By: /s/ ALAN S. KADEN
----------------------------------
2
<PAGE> 1
EXHIBIT 8.2
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP]
March 17, 2000
The Coastal Corporation
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046
Gentlemen:
We have acted as special tax counsel to The Coastal Corporation, a
Delaware corporation (the "Company"), in connection with (i) the Merger, as
defined and described in the Agreement and Plan of Merger, dated as of January
17, 2000 (the "Agreement"), by and among El Paso Energy Corporation, a Delaware
corporation ("Parent"), El Paso Merger Company, a Delaware corporation and a
wholly owned subsidiary of Parent ("Merger Subsidiary"), and the Company, and
(ii) the preparation and filing of the registration statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended, on March 16, 2000, which
includes the joint proxy statement/prospectus (the "Joint Proxy
Statement/Prospectus"). This opinion is being furnished to you, at your request,
in connection with the filing of the Joint Proxy Statement/Prospectus with the
SEC. Capitalized terms used but not otherwise defined herein shall have the
meaning ascribed thereto in the Agreement.
In connection with this opinion, we have examined the Agreement, the
Joint Proxy Statement/Prospectus and such other documents and corporate records
as we have deemed necessary or appropriate in order to enable us to render the
opinion below. We have relied upon statements, representations and covenants
made by the Company, Parent and Merger Subsidiary, and we have assumed that such
statements and representations are true without regard to any qualifications as
to knowledge and belief. For purposes of this opinion, we have assumed (i) the
validity and accuracy of the documents and corporate records that we have
examined and the facts and representations concerning the Merger that have come
to our attention during our engagement, (ii) the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents, and (iii) that the Merger will
be consummated in accordance with the terms of the Agreement and as described in
the Registration Statement and that none of the terms and conditions contained
therein will have been waived or modified in any respect prior to the Effective
Time. Our opinion is conditioned upon, among other things, the initial and
continuing truth, accuracy and completeness of the items described above on
which we are relying, including that the Merger will be consummated as described
in the Joint Proxy Statement/Prospectus.
In rendering our opinion, we have considered the applicable provisions
of the Code, Treasury Department regulations promulgated thereunder, pertinent
judicial authorities, interpretive rulings of the Internal Revenue Service (the
"Service") and such other authorities as we have considered relevant. It should
be noted that statutes, regulations, judicial decisions and administrative
interpretations are subject to change at any time (possibly with retroactive
effect). A change in the authorities or the truth, accuracy or completeness of
any of the facts, information, documents, corporate records, covenants,
statements, representations or assumptions on which our opinion is based could
affect our conclusions. This opinion is expressed as of the date hereof, and we
are under no obligation to supplement or revise our opinion to reflect any
changes (including changes that have retroactive effect) (i) in applicable law
or (ii) in any fact, information, document, corporate record, covenant,
statement, representation or assumption stated herein that becomes untrue,
incorrect or incomplete.
Although the discussion in the Joint Proxy Statement/Prospectus under
the caption "The Merger - Description of Material United States Federal Income
Tax Consequences of the Merger" (the "Discussion") does not purport to discuss
all possible United States federal income tax consequences of the Merger, we are
of the opinion that, subject to the limitations, qualifications, exceptions and
assumptions set forth in the Discussion and herein, such Discussion constitutes,
in all material respects, a fair and accurate summary of the United States
federal income tax considerations discussed therein under current law. Except as
expressly set forth above, we express no other opinion, including, without
limitation, any opinion as to the United States federal, state, local, foreign
or other tax consequences of the Merger. Further, there can be no assurances
<PAGE> 2
The Coastal Corporation
March 17, 2000
Page 2
that the opinion expressed herein will be accepted by the Service or, if
challenged, by a court.
This letter is furnished to you for use in connection with the Merger,
as described in the Agreement and the Joint Proxy Statement/Prospectus, and is
not to be used, circulated, quoted, or otherwise referred to for any other
purpose without our express written permission. We hereby consent to the filing
of this opinion as an exhibit to the Registration Statement and to the use of
our name under the caption "Legal Matters" in the Joint Proxy
Statement/Prospectus. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT ACCOUNTANTS' CONSENT
We hereby consent to the incorporation by reference in this Registration
Statement on Amendment No. 1 to Form S-4 (File No. 333-31060) of our report
dated February 16, 2000 relating to the consolidated financial statements and
financial statement schedule appearing in El Paso Energy Corporation's Annual
Report on Form 10-K for the year ended December 31, 1999. We also consent to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Houston, Texas
March 16, 2000
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-31060 of El Paso Energy Corporation on Form S-4
of our report dated February 8, 2000, appearing in the Annual Report on Form
10-K/A of The Coastal Corporation for the year ended December 31, 1999, and to
the reference to us under the heading "Experts" in the Joint Proxy
Statement/Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
March 16, 2000
<PAGE> 1
Exhibit 99.2
SOLICITED BY THE BOARD OF DIRECTORS
EL PASO ENERGY CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
May 5, 2000
The undersigned hereby appoints William A. Wise and Britton White Jr., and each
or any of them, with power of substitution, proxies for the undersigned and
authorizes them to represent and vote, as designated, all of the shares of
common stock of El Paso Energy Corporation, held of record by the undersigned as
of the close of business on March 17, 2000, at the Special Meeting of
Stockholders to be held at The Westin Galleria, 5060 W. Alabama, Houston, Texas
on May 5, 2000, and at any adjournment(s) or postponement(s) of that meeting,
with respect to the proposal to approve the issuance of shares of El Paso common
stock to stockholders and optionholders of The Coastal Corporation in connection
with the proposed merger of a wholly owned subsidiary of El Paso into Coastal,
as a result of which Coastal will become a wholly owned subsidiary of El Paso,
as described in the joint proxy statement/prospectus to which this proxy
relates. The proxies shall have discretionary authority as to any other matters
that may properly come before the Special Meeting, including an adjournment of
the Special Meeting to obtain a quorum, to solicit additional votes in favor of
this proposal. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF THIS PROXY IS RETURNED
WITHOUT DIRECTION BEING GIVEN, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
------------------
(IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE) SEE REVERSE SIDE
------------------
<PAGE> 2
[X] Please mark votes as in this example
<TABLE>
<S> <C>
The Board of Directors recommends a vote FOR the For Against Abstain
following proposal:
[ ] [ ] [ ]
Approval of the issuance of shares of El Paso
common stock to stockholders and optionholders of The
Coastal Corporation in connection with the proposed
merger of a wholly owned subsidiary of El Paso into
Coastal, as a result of which Coastal will become a
wholly owned subsidiary of El Paso.
MARK HERE FOR COMMENTS [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as your name appears. If acting as attorney, executor,
trustee or in other representative capacity, sign name and title. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
IMPORTANT: Please mark, sign, date, and return this proxy card promptly
using the enclosed envelope.
- ------------------------------ ----------------- ------------------------------------------ -----------------------
SIGNATURE DATE SIGNATURE DATE
- -----------------
VOTE BY TELEPHONE
- -----------------
It's fast, convenient, and immediate!
Call Toll-Free on a Touch-Tone Phone
1-877-PRX-VOTE (1-877-779-8683)
If outside the continental U.S. call collect on a
Touch-Tone Phone (877-779-8683)
Follow these four easy steps:
1. Read the accompanying Proxy Statement and Proxy Card.
2. Call the toll-free number.
1-877-PRX-VOTE (1-877-779-8683)
3. Enter your 14-digit Control Number located on
your Proxy Card above your name.
4. Follow the recorded instructions.
YOUR VOTE IS IMPORTANT!
CALL 1-877-PRX-VOTE (1-877-779-8683) ANYTIME!
</TABLE>
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE.
<PAGE> 3
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO ENERGY CORPORATION
SPECIAL MEETING OF STOCKHOLDERS - MAY 5, 2000
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: BANKERS TRUST COMPANY, TRUSTEE UNDER EL PASO
ENERGY CORPORATION RETIREMENT SAVINGS PLAN
The undersigned hereby directs the Trustee to vote, in person or by proxy, the
full and fractional shares of common stock of El Paso Energy Corporation
credited to my account under the referenced Plan at the close of business on
March 17, 2000, the record date, at the Special Meeting of Stockholders to be
held at The Westin Galleria, 5060 W. Alabama, Houston, Texas 77056 on May 5,
2000, and at any adjournment(s) or postponement(s) of that meeting, with respect
to the proposal to approve the issuance of shares of El Paso common stock to
stockholders and optionholders of The Coastal Corporation in connection with the
proposed merger of a wholly owned subsidiary of El Paso into Coastal, as a
result of which Coastal will become a wholly owned subsidiary of El Paso. The
Trustee is directed to grant to persons selected by El Paso discretionary
authority as to any other matters that may properly come before the Special
Meeting, including an adjournment of the Special Meeting to obtain a quorum, to
solicit additional votes in favor of this proposal, as described in the
accompanying joint proxy statement/prospectus. If these voting instructions are
properly executed, the full or fractional shares credited to the undersigned's
account will be voted in the manner directed by the undersigned.
If these voting instructions are completed, dated, signed and returned in the
accompanying envelope to the Trustee by May 2, 2000, the full or fractional
shares credited to the undersigned's account will be voted in the manner
directed by the undersigned. If these voting instructions are returned to the
Trustee without direction being given, those full or fractional shares will be
voted FOR the proposal.
<PAGE> 4
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN
DARK INK AND SIGN AND DATE BELOW
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
<TABLE>
<S> <C>
Approval of the issuance of shares of El Paso common stock to stockholders For Against Abstain
and optionholders of The Coastal Corporation in connection with the proposed
merger of a wholly owned subsidiary of El Paso into Coastal, as a result of [ ] [ ] [ ]
which Coastal will become a wholly owned subsidiary of El Paso.
If acting as attorney, executor, trustee or in other representative
capacity, sign name and title. If a corporation, please sign in full
corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
IMPORTANT: Please mark, sign, date, and return this proxy card
promptly using the enclosed envelope.
Shares held as of March 17, 2000:
----------- ----------------------------------------------- ------------------
SIGNATURE DATE
</TABLE>
<PAGE> 5
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO ENERGY CORPORATION
SPECIAL MEETING OF STOCKHOLDERS - MAY 5, 2000
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: BANKERS TRUST COMPANY, TRUSTEE UNDER EL PASO
ENERGY CORPORATION BENEFITS PROTECTION TRUST
The undersigned hereby directs the Trustee to vote, in person or by proxy, the
full and fractional shares of common stock of El Paso Energy Corporation
credited to my account under the referenced Plan at the close of business on
March 17, 2000, the record date, at the Special Meeting of Stockholders to be
held at The Westin Galleria, 5060 W. Alabama, Houston, Texas on May 5, 2000, and
at any adjournment(s) or postponement(s) of that meeting, with respect to the
proposal to approve the issuance of shares of El Paso common stock to
stockholders and optionholders of The Coastal Corporation in connection with the
proposed merger of a wholly owned subsidiary of El Paso into Coastal, as a
result of which Coastal will become a wholly owned subsidiary of El Paso. The
Trustee is directed to grant to persons selected by El Paso discretionary
authority as to any other matters that may properly come before the Special
Meeting, including an adjournment of the Special Meeting to obtain a quorum, to
solicit additional votes in favor of this proposal, as described in the
accompanying joint proxy statement/prospectus. If these voting instructions
properly executed, the full or fractional shares credited to the undersigned's
account will be voted in the manner directed by the undersigned.
If these voting instructions are completed, dated, signed and returned in the
accompanying envelope to the Trustee by May 2, 2000, the full or fractional
shares credited to the undersigned's account will be voted in the manner
directed by the undersigned. If these voting instructions are returned to the
Trustee without direction being given, those full or fractional shares will be
voted FOR the proposal.
<PAGE> 6
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN
DARK INK AND SIGN AND DATE BELOW
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL.
<TABLE>
<S> <C>
Approval of the issuance of shares of El Paso common stock to stockholders For Against Abstain
and optionholders of The Coastal Corporation in connection with the proposed
merger of a wholly owned subsidiary of El Paso into Coastal, as a result of [ ] [ ] [ ]
which Coastal will become a wholly owned subsidiary of El Paso.
If acting as attorney, executor, trustee or in other representative
capacity, sign name and title. If a corporation, please sign in full
corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
IMPORTANT: Please mark, sign, date, and return this proxy card
promptly using the enclosed envelope.
Shares held as of March 17, 2000:
----------- ------------------------------------------------ ------------------
SIGNATURE DATE
</TABLE>
<PAGE> 1
EXHIBIT 99.3
PROXY
THE COASTAL CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE MAY 5, 2000 SPECIAL MEETING
Proxy Voting Instructions
The Coastal Corporation encourages all shareholders to vote their proxies. We
now provide three convenient methods of voting:
1. PROXY CARD: Complete, sign, date and return the proxy card attached below in
the enclosed postage-paid envelope;
2. TELEPHONE: Call toll-free on a touch-tone phone 1-800-690-6903, 7 days a
week, 24 hours a day; or
3. INTERNET: Log on to the Web site www.proxyvote.com.
If you choose to vote by telephone or Internet, you will be given instructions
and asked to enter the twelve-digit control number located [above] your name on
the proxy card. Choosing either of these options eliminates the need to return
your proxy card.
The undersigned hereby appoints O.S. WYATT, JR., HAROLD BURROW and DAVID A.
ARLEDGE, and each of them, proxies, with power of substitution, to vote all
stock owned by the undersigned of THE COASTAL CORPORATION at the Special
Meeting of Stockholders to be held May 5, 2000, and at any and all
adjournments thereof, hereby revoking any proxy heretofore given.
PLEASE SIGN, DATE AND RETURN YOUR PROXY
promptly in the enclosed envelope. Sign exactly
as name(s) appear(s) hereon. Joint owners should
each sign. When signing in a fiduciary capacity,
please give full title.
________________________
Date
_______________________________________________
Signature
- CONTINUED ON REVERSE SIDE -
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
YOUR VOTE IS IMPORTANT
TO SECURE THE LARGEST POSSIBLE REPRESENTATION
AT THE SPECIAL MEETING OF STOCKHOLDERS
AND SAVE THE EXPENSE OF A SECOND MAILING,
PLEASE VOTE BY TELEPHONE, INTERNET OR PROXY CARD.
<PAGE> 2
Please mark [X]
your votes as
indicated in
the example
This Proxy will be voted as directed, but if not otherwise directed, it will be
voted FOR Proposal 1. The class of stock voted by this Proxy is shown on the
reverse side, and the shares will be voted (Common Stock and Preferred Stock -
one vote per share, and Class A Common Stock - one hundred votes per share) as
follows:
The Board of Directors unanimously recommends a vote FOR the following proposal:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Approval and adoption of the Agreement and Plan of Merger, dated January 17, FOR AGAINST ABSTAIN
2000, by and among The Coastal Corporation, El Paso Energy Corporation and [ ] [ ] [ ]
El Paso Merger Company.
2. In their discretion on such other matters as may properly come before the
meeting.
</TABLE>
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
YOUR VOTE IS IMPORTANT
TO SECURE THE LARGEST POSSIBLE REPRESENTATION
AT THE SPECIAL MEETING OF STOCKHOLDERS
AND SAVE THE EXPENSE OF A SECOND MAILING,
PLEASE VOTE BY TELEPHONE, INTERNET OR PROXY CARD.
<PAGE> 3
THE COASTAL CORPORATION
VOTING INSTRUCTIONS FOR THE MAY 5, 2000 SPECIAL MEETING
The undersigned hereby instructs Chase Bank of Texas, N.A., the Plan Trustee
with respect to the securities identified below, to vote all stock beneficially
owned by the undersigned in such plan of THE COASTAL CORPORATION at the Special
Meeting of Stockholders to be held on May 5, 2000, and at any and all
adjournments thereof, hereby revoking any instructions heretofore given.
PLEASE SIGN, DATE AND RETURN YOUR INSTRUCTIONS
promptly in the enclosed envelope. Sign exactly
as name appears hereon. When signing in a
fiduciary capacity, please give full title.
________________________
Date
_______________________________________________
Signature
- CONTINUED ON REVERSE SIDE -
- --------------------------------------------------------------------------------
- PLEASE DETACH, SIGN, DATE AND MAIL YOUR INSTRUCTIONS -
YOUR INSTRUCTIONS ARE IMPORTANT
The Coastal Corporation encourages all Plan Participants
to provide voting instructions to Chase Bank of Texas, N.A.,
the Plan Trustee with respect to the securities identified above.
To secure the largest possible representation at the
Special Meeting of Stockholders, would you please return your
Instructions promptly in the enclosed envelope which
requires no postage if mailed in the United States.
<PAGE> 4
These INSTRUCTIONS will be followed as directed, but if not otherwise directed,
the shares will be voted FOR Proposal 1.
The Board of Directors unanimously recommends a vote FOR the following proposal:
1. Approval and adoption of the Agreement and Plan of Merger, dated January 17,
2000, by and among The Coastal Corporation, El Paso Energy Corporation and
El Paso Merger Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In its discretion on such other matters as may properly come before the
meeting.
- --------------------------------------------------------------------------------
- PLEASE DETACH, SIGN AND DATE (ON REVERSE) AND MAIL YOUR INSTRUCTIONS -
YOUR INSTRUCTIONS ARE IMPORTANT
The Coastal Corporation encourages all Plan Participants
to provide voting instructions to Chase Bank of Texas, N.A.,
the Plan Trustee with respect to the securities identified above.
To secure the largest possible representation at the
Special Meeting of Stockholders, would you please return your
Instructions promptly in the enclosed envelope which
requires no postage if mailed in the United States.
