<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
SCHEDULE 14D-1
Tender Offer Statement Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
and
SCHEDULE 13D
Under the Securities Exchange Act of 1934
----------------
Cornerstone Natural Gas, Inc.
(Name of Subject Company)
The El Paso Company
El Paso Field Services Company
El Paso Natural Gas Company
(Bidders)
Common Stock, $0.10 Par Value
(Title of Class of Securities)
00021922D102
(CUSIP Number of Class of Securities)
Britton White, Jr.
El Paso Natural Gas Company
One Paul Kayser Center
100 North Stanton Street
El Paso, TX 79901
(Name, address and telephone number of person authorized to
receive notices and communications on behalf of bidders)
Copies to:
Gary Cooperstein, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004 - 1980
(212) 859-8128
April 20, 1996
(Date Of Event Which Requires Filing Statement On Schedule 13D)
----------------
CALCULATION OF FILING FEE
================================================================================
Transaction Valuation* Amount of Filing Fee
- --------------------------------------------------------------------------------
$81,230,754.00 $16,246.15
================================================================================
* For the purpose of calculating the fee only, this amount assumes the
purchase of 13,538,459 shares of Common Stock of Cornerstone Natural Gas,
Inc. at $6.00 per share. Such number of shares includes all outstanding
shares as of April 1, 1996, and assumes the exercise of outstanding stock
options to purchase an aggregate of 1,022,500 shares of Common Stock.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: Filing Party:
Form or Registration No.: Date Filed:
================================================================================
<PAGE> 2
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
The El Paso Company
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)
(a) [ ]
(b) [x]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCES OF FUNDS (SEE INSTRUCTIONS)
AF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(e) OR 2(f). [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,215,117
- -------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 7 EXCLUDES CERTAIN SHARES (SEE
INSTRUCTIONS) [ ]
- -------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 7
53.7%*
- -------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
CO
- -------------------------------------------------------------------------------
* On April 20, 1996, El Paso Natural Gas Company (the "Parent") and The El
Paso Company, an indirect wholly owned subsidiary of the Parent (the
"Offeror"), entered into an Option Agreement (the "Option Agreement") with
certain holders (the "Holders") of shares of common stock, par value $0.10
per share (the "Shares"), of Cornerstone Natural Gas, Inc. (the "Company"),
stock options and warrants, pursuant to which the Holders have agreed,
among other things, to tender all Shares owned by them in the tender offer
described herein, and have granted to the Offeror an irrevocable option,
subject to the terms and conditions of the Option Agreement, to purchase an
aggregate of 5,446,514 Shares, an aggregate of 204,500 Shares issuable upon
exercise of stock options and warrants exercisable for an aggregate of
2,564,103 Shares, representing an aggregate of 8,215,117 Shares.
<PAGE> 3
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
El Paso Field Services Company
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)
(a) [ ]
(b) [x]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCES OF FUNDS (SEE INSTRUCTIONS)
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(e) OR 2(f). [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,215,117
- --------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 7 EXCLUDES CERTAIN SHARES
(SEE INSTRUCTIONS) [ ]
- --------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 7
53.7%*
- --------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
CO
- --------------------------------------------------------------------------------
* See footnote on page 2.
<PAGE> 4
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
El Paso Natural Gas Company
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)
(a) [ ]
(b) [x]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCES OF FUNDS (SEE INSTRUCTIONS)
WC, BK
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(e) OR 2(f). [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,215,117
- --------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 7 EXCLUDES CERTAIN SHARES (SEE
INSTRUCTIONS) [ ]
- --------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 7
53.7%*
- --------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
CO
- --------------------------------------------------------------------------------
* See footnote on page 2.
4
<PAGE> 5
This Statement relates to a tender offer by The El Paso Company, a Delaware
corporation (the "Offeror") and an indirect wholly owned subsidiary of El Paso
Natural Gas Company, a Delaware corporation (the "Parent"), to purchase all
outstanding shares of common stock, par value $0.10 per share (the "Shares"),
of Cornerstone Natural Gas, Inc., a Delaware corporation (the "Company"), at a
purchase price of $6.00 per Share, net to the seller in cash, without interest,
upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated April 26, 1996 (the "Offer to Purchase"), and in the related
Letter of Transmittal (which together constitute the "Offer"), copies of which
are filed as Exhibits (a)(1) and (a)(2) hereto, respectively, and which are
incorporated herein by reference.
Item 1.Security and Subject Company.
(a) The name of the subject company is Cornerstone Natural Gas, Inc. The
address of the principal executive offices of the Company is set forth in
Section 8 ("Certain Information Concerning the Company") of the Offer to
Purchase and is incorporated herein by reference.
(b) The exact title of the class of equity securities being sought in the
Offer is the common stock, par value $0.10 per share, of the Company. The
information set forth in the Introduction to the Offer to Purchase is
incorporated herein by reference.
(c) The information set forth in Section 6 ("Price Range of Shares;
Dividends") of the Offer to Purchase is incorporated herein by reference.
Item 2.Identity and Background.
(a) through (d), (g) The information set forth in the Introduction and
Section 9 ("Certain Information Concerning the Parent, EPFS and the Offeror")
of the Offer to Purchase, and in Annex I thereto, is incorporated herein by
reference.
(e) and (f) None of the Offeror, EPFS and the Parent, nor, to the best of
their knowledge, any of the persons listed in Annex I of the Offer to Purchase,
has during the last five years (i) been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) been a party to
a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violation of such laws.
Item 3.Past Contacts, Transactions or Negotiations With the Subject Company.
(a) None.
(b) The information set forth in the Introduction and Section 11
("Background of the Offer; Past Contacts, Transactions or Negotiations with the
Company") and Section 8 ("Certain Information Concerning the Company") of the
Offer to Purchase is incorporated herein by reference.
5
<PAGE> 6
Item 4.Source and Amount of Funds or Other Consideration.
(a) and (b) The information set forth in Section 10 ("Source and Amount of
Funds") of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
Item 5.Purpose of the Tender Offer and Plans or Proposals of the Bidder.
(a) through (e) The information set forth in the Introduction, Section 11
("Background of the Offer; Past Contacts, Transactions or Negotiations with the
Company") and Section 12 ("Purpose of the Offer and the Merger; Plans for the
Company") and Section 13 ("The Merger Agreement; the Option Agreement;
Noncompetition Agreements") of the Offer to Purchase is incorporated herein by
reference. Except as set forth in Sections 12 and 13 of the Offer to Purchase,
neither the Parent nor the Offeror have any present plans or proposals that
would result in an extraordinary corporate transaction, such as a merger,
reorganization, liquidation or sale or transfer of a material amount of assets
involving the Company, or any other material changes in the Company's
capitalization, dividend policy, corporate structure or business or composition
of its management or personnel.
(f) and (g) The information set forth in Section 7 ("Effect of the Offer on
American Stock Exchange Listing, Market for Shares and Registration under the
Exchange Act") of the Offer to Purchase is incorporated herein by reference.
Item 6.Interest in Securities of the Subject Company.
(a) and (b) The information set forth in the Introduction, Section 9
("Certain Information Concerning the Parent and the Offeror" and Section 13
("The Merger Agreement; the Option Agreement; Noncompetition Agreements") of
the Offer to Purchase is incorporated herein by reference.
Item 7.Contracts, Arrangements, Understandings or Relationships With
Respect to the Subject Company's Securities.
The information set forth in the Introduction and Section 11 ("Background of
the Offer; Past Contacts, Transactions or Negotiations with the Company") of
the Offer to Purchase is incorporated herein by reference.
Item 8.Persons Retained, Employed or to be Compensated.
The information set forth in the Introduction and in Section 17 ("Fees and
Expenses") of the Offer to Purchase is incorporated herein by reference.
Item 9.Financial Statements of Certain Bidders.
The information set forth in Section 9 ("Certain Information Concerning the
Parent and the Offeror") of the Offer to Purchase is incorporated herein by
reference.
6
<PAGE> 7
The incorporation by reference herein of the above-mentioned financial
information does not constitute an admission that such information is material
to a decision by a security holder of the Company as whether to sell, tender or
hold Shares being sought in the Offer.
Item 10.Additional Information.
(a) The information set forth in Section 11 ("Background of the Offer;
Past Contacts, Transactions or Negotiations with the Company") and Section 12
("Purpose of the Offer and the Merger; Plans for the Company") of the Offer to
Purchase is incorporated herein by reference.
(b) and (c) The information set forth in Section 16 ("Certain Regulatory and
Legal Matters") of the Offer to Purchase is incorporated herein by reference.
(d) The information set forth in Section 7 ("Effect of the Offer on
American Stock Exchange Listing, Market for Shares and Registration under the
Exchange Act").
(e) None.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal is incorporated herein by reference in its entirety.
Item 11.Material to be Filed as Exhibits.
99(a)(1) Offer to Purchase, dated April 20, 1996.
99(a)(2) Letter of Transmittal.
99(a)(3) Letter from Rodman & Renshaw, Inc., as Dealer Manager, to
Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
99(a)(4) Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees to Clients.
99(a)(5) Notice of Guaranteed Delivery.
99(a)(6) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
99(a)(7) Summary Advertisement, dated April 26, 1996.
99(a)(8) Press Release issued by the Parent and the Company on
April 22, 1996.
99(a)(10) Agreement and Plan of Merger, dated as of April 20, 1996,
among the Parent, the Offeror and the Company.
99(a)(11) Press Release issued by the Parent on April 26, 1996.
7
<PAGE> 8
99(b)(1) $400,000,000 Revolving Credit and Competitive Advance
Facility Agreement, dated as of August 10, 1994, among
Chemical Bank as Administrative Agent and CAF Advance Agent,
the Banks party thereto, and the Parent.
99(c)(1) Option Agreement, dated as of April 20, 1996, between the
Parent, the Offeror and the Holders.
99(c)(2) Noncompetition Agreement, dated as of April 20, 1996, between
the Company and Ben H. Cook.
99(c)(3) Noncompetition Agreement, dated as of April 20, 1996, between
the Company and Ray C. Davis.
99(c)(4) Noncompetition Agreement, dated as of April 20, 1996, between
the Company and Kelcy L. Warren.
99(c)(5) Form of Consulting Agreement, between the Company and Kelcy
L. Warren.
99(d) None.
99(e) Not applicable.
99(f) None.
8
<PAGE> 9
SIGNATURE
After due inquiry and to the best of its knowledge and belief, each of the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: April 26, 1996
THE EL PASO COMPANY
By: /s/ ROBERT G. PHILLIPS
------------------------------------
Name: Robert G. Phillips
Title: Senior Vice President
EL PASO FIELD SERVICES COMPANY
By: /s/ ROBERT G. PHILLIPS
------------------------------------
Name: Robert G. Phillips
Title: President and Chief Executive
Officer
EL PASO NATURAL GAS COMPANY
By: /s/ H. BRENT AUSTIN
------------------------------------
Name: H. Brent Austin
Title: Executive Vice President and
Chief Financial Officer
9
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
Exhibit Description No.
- ------- ----------- -----
<S> <C> <C>
99(a)(1) -- Offer to Purchase, dated April 26, 1996.
99(a)(2) -- Letter of Transmittal.
99(a)(3) -- Letter from Rodman & Renshaw, Inc., as Dealer Manager, to
Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
99(a)(4) -- Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees to Clients.
99(a)(5) -- Notice of Guaranteed Delivery.
99(a)(6) -- Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
99(a)(7) -- Summary Advertisement, dated April 26, 1996.
99(a)(8) -- Press Release issued by the Parent and the Company on
April 22, 1996.
99(a)(9) -- Agreement and Plan of Merger, dated as of April 20, 1996,
among the Parent, the Offeror and the Company.
99(a)(10) -- Press Release issued by the Parent on April 26, 1996.
99(b)(1) -- $400,000,000 Revolving Credit and Competitive Advance Facility
Agreement, dated as of August 10, among Chemical Bank as
Administrative Agent and CAF Advance Agent, the Banks party
thereto, and the Parent.
99(c)(1) -- Option Agreement, dated as of April 20, 1996, among the
Parent, the Offeror and the Holders.
99(c)(2) -- Noncompetition Agreement, dated as of April 20, 1996, between
the Company and Ben H. Cook.
99(c)(3) -- Noncompetition Agreement, dated as of April 20, 1996, between
the Company and Ray C. Davis.
99(c)(4) -- Noncompetition Agreement, dated as of April 20, 1996, between
the Company and Kelcy L. Warren.
99(c)(5) -- Form of Consulting Agreement, between the Company and Kelcy L.
Warren.
99(d) -- None.
99(e) -- Not applicable.
99(f) -- None.
</TABLE>
10
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CORNERSTONE NATURAL GAS, INC.
AT
$6.00 NET PER SHARE
BY
THE EL PASO COMPANY
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
EL PASO NATURAL GAS COMPANY
EACH A UNIT OF
EL PASO ENERGY CORPORATION
***************************************************************************
* THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, *
* NEW YORK CITY TIME, *
* ON FRIDAY, MAY 24, 1996, UNLESS THE OFFER IS EXTENDED. *
***************************************************************************
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY
TENDERED BY THE EXPIRATION DATE AND NOT WITHDRAWN THAT NUMBER OF SHARES OF
COMMON STOCK OF CORNERSTONE NATURAL GAS, INC. (THE "SHARES") WHICH, WHEN ADDED
TO THE NUMBER OF SHARES THEN ISSUABLE UPON EXERCISE OF PRESENTLY EXERCISABLE
WARRANTS PREVIOUSLY DELIVERED TO THE EL PASO COMPANY IN ACCORDANCE WITH THE
TERMS OF THE OPTION AGREEMENT DESCRIBED BELOW, WOULD REPRESENT AT LEAST A
MAJORITY OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS AND (ii)
SATISFACTION OF CERTAIN OTHER TERMS AND CONDITIONS. SEE SECTION 15.
THE OFFER IS BEING MADE PURSUANT TO THE AGREEMENT AND PLAN OF MERGER DATED
AS OF APRIL 20, 1996, AMONG EL PASO NATURAL GAS COMPANY, THE EL PASO COMPANY AND
CORNERSTONE NATURAL GAS, INC. IN CONNECTION WITH THE MERGER AGREEMENT, CERTAIN
HOLDERS OF SHARES, STOCK OPTIONS AND WARRANTS TO PURCHASE SHARES REPRESENTING IN
THE AGGREGATE APPROXIMATELY 50.3% OF THE OUTSTANDING SHARES ON A FULLY DILUTED
BASIS HAVE ENTERED INTO AN OPTION AGREEMENT WITH EL PASO NATURAL GAS COMPANY AND
THE EL PASO COMPANY. PURSUANT TO THE OPTION AGREEMENT, SUCH HOLDERS HAVE AGREED
TO TENDER THEIR SHARES IN THE OFFER AND HAVE GRANTED TO THE EL PASO COMPANY AN
IRREVOCABLE OPTION TO PURCHASE THEIR SHARES, SHARES ISSUABLE UPON THE EXERCISE
OF STOCK OPTIONS AND WARRANTS UNDER CERTAIN CIRCUMSTANCES.
THE BOARD OF DIRECTORS OF CORNERSTONE NATURAL GAS, INC. HAS UNANIMOUSLY
APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THE OPTION AGREEMENT, HAS DETERMINED THAT THE TERMS OF EACH OF
THE OFFER AND THE MERGER AND THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO AND
IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT THE
COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER.
IMPORTANT
Any stockholder desiring to tender Shares should either (i) complete and
sign the Letter of Transmittal or a facsimile thereof in accordance with the
instructions in the Letter of Transmittal and deliver the Letter of Transmittal
with the Shares and all other required documents to the Depositary, or follow
the procedure for book-entry transfer set forth in Section 3 or (ii) request his
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for him. A stockholder having Shares registered in the name of a
broker, dealer, commercial bank, trust company or other nominee must contact
such person if he desires to tender his Shares.
Any stockholder who desires to tender Shares and cannot deliver such Shares
and all other required documents to the Depositary by the expiration of the
Offer must tender such Shares pursuant to the guaranteed delivery procedure set
forth in Section 3.
Questions and requests for assistance or additional copies of this Offer to
Purchase and the Letter of Transmittal may be directed to the Information Agent
or the Dealer Manager at their respective addresses and telephone numbers set
forth on the back cover of this Offer to Purchase.
---------------------
The Dealer Manager for the Offer is
RODMAN & RENSHAW, INC.
April 26, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
INTRODUCTION............................................................................ 1
1. TERMS OF THE OFFER................................................................ 2
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES..................................... 4
3. PROCEDURE FOR TENDERING SHARES.................................................... 5
4. WITHDRAWAL RIGHTS................................................................. 7
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................................... 7
6. PRICE RANGE OF SHARES; DIVIDENDS.................................................. 8
7. EFFECT OF THE OFFER ON AMERICAN STOCK EXCHANGE LISTING, MARKET FOR SHARES AND
REGISTRATION UNDER THE EXCHANGE ACT............................................... 9
8. CERTAIN INFORMATION CONCERNING THE COMPANY........................................ 10
9. CERTAIN INFORMATION CONCERNING THE PARENT, EPFS AND THE OFFEROR................... 12
10. SOURCE AND AMOUNT OF FUNDS........................................................ 13
11. BACKGROUND OF THE OFFER; PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE
COMPANY........................................................................... 14
12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY........................ 15
13. THE MERGER AGREEMENT; THE OPTION AGREEMENT; NONCOMPETITION AGREEMENTS............. 17
14. DIVIDENDS AND DISTRIBUTIONS....................................................... 26
15. CERTAIN CONDITIONS TO OFFEROR'S OBLIGATIONS....................................... 26
16. CERTAIN REGULATORY AND LEGAL MATTERS.............................................. 28
17. FEES AND EXPENSES................................................................. 30
18. MISCELLANEOUS..................................................................... 30
ANNEX I. CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF THE
PARENT, EPFS AND THE OFFEROR................................................... A-1
</TABLE>
i
<PAGE> 3
TO THE HOLDERS OF SHARES OF COMMON STOCK OF
CORNERSTONE NATURAL GAS, INC.
INTRODUCTION
The El Paso Company, a Delaware corporation (the "Offeror") and an indirect
wholly owned subsidiary of El Paso Natural Gas Company, a Delaware corporation
(the "Parent"), hereby offers to purchase all outstanding shares of Common
Stock, par value $0.10 per share (the "Shares"), of Cornerstone Natural Gas,
Inc., a Delaware corporation (the "Company"), at a purchase price of $6.00 per
Share, net to the seller in cash, without interest, upon the terms and subject
to the conditions set forth in this Offer to Purchase and in the related Letter
of Transmittal (which together constitute the "Offer"). Tendering holders of
Shares will not be obligated to pay brokerage fees or commissions or, except as
set forth in the Letter of Transmittal, transfer taxes on the purchase of Shares
by the Offeror pursuant to the Offer. The Offeror will pay all charges and
expenses of Rodman & Renshaw, Inc. (the "Dealer Manager"), The First National
Bank of Boston (the "Depositary") and Chemical Mellon Shareholder Services,
L.L.C. (the "Information Agent"), in connection with the Offer.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER,
THE MERGER (AS HEREINAFTER DEFINED) AND THE MERGER AGREEMENT (AS HEREINAFTER
DEFINED) AND THE TRANSACTIONS CONTEMPLATED BY THE OPTION AGREEMENT (AS
HEREINAFTER DEFINED), HAS DETERMINED THAT THE TERMS OF EACH OF THE OFFER, THE
MERGER AND THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF THE
COMPANY'S STOCKHOLDERS, AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT
THE OFFER AND TENDER THEIR SHARES IN THE OFFER.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER
OF SHARES WHICH, WHEN ADDED TO THE NUMBER OF SHARES THEN ISSUABLE UPON EXERCISE
OF PRESENTLY EXERCISABLE WARRANTS PREVIOUSLY DELIVERED TO THE OFFEROR IN
ACCORDANCE WITH THE TERMS OF THE OPTION AGREEMENT, WOULD REPRESENT AT LEAST A
MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS (THE "MINIMUM
CONDITION"). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE
SECTION 15.
SALOMON BROTHERS INC ("SALOMON BROTHERS"), THE COMPANY'S FINANCIAL ADVISOR,
HAS DELIVERED TO THE COMPANY'S BOARD OF DIRECTORS ITS WRITTEN OPINION THAT THE
CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF THE COMPANY PURSUANT TO THE
OFFER AND THE MERGER IS FAIR TO SUCH STOCKHOLDERS FROM A FINANCIAL POINT OF
VIEW. A COPY OF SUCH OPINION IS CONTAINED IN THE COMPANY'S STATEMENT ON SCHEDULE
14D-9 WHICH IS BEING DISTRIBUTED TO THE COMPANY'S STOCKHOLDERS.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of April 20, 1996 (the "Merger Agreement"), among the Parent, the Offeror and
the Company. The Merger Agreement provides that, among other things, as soon as
practicable after the purchase of Shares pursuant to the Offer and the
satisfaction of the other conditions set forth in the Merger Agreement and in
accordance with the relevant provisions of the General Corporation Law of the
State of Delaware ("DGCL"), the Offeror will be merged with and into the Company
(the "Merger"). See Section 12. Following consummation of the Merger, the
Company will continue as the surviving corporation (the "Surviving Corporation")
and will be a direct wholly owned subsidiary of El Paso Field Services Company,
a Delaware corporation ("EPFS"), and an indirect wholly owned subsidiary of the
Parent. At the effective time of the Merger (the "Effective Time"), each issued
and outstanding Share (other than Shares owned by the Company as treasury stock,
Shares owned by any subsidiary of the Company, Shares owned by the Parent or the
Offeror or any subsidiary thereof, or Shares with respect to which appraisal
rights are properly exercised under Delaware law), will be converted into and
1
<PAGE> 4
represent the right to receive $6.00 (or any higher price that may be paid for
each Share pursuant to the Offer) in cash, without interest thereon (the "Offer
Price"). See Section 5 for a description of certain tax consequences of the
Offer and the Merger.
The Parent, the Offeror and certain holders (the "Holders") of Shares,
options to purchase Shares ("Stock Options") and warrants to purchase Shares
("Warrants") have entered into an Option Agreement, dated as of April 20, 1996
(the "Option Agreement"), pursuant to which the Holders have granted to the
Offeror an irrevocable option (the "Option"), upon the terms and subject to the
conditions set forth in the Option Agreement, to purchase at the Offer Price or,
in the case of the Warrants, at the excess of the Offer Price over the exercise
price of such Warrants, an aggregate of 5,446,514 Shares, 204,500 Shares
issuable upon the exercise of Stock Options and Warrants exercisable for an
aggregate of 2,564,103 Shares, representing in the aggregate 8,215,117 Shares or
approximately 50.3% of the outstanding Shares on a fully diluted basis. The
Option Agreement further provides, among other things, that the Holders are
required to tender all of the Shares held by them in the Offer. See Section 13.
The Company has informed the Offeror that as of April 1, 1996, there were
(a) 12,515,959 Shares issued and outstanding, (b) outstanding Stock Options to
purchase an aggregate of 1,250,000 Shares (which had exercise prices ranging
from $1.125 to $2.563 per Share) and (c) outstanding Warrants to purchase an
aggregate of 2,564,103 Shares (all of which had an exercise price of $.78 per
Share). As of the date hereof, neither the Offeror nor the Parent beneficially
owns any Shares (other than as a result of the Option Agreement). If the Offeror
acquires at least 8,165,032 Shares in the Offer or otherwise, it will control a
majority of the outstanding Shares on a fully diluted basis. The terms of the
Option Agreement require the Holders to tender all 5,446,514 Shares held by them
and, if the Offeror acquires Shares pursuant to the Offer, the Offeror is
required to exercise the Option with respect to the Shares issuable upon the
exercise of Stock Options and the Warrants subject to the Option Agreement. The
foregoing Shares, Shares issuable upon exercise of Stock Options and Warrants
represent in the aggregate 8,215,117 Shares or approximately 50.3% of the
outstanding Shares on a fully diluted basis. Accordingly, upon the acquisition
of such Shares and the exercise of such Warrants, the Offeror would have
sufficient voting power to approve the Merger without the affirmative vote of
any other stockholder. In the event the Offeror acquires 90% or more of the
outstanding Shares through the Offer or otherwise, the Offeror and the Parent
would be able to effect the Merger pursuant to the short form merger provisions
of the DGCL, without prior notice to, or any action by, any other stockholder of
the Company.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), the Offeror will accept for payment and pay for all Shares validly
tendered prior to the Expiration Date and not theretofore withdrawn in
accordance with Section 4. The term "Expiration Date" means 12:00 Midnight, New
York City time, on Friday, May 24, 1996, unless the Offeror shall have extended
the period of time for which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by the Offeror, shall expire.
If the Offeror shall decide, in its sole discretion, to increase the
consideration offered in the Offer to holders of Shares and if, at the time that
notice of such increase is first published, sent or given to holders of Shares
in the manner specified below, the Offer is scheduled to expire at any time
earlier than the expiration of a period ending on the tenth business day from,
and including, the date that such notice is first so published, sent or given,
then the Offer will be extended until the expiration of such period of ten
business days. For purposes of the Offer, a "business day" means any day other
than a Saturday, Sunday or a federal holiday, and consists of the time period
from 12:01 a.m. through 12:00 Midnight, New York City time.
THE OFFER IS CONDITIONED UPON SATISFACTION OF THE MINIMUM CONDITION. SEE
SECTION 13. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE SECTION
15. The Offeror reserves the right (but shall not be
2
<PAGE> 5
obligated), in accordance with applicable rules and regulations of the United
States Securities and Exchange Commission (the "Commission"), subject to the
limitations set forth in the Merger Agreement and described below, to waive or
reduce the Minimum Condition or to waive any other condition of the Offer. If
the Minimum Condition or any of the other conditions set forth in Section 15
have not been satisfied by 12:00 Midnight, New York City time, on Friday, May
24, 1996 (or any other time then set as the Expiration Date), the Offeror may,
subject to the terms of the Merger Agreement as described below, elect to (1)
extend the Offer and, subject to applicable withdrawal rights, retain all
tendered Shares until the expiration of the Offer, as extended, (2) subject to
complying with applicable rules and regulations of the Commission, accept for
payment all Shares so tendered and not extend the Offer or (3) terminate the
Offer and not accept for payment any Shares and return all tendered Shares to
tendering stockholders. Under the terms of the Merger Agreement, the Offeror may
not (except as described in the next sentence), without prior written consent of
the Company, decrease the price per Share to be paid pursuant to the Offer,
change the form of consideration payable in the Offer, decrease the number of
Shares sought pursuant to the Offer, change or impose additional conditions to
the Offer or otherwise amend the Offer in any manner adverse to the Company's
stockholders. Notwithstanding the foregoing, the Offeror may, without the
consent of the Company, extend the Offer (i) if, at the then scheduled
Expiration Date, any of the conditions to the Offeror's obligation to accept for
payment and pay for Shares shall not be satisfied or waived, until such time as
such conditions are satisfied or waived; (ii) for an aggregate period of not
more than ten business days from and including the initial Expiration Date if
all conditions have been satisfied but less than 90% of the outstanding Shares
have been validly tendered and not withdrawn (not including Shares covered by
notices of guaranteed delivery but including for this purpose Shares issuable
upon the exercise of presently exercisable Warrants previously delivered to the
Offeror in accordance with the terms of the Option Agreement); and (iii) for any
period required by any rule, regulation, interpretation or position of the
Commission or the staff applicable to the Offer. Assuming the prior satisfaction
or waiver of the conditions of the Offer and subject to clauses (ii) and (iii)
of the preceding sentence, the Offeror shall, and Parent shall cause the Offeror
to, accept for payment and pay for Shares validly tendered and not withdrawn
pursuant to the Offer as soon as legally permitted after the commencement
thereof.
Subject to the limitations set forth in the Merger Agreement and described
above, the Offeror reserves the right (but will not be obligated), at any time
or from time to time in its sole discretion, to extend the period during which
the Offer is open by giving oral or written notice of such extension to the
Depositary and by making a public announcement of such extension. There can be
no assurance that the Offeror will exercise its right to extend the Offer.
Subject to the applicable rules and regulations of the Commission and
subject to the limitations set forth in the Merger Agreement, the Offeror also
expressly reserves the right, at any time and from time to time, in its sole
discretion, (i) to delay payment for any Shares regardless of whether such
Shares were theretofore accepted for payment, or to terminate the Offer and not
to accept for payment or pay for any Shares not theretofore accepted for payment
or paid for, upon the occurrence of any of the conditions set forth in Section
15, by giving oral or written notice of such delay or termination to the
Depositary and (ii) at any time or from time to time, to amend the Offer in any
respect. The Offeror's right to delay payment for any Shares or not to pay for
any Shares theretofore accepted for payment is subject to the applicable rules
and regulations of the Commission, including Rule 14e-1(c) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), relating to the Offeror's
obligation to pay for or return tendered Shares promptly after the termination
or withdrawal of the Offer.
Any extension of the period during which the Offer is open, delay in
acceptance for payment or payment, termination or amendment of the Offer will be
followed, as promptly as practicable, by public announcement thereof, such
announcement in the case of an extension to be issued not later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date in accordance with the public announcement requirements of Rules
14d-4(c) and 14e-1(d) under the Exchange Act. Without limiting the obligation of
the Offeror under such rule or the manner in which the Offeror may choose to
make any public announcement, the Offeror currently intends to make
announcements by issuing a press release to the Dow Jones News Service and
making any appropriate filing with the Commission.
3
<PAGE> 6
If the Offeror makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer (including a waiver of the Minimum Condition), the Offeror will
disseminate additional tender offer materials and extend the Offer if and to the
extent required by Rules 14d-4(c), 14d-6(d) and 14(e)-1 under the Exchange Act
or otherwise. The minimum period during which a tender offer must remain open
following material changes in the terms of the offer or the information
concerning the offer, other than a change in price or a change in percentage of
securities sought, will depend upon the facts and circumstances, including the
relative materiality of the terms or information changes. With respect to a
change in price or a change in percentage of securities sought, a minimum ten
business day period is generally required to allow for adequate dissemination to
stockholders and investor response.
The Company has provided the Offeror with the Company's list of
stockholders and security position listings for the purpose of disseminating the
Offer to holders of Shares. This Offer to Purchase and the Letter of Transmittal
will be mailed to record holders of the Shares and will be furnished to brokers,
dealers, commercial banks, trust companies and similar persons whose names, or
the names of whose nominees, appear on the list of stockholders or, if
applicable, who are listed as participants in a clearing agency's security
position listing for subsequent transmittal to beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Offeror will accept for payment and will pay for, all Shares
validly tendered prior to the Expiration Date and not theretofore withdrawn in
accordance with Section 4 promptly after the later to occur of (a) the
Expiration Date and (b) subject to compliance with Rule 14e-1(c) under the
Exchange Act, the satisfaction or waiver of the conditions set forth in Section
15. Subject to compliance with Rule 14e-1(c) under the Exchange Act, the Offeror
expressly reserves the right to delay payment for Shares in order to comply in
whole or in part with any applicable law. See Sections 1 and 16. In all cases,
payment for Shares accepted for payment pursuant to the Offer will be made only
after timely receipt by the Depositary of (i) certificates for such Shares or
timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of
such Shares into the Depositary's account at The Depository Trust Company, the
Midwest Securities Trust Company or the Philadelphia Depository Trust Company
(collectively, the "Book-Entry Transfer Facilities"), pursuant to the procedures
set forth in Section 3, (ii) a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) with all required signature
guarantees or, in the case of a book-entry transfer, an Agent's Message (as
defined below) and (iii) any other documents required by the Letter of
Transmittal.
The term "Agent's Message" means a message transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Offeror may enforce such agreement against the participant.
For purposes of the Offer, the Offeror will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered and not withdrawn as, if
and when the Offeror gives oral or written notice to the Depositary of the
Offeror's acceptance of such Shares for payment. In all cases, payment for
Shares purchased pursuant to the Offer will be made by deposit of the purchase
price with the Depositary, which will act as agent for tendering stockholders
for the purpose of receiving payment from the Offeror and transmitting such
payment to tendering stockholders. If, for any reason whatsoever, acceptance for
payment of any Shares tendered pursuant to the Offer is delayed, or the Offeror
is unable to accept for payment Shares tendered pursuant to the Offer, then,
without prejudice to the Offeror's rights under Section 1, the Depositary may,
nevertheless, on behalf of the Offeror, retain tendered Shares, and such Shares
may not be withdrawn, except to the extent that the tendering stockholders are
entitled to withdrawal rights as described in Section 4 below and as otherwise
required by Rule 14e-1(c) under the Exchange Act. Under no circumstances will
interest be paid by the Offeror because of any delay in making such payment.
4
<PAGE> 7
If any tendered Shares are not accepted for payment pursuant to the terms
and conditions of the Offer for any reason, or if certificates are submitted for
more Shares than are tendered, certificates for such unpurchased or untendered
Shares will be returned, without expense to the tendering stockholder (or, in
the case of Shares delivered by book-entry transfer to a Book-Entry Transfer
Facility, such Shares will be credited to an account maintained within such
Book-Entry Transfer Facility), as promptly as practicable after the expiration,
termination or withdrawal of the Offer.
If, prior to the Expiration Date, the Offeror increases the price being
paid for Shares accepted for payment pursuant to the Offer, such increased
consideration will be paid to all stockholders whose Shares are purchased
pursuant to the Offer.
3. PROCEDURE FOR TENDERING SHARES.
Valid Tenders. For Shares to be validly tendered pursuant to the Offer, a
properly completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof), with any required signature guarantees, or, in the case of a
book-entry transfer, an Agent's Message, and any other required documents, must
be received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase prior to the Expiration Date, or the tendering
stockholder must comply with the guaranteed delivery procedure set forth below.
In addition, either (i) certificates representing such Shares must be received
by the Depositary or such Shares must be tendered pursuant to the procedure for
book-entry transfer set forth below, and a Book-Entry Confirmation must be
received by the Depositary, in each case prior to the Expiration Date or (ii)
the guaranteed delivery procedure set forth below must be complied with. No
alternative, conditional or contingent tenders will be accepted. DELIVERY OF
DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY
TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Book-Entry Transfer. The Depositary will make a request to establish an
account with respect to the Shares at each Book-Entry Transfer Facility for
purposes of the Offer within two business days after the date of this Offer to
Purchase. Any financial institution that is a participant in a Book-Entry
Transfer Facility's system may make book-entry delivery of Shares by causing a
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at a Book-Entry Transfer Facility in accordance with such Book-Entry
Transfer Facility's procedures for transfer. Although delivery of Shares may be
effected through book-entry at a Book-Entry Transfer Facility prior to the
Expiration Date, (i) the Letter of Transmittal (or a manually signed facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message in connection with a book-entry transfer, and
any other required documents, must, in any case, be transmitted to and received
by the Depositary at one of its addresses set forth on the back cover of this
Offer to Purchase or (ii) the guaranteed delivery procedure described below must
be complied with.
Signature Guarantee. Signatures on the Letter of Transmittal must be
guaranteed by a member in good standing of the Securities Transfer Agents
Medallion Program, or by any other bank, broker, dealer, credit union, savings
association or other entity which is an "eligible guarantor institution," as
such term is defined in Rule 17Ad-15 under the Exchange Act (each of the
foregoing being referred to as an "Eligible Institution" and, collectively, as
the "Eligible Institutions"), unless the Shares tendered thereby are tendered
(i) by a registered holder of Shares who has not completed either the box
labeled "Special Delivery Instructions" or the box labeled "Special Payment
Instructions" on the Letter of Transmittal or (ii) for the account of any
Eligible Institution. If the certificates evidencing Shares are registered in
the name of a person or persons other than the signer of the Letter of
Transmittal, or if payment is to be made, or delivered to, or certificates for
unpurchased Shares are to be issued or returned to, a person other than the
registered owner or owners, then the tendered certificates must be endorsed or
accompanied by duly executed stock powers, in either case signed exactly as the
name or names of the registered owner or owners appear on the certificates, with
the signatures on the certificates or stock powers guaranteed by an Eligible
Institution as provided in the Letter of Transmittal. See Instructions 1 and 5
to the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or time will not permit all required documents to reach the Depositary
prior to the Expiration Date or the procedure for book-entry transfer
5
<PAGE> 8
cannot be completed on a timely basis, such Shares may nevertheless be tendered
if the following guaranteed delivery procedure is duly complied with:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Offeror herewith, is
received by the Depositary, as provided below, prior to the Expiration
Date; and
(iii) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation), together with a properly completed
and duly executed Letter of Transmittal (or a manually signed facsimile
thereof), and any required signature guarantees, or, in the case of a
book-entry transfer, an Agent's Message, and any other documents required
by the Letter of Transmittal are received by the Depositary within three
American Stock Exchange trading days after the date of such Notice of
Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, facsimile
transmission or mail to the Depositary and must include a guarantee by an
Eligible Institution in the form set forth in the Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY,
IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for such Shares or a Book-Entry
Confirmation, (ii) a properly completed and duly executed Letter of Transmittal
(or a manually signed facsimile thereof), with all required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message and
(iii) any other documents required by the Letter of Transmittal.
BACKUP FEDERAL INCOME TAX WITHHOLDING. TO PREVENT BACKUP FEDERAL INCOME TAX
WITHHOLDING WITH RESPECT TO PAYMENT OF THE PURCHASE PRICE OF SHARES PURCHASED
PURSUANT TO THE OFFER, EACH STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH HIS
CORRECT TAXPAYER IDENTIFICATION NUMBER ("TIN") AND CERTIFY THAT HE IS NOT
SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE
FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 8 SET FORTH IN
THE LETTER OF TRANSMITTAL.
Determination of Validity. All questions as to the form of documents and
the validity, eligibility (including time of receipt) and acceptance for payment
of any tender of Shares will be determined by the Offeror, in its sole
discretion, and its determination will be final and binding on all parties. The
Offeror reserves the absolute right to reject any or all tenders of any Shares
that are determined by it not to be in proper form or the acceptance of or
payment for which may, in the opinion of the Offeror, be unlawful. The Offeror
also reserves the absolute right to waive any of the conditions of the Offer,
subject to the limitations set forth in the Merger Agreement, or any defect or
irregularity in the tender of any Shares. The Offeror's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
Instructions to the Letter of Transmittal) will be final and binding on all
parties. No tender of Shares will be deemed to have been validly made until all
defects and irregularities have been cured or waived. None of the Offeror, the
Parent, the Dealer Manager, the Depositary, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification.
Other Requirements. By executing the Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of the Offeror as
such stockholder's proxies, each with full power of substitution, in the manner
set forth in the Letter of Transmittal, to the full extent of such stockholder's
right with respect to the Shares tendered by such stockholder and accepted for
payment by the Offeror (and any and all other Shares or other securities or
rights issued or issuable in respect of such Shares on or after April 20, 1996).
All such proxies shall be considered coupled with an interest in the tendered
Shares. This appointment is effective when, and only to the extent that, the
Offeror accepts for payment the Shares
6
<PAGE> 9
deposited with the Depositary. Upon acceptance for payment, all prior proxies
given by the stockholder with respect to such Shares or other securities or
rights will, without further action, be revoked and no subsequent proxies may be
given or written consent executed (and, if given or executed, will not be deemed
effective). The designees of the Offeror will, with respect to the Shares and
other securities or rights, be empowered to exercise all voting and other rights
of such stockholder as they in their sole judgment deem proper in respect of any
annual or special meeting of the Company's stockholders, or any adjournment or
postponement thereof. The Offeror reserves the right to require that, in order
for Shares to be deemed validly tendered, immediately upon the Offeror's payment
for such Shares, the Offeror must be able to exercise full voting and other
rights with respect to such Shares and the other securities or rights issued or
issuable in respect of such Shares, including voting at any meeting of
stockholders (whether annual or special or whether or not adjourned) in respect
of such Shares.
4. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 4, tenders of Shares made
pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may
be withdrawn at any time prior to the Expiration Date and, unless theretofore
accepted for payment pursuant to the Offer, may also be withdrawn at any time
after Monday, June 24, 1996. If purchase of or payment for Shares is delayed for
any reason or if the Offeror is unable to purchase or pay for Shares for any
reason, then, without prejudice to the Offeror's rights under the Offer,
tendered Shares may be retained by the Depositary on behalf of the Offeror and
may not be withdrawn except to the extent that tendering stockholders are
entitled to withdrawal rights as set forth in this Section 4, subject to Rule
14e-1(c) under the Exchange Act, which provides that no person who makes a
tender offer shall fail to pay the consideration offered or to return the
securities deposited by or on behalf of security holders promptly after the
termination or withdrawal of the Offer.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase. Any notice of
withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and the name in which the
certificates representing such Shares are registered, if different from that of
the person who tendered the Shares. If certificates for Shares to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such certificates, the serial numbers shown on such
certificates must be submitted to the Depositary and, unless such Shares have
been tendered by an Eligible Institution, the signatures on the notice of
withdrawal must be guaranteed by an Eligible Institution. If Shares have been
tendered pursuant to the procedure for book-entry transfer set forth in Section
3, any notice of withdrawal must also specify the name and number of the account
at the applicable Book-Entry Transfer Facility to be credited with the withdrawn
Shares. All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Offeror, in its sole discretion,
and its determination will be final and binding on all parties. None of the
Offeror, the Parent, the Dealer Manager, the Depositary, the Information Agent
or any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
Any Shares properly withdrawn will be deemed not validly tendered for
purposes of the Offer, but may be retendered at any subsequent time prior to the
Expiration Date by following any of the procedures described in Section 3.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following is a summary of the principal federal income tax consequences
of the Offer and the Merger to holders whose Shares are purchased pursuant to
the Offer or whose Shares are converted to cash in the Merger (including
pursuant to the exercise of appraisal rights). The discussion applies only to
holders of Shares in whose hands Shares are capital assets, and may not apply to
Shares received pursuant to the exercise of employee stock options or otherwise
as compensation, or to holders of Shares who are in special tax situations (such
as insurance companies, tax-exempt organizations or non-U.S. persons).
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<PAGE> 10
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR
GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON CURRENT LAW. BECAUSE
INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF SHARES SHOULD CONSULT SUCH
HOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED
BELOW TO SUCH STOCKHOLDER AND THE PARTICULAR TAX EFFECTS OF THE OFFER AND THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER INCOME
TAX LAWS.
The receipt of cash for Shares pursuant to the Offer or the Merger
(including pursuant to the exercise of appraisal rights) will be a taxable
transaction for federal income tax purposes (and also may be a taxable
transaction under applicable state, local and other income tax laws). In
general, for federal income tax purposes, a holder of Shares will recognize gain
or loss equal to the difference between his adjusted tax basis in the Shares
sold pursuant to the Offer or converted to cash in the Merger and the amount of
cash received therefor. Gain or loss must be determined separately for each
block of Shares (i.e., Shares acquired at the same cost in a single transaction)
sold pursuant to the Offer or converted to cash in the Merger. Such gain or loss
will be capital gain or loss (other than, with respect to the exercise of
appraisal rights, amounts, if any, which are or are deemed to be interest for
federal income tax purposes, which amounts will be taxed as ordinary income) and
will be long-term gain or loss if, on the date of sale (or, if applicable, the
date of the Merger), the Shares were held for more than one year.
Payments in connection with the Offer or the Merger may be subject to
"backup withholding" at a rate of 31%. Backup withholding generally applies if
the stockholder (a) fails to furnish his social security number or TIN, (b)
furnishes an incorrect TIN, (c) fails to properly include a reportable interest
or dividend payment on his federal income tax return, or (d) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN provided is his correct number and that he is not subject
to backup withholding. Backup withholding is not an additional tax but merely an
advance payment, which may be refunded to the extent it results in an
overpayment of tax. Certain persons generally are entitled to exemption from
backup withholding, including corporations and financial institutions. Certain
penalties apply for failure to furnish correct information and for failure to
include reportable payments in income. Each stockholder should consult with his
own tax advisor as to his qualification for exemption from backup withholding
and the procedure for obtaining such exemption. Tendering stockholders may be
able to prevent backup withholding by completing the Substitute Form W-9
included in the Letter of Transmittal. See Section 3.
6. PRICE RANGE OF SHARES; DIVIDENDS.
The Shares are principally traded on the American Stock Exchange (the
"AMEX") under the symbol "CGA." The following table sets forth for the periods
indicated the high and low sales prices per Share on the AMEX Composite Tape
based on published financial sources.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1994:
First Quarter...................................................... $1.94 $1.44
Second Quarter..................................................... 3.25 1.50
Third Quarter...................................................... 2.75 2.06
Fourth Quarter..................................................... 2.63 1.44
FISCAL 1995:
First Quarter...................................................... $2.31 $1.56
Second Quarter..................................................... 2.88 1.75
Third Quarter...................................................... 3.31 2.50
Fourth Quarter..................................................... 2.81 2.19
FISCAL 1996:
First Quarter...................................................... $3.06 $2.25
Second Quarter (through April 25, 1996)............................ 5.94 3.00
</TABLE>
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<PAGE> 11
On April 19, 1996, the last full day of trading prior to the public
announcement of the execution of the Merger Agreement, the closing price per
Share as reported on the AMEX Composite Tape was $4.69. On April 25, 1996, the
last full day of trading prior to the commencement of the Offer, the closing
price per Share as reported on the AMEX Composite Tape was $5.88.
Stockholders are urged to obtain current market quotations for the Shares.
The Company has not paid any cash dividends on the Shares.
7. EFFECT OF THE OFFER ON AMERICAN STOCK EXCHANGE LISTING, MARKET FOR SHARES AND
REGISTRATION UNDER THE EXCHANGE ACT.
The purchase of the Shares by the Offeror pursuant to the Offer will reduce
the number of Shares that might otherwise trade publicly and will reduce the
number of holders of Shares, which will adversely affect the liquidity and
market value of the remaining Shares held by stockholders other than the
Offeror.
The Shares are currently listed on the AMEX. According to the AMEX's
published guidelines, the AMEX would consider delisting the Shares if, among
other things, the number of holders should fall below 300, the number of
publicly held Shares (exclusive of holdings of officers, directors and
controlling stockholders of the Company and their immediate families) should
fall below 200,000, or the aggregate market value of the publicly held Shares
should fall below $1,000,000. The Company has advised the Offeror that, as of
April 25, 1996, there were approximately 476 stockholders of record and
approximately 2,500 beneficial owners of the Shares.
If, as a result of the purchase of Shares pursuant to the Offer or
otherwise, the Shares no longer meet the requirements of the AMEX for continued
inclusion in the AMEX and the Shares are no longer included in the AMEX, or if
the AMEX were to delist the Shares, the market therefor could be adversely
affected. It is possible that the Shares would be traded on other securities
exchanges or in the over-the-counter market, and that price quotations would be
reported by such exchanges, or through other sources. The extent of the public
market for the Shares and the availability of such quotations would, however,
depend upon the number of stockholders and/or the aggregate market value of the
Shares remaining at such time, the interest in maintaining a market in the
Shares on the part of securities firms, the possible termination of registration
of the Shares under the Exchange Act and other factors.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application to the Commission if there are
fewer than 300 record holders of Shares. It is the intention of the Offeror to
seek to cause an application for such termination to be made as soon after
consummation of the Offer as the requirements for termination of registration of
the Shares are met. If such registration were terminated, the Company would no
longer legally be required to disclose publicly in proxy materials distributed
to stockholders the information which it now must provide under the Exchange Act
or to make public disclosure of financial and other information in annual,
quarterly and other reports required to be filed with the Commission under the
Exchange Act; the requirements of Rule 13e-3 under the Exchange Act with respect
to "going private" transactions would no longer be applicable to the Company;
and the officers, directors and 10% stockholders of the Company would no longer
be subject to the "short-swing" insider trading reporting and profit recovery
provisions of the Exchange Act. Furthermore, if such registration were
terminated, persons holding "restricted securities" of the Company may be
deprived of their ability to dispose of such securities under Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
If registration of the Shares is not terminated prior to the Merger, then
the Shares will be delisted from the AMEX and the registration of the Shares
under the Exchange Act will be terminated following the Merger. The Shares are
currently "margin securities" under the regulations of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"), which has the effect,
among other things, of allowing brokers to extend credit on the collateral of
the Shares. Depending upon factors similar to those described above regarding
listing and market quotations, it is possible that, following the Offer, the
Shares would no longer constitute "margin securities" for the purposes of the
margin regulations of the Federal Reserve Board
9
<PAGE> 12
and therefore could no longer be used as collateral for loans made by brokers.
If registration of Shares under the Exchange Act were terminated, the Shares
would no longer be "margin securities".
8. CERTAIN INFORMATION CONCERNING THE COMPANY.
The Company is a Delaware corporation with its principal executive offices
located at 8080 N. Central Expressway, Suite 1200, Dallas, Texas 75206. Except
as otherwise set forth herein, the information concerning the Company contained
in this Offer to Purchase, including financial information, has been furnished
by the Company or has been taken from or based upon publicly available documents
and records on file with the Commission and other public sources. Although
neither the Offeror nor the Parent has any knowledge that would indicate that
statements contained herein based upon such documents are untrue, none of the
Offeror, the Parent or the Dealer Manager assumes any responsibility for the
accuracy or completeness of the information concerning the Company, furnished by
the Company, or contained in such documents and records or for any failure by
the Company to disclose events which may have occurred or may affect the
significance or accuracy of any such information but which are unknown to the
Offeror and the Parent.
Set forth below is certain summary consolidated financial data with respect
to the Company excerpted or derived from financial information contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995. More
comprehensive financial information is included in such reports and other
documents filed by the Company with the Commission, and the following summary is
qualified in its entirety by reference to such reports and such other documents
and all the financial information (including any related notes) contained
therein. Such reports and other documents should be available for inspection and
copies thereof should be obtainable in the manner set forth below.
CORNERSTONE NATURAL GAS, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED
DECEMBER 31
---------------------
1995 1994
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues............................................................... $131,909 $106,406
Expenses............................................................... 128,574 104,955
Operating earnings..................................................... 3,335 1,451
Other expense.......................................................... 2,236 1,110
Net earnings........................................................... 1,099 315
Net earnings per Share................................................. .08 .02
BALANCE SHEET DATA
Total assets........................................................... $ 59,684 $ 40,303
Net property, plant and equipment...................................... 30,843 21,089
Working capital deficit................................................ 2,343 6,606
Long-term debt......................................................... 20,704 6,898
Stockholders' equity................................................... 12,968 11,869
</TABLE>
The Company has advised the Offeror that, for the two months ended February
29, 1996, the Company had revenues of approximately $42,832,000, expenses of
approximately $41,088,000, operating earnings of approximately $1,744,000, other
expense of approximately $413,000, net earnings of approximately $1,311,000 and
net earnings per Share of approximately $.09.
Prior to entering into the Merger Agreement, the Parent conducted a due
diligence review of the Company and in connection with such review received
certain non-public information from the Company. The non-public information
included, among other things, certain financial forecasts for the years 1996
through 2000, including forecasts of revenues, expenses, earnings before
interest, taxes and depreciation and
10
<PAGE> 13
net income, which are set forth below. These forecasts were prepared by the
Company's management based on numerous assumptions, including among others, as
to gas purchase volumes, third party and system sales throughput volumes, system
transport throughput volumes, natural gas liquids production, average gas prices
(in dollars per MMBTU) of $2.10 in 1996, $2.03 in 1997, $2.11 in 1998, $2.19 in
1999 and $2.28 in 2000 and average composite natural gas liquids prices (in
dollars per gallon) of $0.36 in 1996, $0.37 in 1997, $0.39 in 1998, $0.41 in
1999 and $0.42 in 2000. None of these assumptions give effect to the Offer, the
Merger or the financing thereof or the potential combined operations of the
Parent and the Company after consummation of such transactions.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
------------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues............................ $261,386 $298,093 $314,430 $322,971 $354,531
Cost of Sales....................... 228,616 258,280 273,805 291,159 311,348
EBITD............................... 19,012 24,746 25,143 25,902 26,832
Net Income.......................... 12,668 18,539 14,618 14,354 15,166
</TABLE>
THE COMPANY HAS ADVISED THE OFFEROR THAT IT DOES NOT AS A MATTER OF COURSE
DISCLOSE FORECASTS AS TO FUTURE REVENUES OR EARNINGS, AND THAT THE FORECASTS SET
FORTH ABOVE WERE NOT INTENDED TO FORECAST LIKELY OR ANTICIPATED OPERATING
RESULTS, BUT INSTEAD WERE MERELY ONE SCENARIO INTENDED TO REPRESENT INTERNAL
GOALS AND ILLUSTRATE CAPITAL NEEDS AND OTHER ELEMENTS NECESSARY BASED ON A
FINANCIAL MODEL TO ACHIEVE SUCH GOALS. THE FORECASTS SET FORTH ABOVE WERE NOT
PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH PUBLISHED
GUIDELINES OF THE COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS FOR PROSPECTIVE FINANCIAL INFORMATION. THE FORECASTED INFORMATION IS
INCLUDED HEREIN SOLELY BECAUSE SUCH INFORMATION WAS FURNISHED TO THE PARENT OR
THE OFFEROR. ACCORDINGLY, THE INCLUSION OF THE FORECASTS IN THIS OFFER TO
PURCHASE SHOULD NOT BE REGARDED AS AN INDICATION THAT THE PARENT, THE OFFEROR,
THE COMPANY OR THEIR RESPECTIVE FINANCIAL ADVISORS OR THEIR RESPECTIVE OFFICERS
AND DIRECTORS CONSIDER SUCH INFORMATION TO BE ACCURATE OR RELIABLE, AND NONE OF
SUCH PERSONS ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY THEREOF. SUCH FORECASTS
WERE PREPARED FOR INTERNAL USE AND CAPITAL BUDGETING AND OTHER MANAGEMENT
DECISION-MAKING PURPOSES AND ARE SUBJECTIVE IN MANY RESPECTS AND THUS
SUSCEPTIBLE TO VARIOUS INTERPRETATIONS AND PERIODIC REVISION BASED UPON ACTUAL
EXPERIENCE AND BUSINESS DEVELOPMENT. IN ADDITION, THE ESTIMATES AND ASSUMPTIONS
UNDERLYING SUCH FORECASTS ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, INCLUDING BUT NOT LIMITED TO
ASSUMPTIONS OF STABLE FUTURE NATURAL GAS AND NATURAL GAS LIQUIDS PRICES,
DRILLING ACTIVITY AND SUCCESSFUL COMPLETION OF CAPITAL PROJECTS CURRENTLY IN
PROGRESS, WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND ARE BEYOND
THE CONTROL OF THE COMPANY AND/OR THE PARENT AND THE OFFEROR. ACCORDINGLY, THERE
CAN BE NO ASSURANCE THAT SUCH FORECASTS WILL BE REALIZED. IT IS EXPECTED THAT
THERE WILL BE DIFFERENCES BETWEEN ACTUAL AND FORECASTED RESULTS, AND ACTUAL
RESULTS MAY BE MATERIALLY HIGHER OR LOWER THAN THOSE SET FORTH ABOVE.
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files periodic reports, proxy statements and
other information with the Commission relating to its business, financial
condition and other matters. The Company is required to disclose in such proxy
statements certain information, as of particular dates, concerning the Company's
directors and officers, their remuneration, stock options granted to them, the
principal holders of the Company's securities and any material interests of such
persons in transactions with the Company. Such reports, proxy statements and
other information may be inspected at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street (Suite 400), Chicago, Illinois 60661. Such material should also
be available for inspection at the offices of the AMEX, 86 Trinity Place, New
York, New York.
11
<PAGE> 14
9. CERTAIN INFORMATION CONCERNING THE PARENT, EPFS AND THE OFFEROR.
The Offeror is a Delaware corporation and a wholly owned subsidiary of
EPFS. To date, the Offeror has not conducted any business other than that
incident to its formation, the execution and delivery of the Merger Agreement
and the commencement of the Offer.
The principal executive offices of the Offeror, EPFS and the Parent are
located at One Paul Kayser Center, 100 North Stanton Street, El Paso, Texas
79901.
The Parent, incorporated in Delaware in 1928, owns and operates one of the
nation's largest mainline natural gas transmission and gathering systems,
connecting natural gas supply regions in New Mexico, Texas, Oklahoma and
Colorado to markets in California, Nevada, Arizona, New Mexico, Texas and
northern Mexico. At December 31, 1991, the Parent was a wholly owned subsidiary
of Burlington Resources, Inc. In March 1992, the Parent completed an initial
public offering of approximately 15 percent of its common stock in the form of
newly issued shares. In June 1992, Burlington Resources, Inc. distributed all of
the Parent's common shares it held to Burlington Resources, Inc. shareholders,
the effect of which was to place all of the Parent's common stock in public
ownership. Since 1996, the Parent has been conducting business under the name
"El Paso Energy Corporation."
The Parent's natural gas transmission system consists of approximately
17,000 miles of pipeline. In 1995, the Parent transported 1.3 trillion cubic
feet of gas, equivalent to roughly 6% of the nation's total gas consumption.
California is the largest single market served by the Parent and is the second
largest natural gas market in the nation. The Parent is also the primary
transporter to the growing East-of-California markets in Arizona (particularly
Phoenix and Tucson); Las Vegas, Nevada; New Mexico; and El Paso, Texas.
EPFS, incorporated in Delaware in June 1993, was formed for the purpose of
owning, operating, acquiring and constructing natural gas gathering, processing
and other related field facilities. EPFS focuses on providing its customers
innovative, reliable, competitively priced wellhead-to-mainline field services
including gathering, products extraction, dehydration, purification and
compression. EPFS is able to offer its customers fully bundled natural gas
services with a broad range of pricing options including innovative financial
risk management products. EPFS also provides well tie-ins and state-of-the-art,
cost effective, near real-time information services including electronic
wellhead gas flow measurement.
In 1995 the Parent formed its Merchant Services Group (the "Merchant
Services Group"), which consists of El Paso/Eastex Energy Inc., its subsidiaries
and El Paso Gas Marketing Inc. The consolidation of these regional gas marketing
entities into the Merchant Services Group, with headquarters in Houston, Texas
and sales offices throughout the United States, has created one of the
industry's leading natural gas services providers, with a year end 1995 sales
level exceeding 2 Bcf/day. The Merchant Services Group provides a broad range of
energy products and services to its customers including energy aggregation,
transportation management, integrated price risk management and storage
inventory optimization services.
Set forth below is certain selected historical consolidated financial
information with respect to the Parent excerpted or derived from financial
information contained in the Parent's Annual Report on Form 10-K for the year
ended December 31, 1995. More comprehensive financial information is included in
such reports and other documents filed by the Parent with the Commission, and
the following summary is qualified in its entirety by reference to such reports
and such other documents and all the financial information (including any
related notes) contained therein.
12
<PAGE> 15
EL PASO NATURAL GAS COMPANY
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED DECEMBER 31
-------------------------
1995 1994
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
OPERATING RESULTS
Operating revenues.......................................... $1,037,997 $ 869,872
Operating income............................................ 212,411 222,295
Income from continuing operations........................... 85,363 89,613
Earnings per common share -- continuing operations.......... 2.47 2.45
FINANCIAL POSITION
Total assets................................................ $2,434,625 $2,331,771
Long-term debt(a)........................................... 771,892 779,097
Stockholders' equity........................................ 712,155 709,636
</TABLE>
- ---------------
(a) Excludes current maturities.
The Parent is subject to the informational requirements of the Exchange Act
and in accordance therewith files periodic reports and other information with
the Commission relating to its business, financial condition and other matters.
Such reports and other information are available for inspection and copying at
the offices of the Commission in the same manner as set forth with respect to
the Company in Section 8.
Except as described in this Offer to Purchase, none of the Offeror, EPFS,
the Parent, nor, to the best knowledge of the Offeror, EPFS and the Parent, any
of the persons listed in Annex I to this Offer to Purchase owns or has any right
to acquire any Shares and none of them has effected any transaction in the
Shares during the past 60 days.
10. SOURCE AND AMOUNT OF FUNDS.
If all Shares (including Shares issuable upon the exercise of Stock Options
and Warrants outstanding as of the date of this Offer to Purchase) are validly
tendered and purchased by the Offeror, the aggregate purchase price and all
estimated fees and expenses will be approximately $100 million. The Offeror will
obtain all of such funds through the Parent, which will obtain such funds from
working capital or bank borrowings under the Credit Agreement described below.
Under a Revolving Credit and Competitive Advance Facility Agreement, dated
as of August 10, 1994 (the "Credit Agreement"), by and among the Parent, the
several banks and other financial institutions from time to time parties thereto
(the "Lenders"), and Chemical Bank, as administrative agent and CAF advance
agent (the "Agent"), the Parent and its Principal Subsidiaries (as defined in
the Credit Agreement) may, from time to time, borrow up to $400 million for
general corporate purposes. As of April 24, 1996, funds in the amount of $137
million were available under the Credit Agreement.
Pursuant to the Credit Agreement, the Parent may request the Lenders to
make revolving credit advances evidenced by revolving credit notes to the Parent
and its Principal Subsidiaries (each a "Borrower") or any of them in an
aggregate amount not to exceed $400 million. The advances under the Credit
Agreement may be of any of four types: base rate, Eurodollar rate or fixed or
LIBO rate competitive advance facilities ("CAF"). Base rate and Eurodollar rate
advances are allocated among the banks party to the Credit Agreement in
proportion to their commitments under the Credit Agreement. The Borrower may
solicit bids for LIBO or fixed rate CAF advances from banks party to the Credit
Agreement designated CAF advance lenders. Each CAF advance lender may then
elect, in its sole discretion, to offer irrevocably to make one or more CAF
advances at the applicable LIBO rate plus (or minus) a margin determined by such
CAF advance lender in its sole discretion for each such CAF advance. The CAF
advance agent advises the Borrower of the terms of each
13
<PAGE> 16
CAF advance offer. When two or more CAF advance lenders offer identical pricing,
the amounts are allocated among the CAF advance lenders pro rata (or as nearly
pro rata as is practicable) according to the amounts offered by such CAF advance
lenders. The Lenders include Chemical Bank; The Bank of New York; Citibank,
N.A.; Credit Lyonnais Cayman Island Branch; Morgan Guaranty Trust Company of New
York; Nationsbank of Texas, N.A.; Union Bank of Switzerland Houston Agency;
Mellon Bank, N.A.; Royal Bank of Canada; The Sumitomo Bank, Limited Houston
Agency; Swiss Bank Corporation New York Branch; Toronto Dominion (Texas), Inc.;
The Industrial Bank of Japan, Limited New York Branch; Kredietbank N.V. and
Societe Generale, Southwest Agency.
The foregoing description of the Credit Agreement is qualified in its
entirety by reference to the text of the Credit Agreement filed as an exhibit to
the Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") of the
Offeror, EPFS and the Parent filed with the Commission in connection with the
Offer and is incorporated herein by reference.
It is anticipated that borrowings under the Credit Agreement will be repaid
from funds generated internally by the Parent and its subsidiaries (including
the Company) and from other sources which may include the proceeds of the
private or public sale of debt or equity securities.
The margin regulations promulgated by the Federal Reserve Board place
restrictions on the amount of credit that may be extended for the purposes of
purchasing margin stock (including the Shares) if such credit is secured
directly or indirectly by margin stock. While the Credit Agreement contains a
negative pledge clause covering a substantial portion of the Parent's assets on
a consolidated basis and prohibits any part of the proceeds from borrowings
thereunder being used in any transaction or for any purpose which violates the
margin regulations, the Parent and the Offeror believe that the financing of the
acquisition of the Shares through the Credit Agreement will be in full
compliance with the margin regulations.
The Offer is not subject to a financing condition.
11. BACKGROUND OF THE OFFER; PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH
THE COMPANY.
In mid February, 1996, David Eargle, Vice President of EPFS, telephoned Jim
S. Holotik of the Company and requested a meeting with the Company. On March 6,
1996, Robert G. Phillips, the President and Chief Executive Officer of EPFS, and
David Eargle, met with Ray C. Davis, Chairman of the Board and Chief Executive
Officer of the Company, and Kelcy L. Warren, President and Chief Operating
Officer of the Company, and expressed interest in a possible acquisition of the
Company by the Parent. It was agreed that the Company and the Parent would enter
into a confidentiality agreement and the Company would provide confidential
information to the Parent.
On March 8, 1996, the Company and the Parent entered into a confidentiality
agreement and the Company provided the Parent with certain confidential
information concerning the Company. During the following weeks, the Parent
conducted a due diligence review of the Company.
On March 15, 1996, the Parent engaged Rodman & Renshaw, Inc. as its
financial advisor in connection with a possible acquisition of the Company.
On March 22, 1996, Robert Phillips, David Eargle and D. Mark Leland of the
Parent met with Kelcy L. Warren, Ray Davis and Clarence Mayer, counsel to the
Company. At such meeting, Mr. Phillips indicated that, subject to the approval
of the Parent's Board of Directors, the completion of the Parent's due diligence
and negotiation of definitive merger documents, the Parent was interested in
acquiring the Company for between $100 million and $120 million (less debt and
negative working capital). Mr. Phillips indicated that the Parent was interested
in making a preemptive bid and was not interested in participating in an
auction. Ray Davis and Kelcy L. Warren informed Mr. Phillips that any bid would
have to be close to $120 million to be acceptable to the Board of Directors of
the Company and to avoid an auction of the Company.
On March 26, 1996, Kelcy L. Warren telephoned Robert Phillips and informed
him that the Company was interested in proceeding with discussions with the
Parent, subject to the transaction being structured as an
14
<PAGE> 17
acquisition of the Company for $120 million in cash (less debt and negative
working capital), the Parent performing limited additional due diligence, and
the parties proceeding to definitive agreements promptly.
On March 28, 1996, Robert Phillips telephoned Kelcy L. Warren and indicated
that, based on the Parent's due diligence to date, the Parent was prepared to
offer a price of $101 million in cash for the Company, less debt, working
capital and transaction expenses. Mr. Phillips indicated that, with the
opportunity to conduct additional due diligence, the Parent might be prepared to
offer a higher price for the Company. Mr. Phillips also stated that, as part of
any transaction, the Parent would require that the principal stockholders of the
Company commit to sell their Shares to the Parent and would also require non-
competition agreements from senior management of the Company.
On March 29, 1996, Robert Phillips met with Clarence Mayer, counsel to the
Company, to discuss certain structural and timing considerations relating to a
possible transaction, including the proposed commitment by the principal
stockholders of the Company to sell their Shares to the Parent.
Between April 2, 1996 and April 5, 1996, representatives of the Parent
reviewed the Company's records and continued their due diligence review of the
Company. Such representatives met with Messrs. Davis and Warren, Robert L.
Cavnar (Chief Financial Officer of the Company), Richard W. Piacenti (Controller
of the Company), and Kelly J. Jameson (Vice President and General Counsel of the
Company). On April 8, 1996, the representatives of the Parent conducted
additional due diligence.
On April 11, 1996, Robert Phillips and Peter H. Blum of Rodman & Renshaw,
Inc., financial advisor to the Parent, met with Messrs. Davis and Warren,
Clarence Mayer, counsel to the Company, and representatives of Salomon Brothers
Inc. During such meeting it was proposed that, subject to the approval of the
Parent's Board of Directors, negotiation of definitive merger documents and
completion of due diligence, the Parent would acquire the Company at $6.00 per
Share net to the seller in cash pursuant to a cash tender offer to be followed
by a merger at the same price per Share.
Between April 11, 1996 and April 20, 1996, the attorneys representing each
of the Parent, the Company and the Company's principal stockholders negotiated
the terms of the Merger Agreement, the Option Agreement and a form of
noncompetition agreement to be signed by each of Ben H. Cook, Ray C. Davis and
Kelcy L. Warren (collectively, the "Noncompetition Agreements"). These
negotiations focused primarily on the conditions of the Offer and the events
which would trigger the Company's obligation to pay a termination fee. As a
result of the negotiations, the Parent and the Offeror agreed to narrow or
eliminate certain conditions of the Offer, including conditions relating to
litigation and representations and warranties (including material adverse
changes), and to narrow the circumstances in which termination fees would be
payable.
On April 20, 1996, the Parent offered to acquire the Company for $6.00 per
Share pursuant to the merger documents previously reviewed and negotiated by the
parties.
On April 20, 1996, the Board of Directors of the Company approved the
Merger Agreement and the transactions contemplated by the Option Agreement, and
the Merger Agreement, the Option Agreement and the Noncompetition Agreements
were executed by the parties.
On April 26, 1996, the Offeror commenced the Offer.
12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY.
The purpose of the Offer, the Merger, the Merger Agreement and the Option
Agreement is to enable the Parent to acquire control of, and the entire equity
interest in, the Company. Upon consummation of the Merger, the Company will
become a direct wholly owned subsidiary of EPFS and an indirect wholly owned
subsidiary of the Parent. The Offer is being made pursuant to the Merger
Agreement.
Under the DGCL, the approval of the Board of Directors of the Company, and
the affirmative vote of the holders of a majority of the outstanding Shares are
required to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger. Under Article Eleventh of the
Company's Restated Certificate of Incorporation, until December 2, 1996, or such
earlier date as shall be designated by the Company's Board of Directors, no
person who beneficially owns five percent or more of the outstanding
15
<PAGE> 18
Shares or who, upon acquisition of any Shares, would beneficially own five
percent or more of the outstanding Shares, shall sell, transfer, dispose,
purchase or acquire or contract to sell, transfer, dispose, purchase or acquire
any Shares or any option, warrant or other right to purchase or acquire Shares
or any securities convertible into or exchangeable for Shares, except as
authorized by the Board of Directors of the Company or a designated committee or
officer of the Company. In addition, Section 203 of the DGCL prevents certain
"business combinations" with an "interested stockholder" (generally, any person
who owns or has the right to acquire 15% or more of a corporation's outstanding
voting stock) for a period of three years following the date such person became
an interested stockholder unless, among other things, prior to the date the
interested stockholder became such the board of directors of the corporation
approved either the business combination or the transaction in which the
interested stockholder became such.
The Board of Directors of the Company has approved the Offer, the Merger
and the Merger Agreement and the transactions contemplated thereby and has
approved the transactions contemplated by the Option Agreement, including for
the purposes of Article Eleventh of the Company's Restated Certificate of
Incorporation and Section 203 of the DGCL, and, unless the Merger is consummated
pursuant to the short-form merger provisions under the DGCL described below (in
which event no further corporate action is required), the only remaining
required corporate action of the Company is the approval and adoption of the
Merger Agreement and the transactions contemplated thereby by the affirmative
vote of the holders of a majority of the outstanding Shares. Assuming that the
5,446,514 Shares subject to the Option Agreement are validly tendered and not
withdrawn in accordance with the terms of the Option Agreement, upon purchase of
the Warrants and the Shares issuable upon exercise of Stock Options subject to
the Option Agreement and exercise of the Warrants by the Offeror, the Offeror
will have sufficient voting power to cause the approval and adoption of the
Merger Agreement and the transactions contemplated thereby without the
affirmative vote of any other stockholder.
In the Merger Agreement, the Company has agreed to take all action
necessary to convene a meeting of its stockholders as promptly as practicable
after the consummation of the Offer for the purpose of considering and taking
action on the Merger Agreement and the transactions contemplated thereby, if
such action is required by the DGCL. The Parent has agreed that, subject to
applicable law, all Shares owned by the Offeror or any other subsidiary of the
Parent will be voted in favor of the Merger Agreement and the transactions
contemplated thereby (subject to the right of the Parent and the Offeror to vote
such Shares as they may elect in the event of a Superior Proposal (as
hereinafter defined)).
Short Form Merger. Under the DGCL, if the Offeror acquires at least 90% of
the outstanding Shares, the Offeror will be able to approve the Merger without a
vote of the Company's stockholders. In such event, the Offeror anticipates that
it will take all necessary and appropriate action to cause the Merger to become
effective as soon as reasonably practicable after such acquisition without a
meeting of the Company's stockholders. If the conditions to the Offeror's
obligation to purchase Shares in the Offer are satisfied prior to 90% of the
outstanding Shares (excluding shares covered by Notices of Guaranteed Delivery)
being tendered into the Offer, the Offeror may, subject to certain limitations
set forth in the Merger Agreement, delay its purchase of the Shares tendered to
it in the Offer. See Section 1. If the Offeror does not otherwise acquire at
least 90% of the outstanding Shares pursuant to the Offer or otherwise, a
significantly longer period of time may be required to effect the Merger,
because a vote of the Company's stockholders would be required under the DGCL.
Pursuant to the Merger Agreement, the Company has agreed to take all action
necessary under the DGCL and its Restated Certificate of Incorporation and
Bylaws to convene a meeting of its stockholders promptly following consummation
of the Offer to consider and vote on the Merger, if a stockholders' vote is
required. If the Offeror owns a majority of the outstanding Shares, approval of
the Merger can be obtained without the affirmative vote of any other stockholder
of the Company.
Appraisal Rights. No appraisal rights are available in connection with the
Offer. However, if the Merger is consummated, stockholders of the Company will
have certain rights under the DGCL to dissent and demand appraisal of, and to
receive payment in cash of the fair value of, their Shares. Such rights to
dissent, if the statutory procedures are complied with, could lead to a judicial
determination of the fair value of the Shares (excluding any element of value
arising from the accomplishment or expectation of the Merger) required to be
paid in cash to such dissenting holders for their Shares. In addition, such
dissenting
16
<PAGE> 19
stockholders would be entitled to receive payment of a fair rate of interest
from the date of consummation of the Merger on the amount determined to be the
fair value of their Shares. In determining the fair value of the Shares, a
Delaware court would be required to take into account all relevant factors.
Accordingly, such determination could be based upon considerations other than,
or in addition to, the market value of the Shares, including, among other
things, asset values and earning capacity. In Weinberger v. UOP, Inc., the
Delaware Supreme Court stated, among other things, that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in an
appraisal proceeding. Therefore, the value so determined in any appraisal
proceeding could be different from the price being paid in the Offer.
In addition, several decisions by Delaware courts have held that, in
certain circumstances, a controlling stockholder of a company involved in a
merger has a fiduciary duty to other stockholders which requires that the merger
be fair to such other stockholders. In determining whether a merger is fair to
minority stockholders, Delaware courts have considered, among other things, the
type and amount of consideration to be received by the stockholders and whether
there was fair dealing among the parties. The Delaware Supreme Court stated in
Weinberger and Rabkin v. Philip A. Hunt Chemical Corp. that although the remedy
ordinarily available to minority stockholders in a cash-out merger is the right
to appraisal described above, a damages remedy or injunctive relief may be
available if a merger is found to be the product of procedural unfairness,
including fraud, misrepresentation or other misconduct.
Plans for the Company. Except as otherwise set forth in this Offer to
Purchase, it is expected that, initially following the Merger, the business and
operations of the Company will be continued by the Surviving Corporation
substantially as they are currently being conducted. Except for Ray C. Davis,
Chairman of the Board and Chief Executive Officer of the Company, and Kelcy L.
Warren, President and Chief Operating Officer of the Company, who have advised
the Parent that they intend to terminate their employment with the Company as of
the Effective Time, the Parent anticipates that it will seek to retain a
significant portion of the Company's management following the Effective Time. In
the Merger Agreement, the Parent has agreed to maintain the headquarters of the
Company in Dallas, Texas for a one-year period, other than gas marketing
operations, which may be consolidated with EPFS's Houston-based Merchant
Services Group.
The Parent will continue to evaluate the business and operations of the
Company during the pendency of the Offer and after the consummation of the Offer
and the Merger, and will take such actions as it deems appropriate under the
circumstances then existing. The Parent intends to conduct a comprehensive
review of the Company's business, operations, capitalization and management with
a view to optimizing exploitation of the Company's potential in conjunction with
the Parent's business.
Except as indicated in this Offer to Purchase, the Parent does not have any
present plans or proposals which relate to or would result in an extraordinary
corporate transaction, such as a merger, reorganization or liquidation,
involving the Company or any of its subsidiaries, a sale or transfer of a
material amount of assets of the Company or any of its subsidiaries or any
material change in the Company's capitalization or dividend policy or any other
material changes in the Company's corporate structure or business, or the
composition of the Company's Board of Directors or management.
13. THE MERGER AGREEMENT; THE OPTION AGREEMENT; NONCOMPETITION AGREEMENTS.
The following is a summary of the material terms of the Merger Agreement,
the Option Agreement and the Noncompetition Agreements, copies of which are
filed as exhibits to the Schedule 14D-1. Such summary is not a complete
description of these agreements and is qualified in its entirety by reference to
the complete text of the Merger Agreement, the Option Agreement and the
Noncompetition Agreements.
The Merger Agreement
The Offer. The Offeror commenced the Offer in accordance with the terms of
the Merger Agreement. Subject to the terms and conditions of the Merger
Agreement, the Parent, the Offeror and the Company are
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required to use all reasonable efforts to take all action as may be necessary,
proper or appropriate in order to promptly consummate and make effective the
transactions contemplated by the Merger Agreement.
Company Actions. Pursuant to the Merger Agreement, the Company has agreed
that on the date of the commencement of the Offer it will file with the
Commission and mail to its stockholders a Solicitation/Recommendation Statement
on Schedule 14D-9 containing the recommendation of the Board of Directors of the
Company that the Company's stockholders accept the Offer and approve the Merger
and the Merger Agreement.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions of the Merger Agreement, and in accordance with the DGCL, the
Offeror shall be merged with and into the Company at the Effective Time.
Following the Merger, the separate corporate existence of the Offeror shall
cease and the Company shall continue as the Surviving Corporation and shall
succeed to and assume all the rights and obligations of the Offeror in
accordance with the DGCL. The Certificate of Incorporation and Bylaws of the
Surviving Corporation shall be identical to the Certificate of Incorporation and
Bylaws of the Offeror, except that the name of the Surviving Corporation shall
be "Cornerstone Natural Gas, Inc." and except as described under
"Indemnification and Insurance" below. The directors of the Offeror immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
as of the Effective Time and the officers of the Company immediately prior to
the Effective Time (other than those who have elected not to continue their
employment) shall be the officers of the Surviving Corporation as of the
Effective Time.
Conversion of Securities. At the Effective Time, each Share issued and
outstanding immediately prior thereto shall be canceled and extinguished and
each Share (other than Shares held by the Company as treasury stock, Shares
owned by any subsidiary of the Company, Shares owned by the Offeror or any
subsidiary thereof and Dissenting Shares, as defined below) shall, by virtue of
the Merger and without any action on the part of the Parent, the Offeror, the
Company or the holders of the Shares, be converted into and represent the right
to receive the Offer Price. Each share of the common stock of the Offeror issued
and outstanding immediately prior to the Effective Time shall, at the Effective
Time, by virtue of the Merger and without any action on the part of the Offeror,
the Company or the holders of Shares, be converted into and shall thereafter
evidence one validly issued and outstanding share of common stock of the
Surviving Corporation.
Dissenting Shares. If required by the DGCL, Shares which are held by
holders who have properly exercised appraisal rights with respect thereto in
accordance with Section 262 of the DGCL ("Dissenting Shares") will not be
exchangeable for the right to receive the Offer Price, and holders of Dissenting
Shares will be entitled to receive payment of the appraised value of such Shares
unless such holders fail to perfect or withdraw or lose their right to appraisal
and payment under the DGCL.
Merger Without a Meeting of Stockholders. In the event that the Offeror
shall acquire at least 90 percent of the outstanding Shares, the parties agree
to take all necessary and appropriate actions to cause the Merger to become
effective without a meeting of stockholders of the Company, in accordance with
Section 253 of the DGCL.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to the Offeror, including, but not
limited to, representations and warranties relating to the Company's
organization and qualification, capitalization, its authority to enter into the
Merger Agreement and carry out the related transactions, filings made by the
Company with the Commission under the Securities Act or the Exchange Act
(including financial statements included in the documents filed by the Company
under these acts), required consents and approvals, compliance with applicable
laws, effectiveness of material contracts, employee benefit plans, litigation,
material liabilities of the Company and its subsidiaries, the payment of taxes,
the absence of certain material adverse changes or events and environmental
matters.
The Offeror and the Parent have also made customary representations and
warranties to the Company, including, but not limited to, representations and
warranties relating to the Offeror's and the Parent's
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organization and qualification, authority to enter into the Merger Agreement,
required consents and approvals, and the availability of sufficient funds to
consummate the Offer.
Covenants Relating to the Conduct of Business. The Company has covenanted
that prior to the Effective Time, except as specifically disclosed to the Parent
or as contemplated by any other provision of the Merger Agreement, unless the
Parent has consented in writing thereto, the Company:
(a) shall, and shall cause each of its subsidiaries to, conduct its
operations according to its usual, regular and ordinary course in
substantially the same manner as conducted prior to the date of the Merger
Agreement;
(b) shall use its reasonable efforts, and shall cause each of its
respective subsidiaries to use its reasonable efforts, to preserve intact
its business organization and goodwill, keep available the services of its
officers and employees and maintain satisfactory relationships with those
persons having business relationships with it;
(c) shall confer on a regular basis with one or more representatives
of the Parent to report operational matters of materiality and any
proposals to engage in material transactions;
(d) shall not amend its organizational documents;
(e) shall promptly notify the Parent of (i) any material emergency or
other material change in the condition (financial or otherwise) of the
Company's or any subsidiary's business, properties, assets, liabilities,
prospects or the normal course of its businesses or in the operation of its
properties, (ii) any material litigation or material governmental
complaints, investigations or hearings (or communications indicating that
the same may be contemplated), or (iii) the breach in any material respect
of any representation or warranty or covenant contained in the Merger
Agreement;
(f) shall promptly deliver to the Parent true and correct copies of
any report, statement or schedule filed by the Company with the Commission
subsequent to the date of the Merger Agreement;
(g) shall not (i) issue any shares of its capital stock, effect any
stock split or otherwise change its capitalization as it existed on the
date of the Merger Agreement, (ii) grant, confer or award any option,
warrant, conversion right or other right not existing on the date of the
Merger Agreement to acquire any shares of its capital stock from the
Company, (iii) increase any compensation or enter into or amend any
employment, severance, termination or similar agreement with any of its
present or future officers or directors, except for normal increases in
compensation to employees consistent with past practice and the payment of
cash bonuses to employees pursuant to and consistent with existing plans or
programs, or (iv) adopt any new employee benefit plan (including any stock
option, stock benefit or stock purchase plan) or amend any existing
employee benefit plan in any material respect, except for changes which are
less favorable to participants in such plans or as may be required by
applicable law;
(h) shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock; (ii) directly or indirectly redeem, purchase or otherwise acquire
any shares of its capital stock or capital stock of any of its
subsidiaries, or make any commitment for any such action or (iii) split,
combine or reclassify any of its capital stock;
(i) shall not, and shall not permit any of its subsidiaries to sell,
lease or otherwise dispose of any of its assets (including capital stock of
subsidiaries) which are material, individually or in the aggregate, except
in the ordinary course of business;
(j) shall not (i) incur or assume any long-term or short-term debt or
issue any debt securities except for borrowings under existing lines of
credit (or any amendments thereto) in the ordinary course of business; (ii)
except for obligations of wholly owned subsidiaries of the Company, assume,
guaranty, endorse or otherwise become liable or responsible (whether
directly, indirectly, contingently or otherwise) for the obligations of any
other person except in the ordinary course of business consistent with past
practices in an amount not material to the Company and its subsidiaries,
taken as a whole; (iii) other than wholly owned subsidiaries of the
Company, make any loans, advances or capital contributions to, or
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investments in, any other person; (iv) modify in any material manner
adverse to the Company or any of its subsidiaries any outstanding
indebtedness or obligation of the Company or any of its subsidiaries; (v)
pledge or otherwise encumber shares of capital stock of the Company or its
subsidiaries; or (vi) mortgage or pledge any of its material assets,
tangible or intangible, or create or suffer to exist any material mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in
respect of such asset;
(k) shall not acquire, sell, lease or dispose of any assets outside
the ordinary course of business or any assets which in the aggregate are
material to the Company and its subsidiaries taken as a whole, or enter
into any commitment or transaction outside the ordinary course of business
consistent with past practices which would be material to the Company and
its subsidiaries taken as a whole;
(l) shall not change any of the accounting principles or practices
used by the Company;
(m) shall not (i) acquire (by merger, consolidation or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof or any equity interest therein; (ii) enter
into any contract or agreement other than in the ordinary course of
business consistent with past practice which would be material to the
Company and its subsidiaries taken as a whole; (iii) authorize any new
capital expenditure or expenditures which, individually, is in excess of
$50,000 or, in the aggregate, are in excess of $150,000; or (iv) enter into
or amend any contract, agreement, commitment or arrangement providing for
the taking of any action which would be prohibited under this clause;
(n) shall not make any tax election or settle or compromise any income
tax liability material to the Company and its subsidiaries taken as a
whole;
(o) shall not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected, reserved against or
disclosed in the consolidated financial statements (or the notes thereto)
of the Company and its subsidiaries or incurred in the ordinary course of
business consistent with past practice;
(p) shall not settle or compromise any pending or threatened suit,
action or claim relating to the transactions contemplated by the Merger
Agreement; or
(q) shall not take, or agree in writing or otherwise to take, any of
the actions described in clauses (a) through (p) above or any action that
would make any of the representations and warranties of the Company
contained in the Merger Agreement untrue or incorrect as of the date when
made.
No Solicitation. The Company has agreed in the Merger Agreement that
neither the Company nor any subsidiary of the Company shall, directly or
indirectly, through any officer, director, employee, agent or otherwise,
initiate, solicit or knowingly encourage any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
"Proposal" (as defined below), or enter into discussions or negotiate with any
person or entity in furtherance of such inquiries or to obtain a Proposal, or
agree to or endorse any Proposal, and the Company shall notify the Parent orally
(within three business days) of the fact that the Company has received a
Proposal and the identity of the person making such Proposal, but the Company
shall not be required to disclose to the Parent or the Offeror the terms of any
Proposal which it or any such officer, director, employee, agent or other
representative may receive or provide to the Parent or the Offeror a copy of any
such Proposal; and provided, however, that nothing contained in this provision
of the Merger Agreement shall prohibit the Company from: (i) referring a third
party to such provision; (ii) furnishing information to, or entering into
discussions or negotiations with, any person or entity that makes an unsolicited
Proposal, if (A) the Board of Directors of the Company after consultation with
its counsel and financial advisor, determines consistent with its fiduciary
duties that such action should be pursued because it is reasonably likely to
result in the Company or its stockholders receiving a "Superior Proposal" (as
defined below) which is reasonably likely to be consummated and (B) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, the Company (x) provides reasonable
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notice to the Parent to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such person or entity and (y)
receives from such person or entity an executed confidentiality agreement in
reasonably customary form; (iii) complying with Rules 14e-2 and 14d-9
promulgated under the Exchange Act with regard to a tender or exchange offer;
(iv) failing to make or withdrawing or modifying its recommendation if there
exists a Proposal and the Board of Directors of the Company, after consultation
with its counsel and financial advisor, determines consistent with its fiduciary
duties that such Proposal is a Superior Proposal; (v) making such disclosures as
are required by applicable law; and (vi) after termination pursuant to the
Merger Agreement, entering into an agreement with respect to a Superior
Proposal.
For purposes of this provision: "Proposal" shall mean any proposal, offer
or expression of interest by any person involving with respect to the Company or
any of its Subsidiaries any of the following: (i) any merger, consolidation,
share exchange, business combination, or other similar transaction (other than
any transaction contemplated by the Merger Agreement); (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 15% or more of the
assets of such party and its subsidiaries, taken as a whole, in a single
transaction or series of transactions; (iii) any tender offer or exchange offer
for 50% or more of the outstanding shares of capital stock of the Company or the
filing of a registration statement under the Securities Act in connection
therewith (other than the Offer); or (iv) any public announcement of a proposal,
plan or intention to do any of the foregoing or any agreement to engage in any
of the foregoing; provided, however, that the transactions contemplated by the
Option Agreement and the transactions contemplated by the Merger Agreement shall
not constitute a Proposal; and "Superior Proposal" shall mean a bona fide
Proposal from an unaffiliated third party that is more favorable to the Company
and its stockholders than the transactions contemplated by the Merger Agreement
and is reasonably likely to be consummated.
Stock Options. Pursuant to the Merger Agreement, except as described in the
following sentence, immediately prior to the Effective Time, all Stock Options
then outstanding under the Company's 1993 Long Term Incentive Compensation Plan
or any other incentive compensation or stock option plan of the Company (the
"Option Plans") and all Warrants, whether or not then exercisable, shall be
canceled and each holder of a Stock Option or Warrant will be entitled to
receive from the Company, for each share of Common Stock subject to a Stock
Option or Warrant, an amount in cash equal to the excess, if any, of the Offer
Price over the per share exercise price of such Stock Option or Warrant; the
Company will use its reasonable best efforts to obtain any necessary consents
from holders of Stock Options or Warrants to the cancellation and payment
provided for in this provision. At the Effective Time, the Company's obligations
with respect to an aggregate of 227,500 Stock Options held by Ray C. Davis,
Kelcy L. Warren, Robert L. Cavnar, Jim S. Holotik and Richard W. Piacenti shall
be assumed by the Parent. The Stock Options assumed by the Parent shall continue
to have, and be subject to, the same terms and conditions set forth in the
Option Plans and agreements pursuant to which such Stock Options were issued as
in effect immediately prior to the Effective Time, except that (a) such Stock
Options shall be exercisable for that number of whole shares of common stock,
$.10 par value, of Parent ("Parent Shares"), equal to the product of the number
of Shares covered by the Stock Option immediately prior to the Effective Time
multiplied by the quotient (the "Exchange Ratio") determined by dividing the
Offer Price by the average closing price of Parent Shares for the ten trading
days preceding the Effective Time, rounded up to the nearest whole number of
Parent Shares, (b) the per share exercise price for the Parent Shares issuable
upon the exercise of such assumed Stock Option shall be equal to the quotient
determined by dividing the exercise price per Share specified for such Stock
Option under the applicable Option Plan immediately prior to the Effective Time
by the Exchange Ratio, rounding the resulting exercise price down to the nearest
whole cent and (c) all of such Stock Options shall be deemed vested
automatically. The date of grant for each such option shall be the date on which
the Stock Option was originally granted. From and after the date of the Merger
Agreement, no additional Stock Options shall be granted by the Company or its
subsidiaries under the Option Plans or otherwise.
Indemnification and Insurance. From and after the Effective Time, the
Parent agrees to cause the Surviving Corporation to keep in effect provisions in
its Certificate of Incorporation and Bylaws providing for exculpation of
director and officer liability and indemnification of the indemnified parties
under the Company's Restated Certificate of Incorporation and Bylaws (the
"Indemnified Parties") to the fullest extent permitted under the DGCL, which
provisions shall not be amended except as required by applicable law or
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except to make changes permitted by law that would enlarge the Indemnified
Parties' right of indemnification. In addition, for a period of three years
after the Effective Time, the Parent shall cause to be maintained officers' and
directors' liability insurance covering the parties who are currently covered,
in their capacities as officers and directors, by the Company's existing
officers' and directors' liability insurance policies on terms substantially no
less advantageous to such parties than such existing insurance; provided,
however, that the Parent shall not be required, in order to maintain or procure
such coverage, to pay premiums in excess of $350,000 in the aggregate over such
three year period (the "Cap"); and provided, further, that if equivalent
coverage cannot be obtained, or can be obtained only by paying an amount in
excess of the Cap, the Parent shall only be required to obtain such coverage for
such three-year period as can be obtained by paying aggregate premiums equal to
the Cap.
Employee Benefits. From and after the Effective Time, subject to applicable
law, the Parent and its subsidiaries will honor in accordance with their terms,
all employee benefit plans and arrangements of the Company; provided, however,
that nothing in the Merger Agreement shall preclude any change effected on a
prospective basis. The Surviving Corporation shall employ at the Effective Time
all employees of the Company and its subsidiaries who are employed on the
closing date on terms consistent with the Company's current employment practices
and at comparable levels of compensation and positions. Subject to the
obligations of the Surviving Corporation under existing employment agreements,
such employment shall be at will and the Parent and the Surviving Corporation
shall be under no obligation to continue to employ any individuals. For purposes
of eligibility to participate in and vesting in various benefits (but not for
determination of benefits) provided to employees, employees of the Company and
its subsidiaries will be credited with their years of service with the Company
and its subsidiaries.
Board Representation. The Merger Agreement provides that, promptly upon the
purchase of Shares pursuant to the Offer, the Offeror shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Board of Directors of the Company as will give the Offeror, subject to
compliance with Section 14(f) of the Exchange Act and the rules and regulations
promulgated thereunder, representation on the Board of Directors equal to the
product of (a) the total number of directors on the Board of Directors and (b)
the percentage that the number of Shares purchased by the Offeror in the Offer
bears to the number of Shares outstanding, and the Company shall, upon request
by the Offeror, promptly increase the size of the Board of Directors and/or
exercise its reasonable best efforts to secure the resignations of such number
of directors as is necessary to enable the Offeror's designees to be elected to
the Board of Directors and shall cause the Offeror's designees to be so elected.
The Company shall take, at its expense, all action required pursuant to Section
14(f) and Rule 14f-1 in order to fulfill its obligations under this provision
and shall include in the Schedule 14D-9 or otherwise timely mail to its
stockholders such information with respect to the Company and its officers and
directors as is required by Section 14(f) and Rule 14f-l in order to fulfill its
obligations under this provision. The Parent will supply to the Company in
writing and be solely responsible for any information with respect to itself and
its or the Offeror's nominees, officers, directors and affiliates required by
Section 14(f) and Rule 14f-l. In the event that the Offeror's designees are
elected to the Board of Directors of the Company, until the Effective Time, the
Board of Directors of the Company shall have at least one director who is a
director on the date of the Merger Agreement (the "Company Director"). In such
event, if the Company Director is unable to serve for any reason whatsoever, the
other directors shall designate a person to fill such vacancy who shall not be a
designee, stockholder or affiliate of the Parent or the Offeror and such person
shall be deemed to be a Company Director for purposes of the Merger Agreement.
Notwithstanding anything in the Merger Agreement to the contrary, in the event
that the Offeror's designees are elected to the Board of Directors of the
Company, after the acceptance for payment of Shares pursuant to the Offer and
prior to the Effective Time, the affirmative vote of the Company Director shall
be required to (a) amend or terminate the Merger Agreement by the Company, (b)
exercise or waive any of the Company's rights, benefits or remedies under the
Merger Agreement, (c) extend the time for performance of the Parent's and the
Offeror's respective obligations under the Merger Agreement or (d) take any
other action by the Board of Directors of the Company under or in connection
with the Merger Agreement.
Conditions Precedent. The respective obligations of each party to effect
the Merger shall be subject to the fulfillment at or prior to the Effective Time
of the following conditions: (a) the Offeror shall have purchased
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pursuant to the Offer a number of Shares which satisfies the Minimum Condition;
(b) the waiting period applicable to the consummation of the Merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), shall have expired or been terminated; (c) none of the Parent, the
Offeror or the Company shall be subject to any order or injunction of a court of
competent jurisdiction which prohibits the consummation of the transactions
contemplated by this Agreement; and (d) the Merger Agreement and the Merger
shall have been approved by the stockholders of the Company in accordance with
the DGCL and the Company's Restated Certificate of Incorporation and By laws.
Termination.
Termination by Mutual Consent. The Merger Agreement provides that it may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, notwithstanding the approval of the stockholders entitled to vote thereon,
by the mutual consent of the Parent and the Company.
Termination by the Parent or the Company. The Merger Agreement may also be
terminated and the Merger may be abandoned by action of the Board of Directors
of either the Parent or the Company, notwithstanding the approval of the
stockholders entitled to vote thereon, if (a) the Offer shall have expired or
been terminated in accordance with its terms as the result of the failure of any
of the conditions set forth in Section 15 without the Offeror having purchased
any Shares pursuant to the Offer; provided, however, that the right to terminate
the Merger Agreement pursuant to this provision shall not be available to any
party whose failure to fulfill any of its obligations under the Merger Agreement
results in the failure of any such condition, (b) the Merger shall not have been
consummated by October 20, 1996 (the "Outside Closing Date"), (c) the approval
of the Company's stockholders required by the Merger Agreement shall not have
been obtained at a meeting duly convened therefor or at any adjournment thereof;
provided, however, that the right to terminate the Merger Agreement pursuant to
this provision shall not be available to the Parent if the Parent or the Offeror
breaches its obligation to vote its Shares in favor of the Merger, (d) a United
States federal or state court of competent jurisdiction or United States federal
or state governmental, regulatory or administrative agency or commission shall
have issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated by the Merger
Agreement and such order, decree or ruling prevents the Merger from being
consummated on or before the Outside Closing Date; provided, that the party
seeking to terminate the Merger Agreement pursuant to this clause (d) shall have
used all reasonable efforts to remove such injunction, order or decree; and
provided, in the case of a termination pursuant to clause (b) above, that the
terminating party shall not have breached in any material respect its
obligations under the Merger Agreement in any manner that shall have proximately
contributed to the failure to consummate the Merger by the Outside Closing Date
or (e) the Board of Directors of the Company shall have recommended to the
stockholders of the Company a Proposal which, after consultation with counsel
and its investment advisor, the Board of Directors had determined to be a
Superior Proposal.
Termination by the Company. The Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, notwithstanding
the approval by the stockholders of the Company entitled to vote thereon, by
action of the Board of Directors of the Company (a) if the Offer shall not have
been timely commenced, (b) if the Offer shall have expired or have been
terminated without any Shares being purchased thereunder or if no Shares shall
have been purchased thereunder within 120 days following the date of the Merger
Agreement unless failure to so purchase Shares has been caused by or results
from a breach by the Company of the Merger Agreement, (c) there has been a
breach by the Parent or the Offeror of any representation or warranty contained
in the Merger Agreement which would have or would be reasonably likely to have a
material adverse effect on the ability of the Parent and the Offeror to
consummate the transactions contemplated by the Merger Agreement and (d) there
has been a material breach of any of the covenants or agreements set forth in
the Merger Agreement on the part of the Parent or the Offeror, which breach is
not curable or, if curable, is not cured within 30 days after written notice of
such breach is given by the Company to the Parent or the Outside Closing Date,
whichever is the earlier.
Termination by the Parent. The Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, notwithstanding
the approval of the stockholders entitled to vote thereon, by action of the
Board of Directors of the Parent, if (a) there has been a breach by the
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Company of any representation or warranty contained in the Merger Agreement
which would have or would be reasonably likely to have a material adverse effect
on the financial condition, assets, liabilities, operations or results of
operations of the Company and its subsidiaries taken as a whole (a "Company
Material Adverse Effect"), (b) there has been a material breach of any of the
covenants or agreements set forth in the Merger Agreement on the part of the
Company, which breach is not curable or, if curable, is not cured within 30 days
after written notice of such breach is given by the Parent to the Company or the
Outside Closing Date, whichever is the earlier, (c) the Board of Directors of
the Company withdraws, modifies or changes its recommendation of the Merger
Agreement, the Offer or the Merger in a manner adverse to Parent or Merger Sub,
(d) a tender offer or exchange offer (other than the Offer) for 50% or more of
the outstanding Shares is commenced, and the Board of Directors of the Company
recommends that stockholders tender their Shares into such tender or exchange
offer, (e) any person (other than the Parent or the Offeror) shall have acquired
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" (as such terms defined under section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder), shall have been formed which
beneficially owns, or has the right to acquire beneficial ownership of, more
than 50% of the Shares on a fully diluted basis or (f) the Board of Directors or
the Transfer Review Committee or the Transfer Review Officer shall authorize a
Transfer by or to a 5% Holder (as such terms are defined in the Company's
Restated Certificate of Incorporation) of Shares or the provisions of Article
Eleventh of the Restated Certificate of Incorporation shall otherwise be waived
or deemed inapplicable to any acquisition of beneficial ownership of more than
5% of the Shares (other than by the Parent or the Offeror).
Effect of Termination and Abandonment. In the event that the Merger
Agreement is terminated by either party pursuant to clause (a) of "Termination
by the Parent or the Company" by reason of the failure of any of the conditions
set forth in paragraph (e) or (f) of Section 15, by either party pursuant to
clause (e) of "Termination by the Parent or the Company" or by the Parent and
the Offeror pursuant to clause (c), (d) or (f) of "Termination by the Parent"
and, in any such case, any person shall have made a Superior Proposal or the
Company shall enter into an agreement in principle or definitive agreement with
respect to a Superior Proposal within 9 months following such termination, then
the Company shall simultaneously with such termination or the execution of such
agreement, as the case may be, pay the Parent a fee of $2,500,000 and shall
reimburse the Parent for all reasonable out-of-pocket expenses incurred in
connection with the transactions contemplated by the Merger Agreement up to a
maximum of $1,000,000, which amount shall be payable by wire transfer of same
day funds. Whether or not the Merger is consummated, except as set forth above,
all costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
costs and expenses.
The Option Agreement
The Option Agreement. Certain Holders of Shares, Stock Options and Warrants
of the Company, including each of the investors in the Endevco Investors Joint
Venture, which holds an aggregate of 2,576,659 Shares, Ray C. Davis, the
Chairman and Chief Executive Officer of the Company, Kelcy L. Warren, the
President and Chief Operating Officer of the Company, and Richard D. Brannon,
James W. Bryant, Ted Collins, Ben H. Cook and Scott G. Heape, each of whom is a
director of the Company, have entered into the Option Agreement with the Parent
and the Offeror, covering an aggregate of 5,446,514 Shares, an aggregate of
204,500 Shares issuable upon exercise of Stock Options and Warrants with respect
to an aggregate of 2,564,103 Shares, representing in the aggregate 8,215,117
Shares or approximately 50.3% of the outstanding Shares on a fully diluted
basis.
Tender of the Shares; the Option. Pursuant to the Option Agreement, the
Holders have agreed to tender to the Offeror pursuant to the Offer all Shares
held by them and not to withdraw any Shares tendered into the Offer. The Holders
have also granted to the Offeror an irrevocable Option to purchase (i) the
Shares (including Shares issuable upon exercise of the Stock Options) subject to
the Option Agreement at a purchase price equal to the Offer Price and (ii) the
Warrants subject to the Option Agreement at a purchase price equal to the excess
of the Offer Price over the exercise price of such Warrants. The Offeror may
exercise the Option at any time after the later of (a) December 2, 1996, (b) the
date on which all waiting periods under HSR Act applicable to the exercise of
the Option have expired or been terminated and (c) the date of expiration or
termination of the Offer, but only if (i) the Merger Agreement shall have been
terminated and
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<PAGE> 27
(ii) either (A) the stockholders of the Company shall have failed to approve the
Merger, (B) the stockholders' meeting of the Company shall not have occurred
(other than by reason of a breach by the Parent or the Offeror of its
obligations under the Merger Agreement), or (C) the termination fee contemplated
by the Merger Agreement shall have become due and payable or the Merger
Agreement shall have been terminated pursuant to clause (e) of "Termination by
the Parent or the Company" set forth above or clause (c), (d), (e) or (f) of
"Termination by the Parent" set forth above; provided that, (x) notwithstanding
the foregoing, the Offeror may exercise the Option at any time after the later
of the periods prescribed in clauses (ii) and (iii), if the Merger Agreement
shall have been terminated pursuant to clause (e) of "Termination by the Parent
or the Company" set forth above or clause (c), (d), (e) or (f) of "Termination
by the Parent" set forth above and (y) the Purchaser shall exercise the Option
if the Offer has been consummated in accordance with its terms. The Option shall
expire on the earliest of (a) the Effective Time or (b) twelve months after the
termination of the Merger Agreement (but in any event not later than June 30,
1997).
Voting Agreement and Proxy. Certain of the Holders have also agreed that,
during the time the Option Agreement is in effect, each of such Holders shall
vote all voting securities of the Company over which such Holder has voting
control (i) in favor of the Merger and the Merger Agreement and (ii) against any
action or agreement that would impede, interfere with or attempt to discourage
the Offer or the Merger, or would result in a breach in any material respect of
any covenant, representation or warranty or any other obligation of the Company
under the Merger Agreement. Such Holders have agreed, at the request of the
Offeror, to execute an irrevocable proxy in favor of the Offeror with respect to
such voting securities.
Purchase of Warrants. The Option Agreement provides that, immediately
following the purchase of Shares pursuant to the Offer, the Offeror shall
purchase (and the Holders shall sell) all outstanding Warrants held by the
Holders, at a purchase price per Warrant in cash equal to the excess, if any, of
the Offer Price over the exercise price per Share covered by such Warrant,
multiplied by the number of Shares covered by such Warrant. Each Holder shall
deliver to the Offeror not less than two business days prior to the expiration
of the Offer the Warrants of such Holder and all documents necessary or
appropriate to effect such purchase and sale, duly executed by or on behalf of
such Holder.
Noncompetition Agreements
General. Ben H. Cook, Ray C. Davis and Kelcy L. Warren (the "Individuals")
have each entered into Noncompetition Agreements dated as of April 20, 1996,
with the Company, which will become effective at the Effective Time.
Noncompetition. Pursuant to the Noncompetition Agreements, each Individual
agrees that he will not, directly or indirectly, for his own account or for the
account of others, as an officer, director, stockholder, owner, partner,
employee, promoter, consultant, manager, or otherwise, contract, arrange or
otherwise participate in any manner in the business of processing or gathering
oil, natural gas or natural gas liquids, (x) for three (3) years following the
Effective Time with respect to Claiborne, Jackson, Lincoln, Ouachita and Union
parishes, Louisiana, (y) for three (3) years following the Effective Time with
respect to any processing or gathering opportunity in any area within a 10 mile
radius of any existing processing or gathering system or facility of the Company
or any of its subsidiaries or any point of any such system or facility as it
presently exists, unless the proposed processing or gathering activities do not
compete with any existing system or facility of the Company or any of its
subsidiaries and the Company and its subsidiaries have no plans to pursue the
proposed processing or gathering opportunity, and (z) for eighteen (18) months
following the Effective Time with respect to any processing or gathering systems
or facilities that will serve production from the Austin Chalk formation in
Grimes, Walker, Madison, Trinity, San Jacinto, Polk, Tyler, Angelina, Jasper,
Newton, San Augustine and Sabine counties, Texas, or Sabine, Vernon and Rapides
parishes, Louisiana; provided, however, that each Individual may own not more
than 2% of any class of securities of a publicly traded entity which is engaged
in any such business.
Non-Solicitation. Each individual agrees, for one year following the
Effective Time, that neither he nor any entity directly or indirectly controlled
by him will interfere with the relationship of the Company or any of
25
<PAGE> 28
its subsidiaries with, or endeavor to employ or entice away from the Company or
any of its subsidiaries, any employee of the Company or any of its subsidiaries;
provided, however, that the Noncompetition Agreements shall not restrict the
Individuals or any entity controlled by any of them from hiring certain
specified employees of the Company.
Gathering System. Each individual has agreed to us his best efforts
(without the requirements to expend funds) to cause any persons who may have
rights to purchase interests in the Company's Oletha gathering system to
irrevocably waive such rights or assign such rights to the Parent, and to take
such other action as may be necessary or appropriate to cause such rights to be
terminated or to prevent their becoming exercisable. Kelcy L. Warren has agreed
to continue to be and actively serve as the President of the Company's Energy
Transfer Corporation subsidiary, without compensation, for so long as the Parent
may request and at the direction of the Parent, to perform certain specified
management functions (the "Required Functions"). Each of the Individuals has
agreed to indemnify the Parent, the Company and their affiliates against all
losses which may be incurred arising out of Kelcy L. Warren's ceasing to perform
the Required Functions for any reason other than death or physical or mental
disability, including any losses incurred by reason of the exercise of the
purchase rights referred to above.
New Ventures. If, within three years after the Effective Time, any
Individual or any entity directly or indirectly controlled by such Individual,
either alone or together with the other Individuals, forms or invests in any
venture in the business of processing or gathering of oil, natural gas or
natural gas liquids, for which third party equity financing is or has been
received or is sought (a "New Venture") (other than warrants or other equity
"kickers" granted as a yield enhancement as part of bona fide debt financing
arrangements provided by financial institutions whose primary business is
providing debt financing), then the Company (or its affiliates) shall have the
option to acquire a one-eighth ( 1/8) equity or ownership interest in each such
New Venture, free of any promote or override to which the equity interest
acquired or to be acquired by the third party may be subject. In addition, if
any New Venture in respect of which the Company has exercised the foregoing
option intends to issue any equity or ownership interests, the Company will have
a right of first offer to acquire such equity or ownership interests.
Consulting Agreement. Kelcy L. Warren has agreed that, if requested by the
Parent prior to the Effective Time, he will enter into a one-year agreement to
provide certain consulting services to the Company, for which he will receive a
fee of $213,500, payable in 12 monthly installments.
14. DIVIDENDS AND DISTRIBUTIONS.
The Merger Agreement provides that the Company will not, among other
things, prior to the Effective Time (i) declare, set aside or pay any dividend
or make any other distribution or payment with respect to any shares of its
capital stock, (ii) directly or indirectly redeem, purchase, or otherwise
acquire any shares of capital stock of the Company or capital stock of any of
its subsidiaries or make any commitment for any such action or (iii) split,
combine or reclassify any of its capital stock.
15. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other term of the Offer or the Merger Agreement, the
Offeror shall not be required to accept for payment or pay for, subject to any
applicable rules and regulations of the Commission, including Rule 14e-1(c) of
the Exchange Act, any Shares not theretofore accepted for payment or paid for
and may terminate the Offer unless (i) there shall have been validly tendered
and not withdrawn prior to the expiration of the Offer that number of Shares
which, when added to the number of Shares then issuable upon the exercise of
presently exercisable Warrants previously delivered to the Offeror in accordance
with the terms of the Option Agreement, would represent at least a majority of
the outstanding Shares on a fully diluted basis and (ii) any waiting period
under the HSR Act applicable to the purchase of Shares pursuant to the Offer
shall have been expired or been terminated. Furthermore, notwithstanding any
other term of the Offer or the Merger Agreement, the Offeror shall not be
required to accept for payment or, subject as aforesaid, to pay for any Shares
not theretofore accepted for payment or paid for, and may terminate or amend the
Offer if at any
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<PAGE> 29
time on or after the date of the Merger Agreement and before the acceptance of
such Shares for payment or the payment therefor, any of the following conditions
exist or shall occur and remain in effect:
(a) there shall have been instituted or pending any action or
proceeding by or before any court or governmental, regulatory or
administrative agency, authority or tribunal, domestic or foreign, which
restrains or prohibits the making or consummation of the Offer or the
Merger or which would be reasonably likely to (i) result in material
liability or material damages being incurred by the Parent or the Offeror
or (ii) have a Company Material Adverse Effect; or
(b) there shall have been enacted, entered, enforced or deemed
applicable to the Offer or the Merger, by any state, federal or foreign
government or governmental authority or by any court, domestic or foreign,
any statute, rule, regulation, judgment, decree, order or injunction, that
prohibits or makes illegal the making or consummation of the Offer or the
Merger; or
(c) the Company and the Offeror shall have reached an agreement or
understanding that the Offer or the Merger Agreement be terminated or the
Merger Agreement shall have been terminated in accordance with its terms;
or
(d) (i)(A) any of the representations and warranties made by the
Company in Sections 7.1, 7.2, 7.3 and 7.4 of the Merger Agreement (relating
to existence, good standing, corporate authority, compliance with law,
authorization, validity and effect of agreements, capitalization and
subsidiaries) shall not have been true and correct in all material respects
when made, or shall thereafter have ceased to be true and correct in all
material respects as if made as of such later time (other than
representations and warranties made as of a specified date) or (B) any of
the other representations and warranties made by the Company in the Merger
Agreement shall not have been true and correct when made or shall
thereafter have ceased to be true and correct as if made as of such later
time (other than representations and warranties made as of a specified
date), with the result that such failure to be true and correct, either
singly or in the aggregate with all other such failures, has or would
reasonably be expected to have a Company Material Adverse Effect (it being
understood that the foregoing shall not be construed as applying an
additional standard of materiality to any representation or warranty which
by its terms is qualified by materiality or by "Company Material Adverse
Effect") or (ii) after notice of default by Merger Sub to the Company, the
Company shall not, prior to the earlier of (A) the expiration of the time
period prescribed in the Merger Agreement and (B) the Expiration Date, in
all material respects have performed each obligation and agreement and
complied with each covenant to be performed and complied with by it under
the Merger Agreement; or
(e) the Company's Board of Directors shall have modified or amended
its recommendation of the Offer in any manner adverse to the Parent and the
Offeror or shall have withdrawn its recommendation of the Offer, or shall
have recommended acceptance of any Proposal or shall have resolved to do
any of the foregoing, or shall have failed to reject any Proposal within 10
business days after public announcement thereof; or
(f) so long as the Parent and the Offeror have not breached their
obligation to purchase Shares pursuant to the Offer or the Option
Agreement, if (i) any person (other than the Offeror) shall have acquired
beneficial ownership of 50% or more of the Shares on a fully diluted basis,
or shall have been granted any option or right, conditional or otherwise,
to acquire 50% or more of the Shares on a fully diluted basis; (ii) any new
group shall have been formed which beneficially owns more than 50% of the
Shares on a fully diluted basis; (iii) any person shall have entered into
an agreement in principle or definitive agreement with the Company with
respect to a tender or exchange offer for any Shares or a merger,
consolidation or other business combination with or involving the Company;
or (iv) the Board of Directors or the Transfer Review Committee or the
Transfer Review Officer shall authorize a Transfer by or to a 5% Holder of
Shares or the provisions of Article Eleventh of the Company's Restated
Certificate of Incorporation shall otherwise be waived or deemed
inapplicable to any acquisition of beneficial ownership of more than 5% of
the Shares (other than by the Parent or the Offeror); or
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<PAGE> 30
(g) any of the Noncompetition Agreements with each of Ben. H. Cook,
Ray C. Davis and Kelcy L. Warren shall not be in full force and effect, or
any of such persons shall have contested the validity of any such agreement
or denied that he is bound by the terms thereof;
which, in the reasonable judgment of the Parent and the Offeror, in any case,
makes it inadvisable to proceed with the Offer or with such acceptance for
payment, purchase of, or payment for the Shares.
The foregoing conditions are for the sole benefit of the Offeror and may be
asserted by the Offeror regardless of the circumstances giving rise to any such
condition and may be waived by the Offeror, in whole or in part, at any time and
from time to time, in the sole discretion of the Offeror. The failure by the
Offeror at any time to exercise any of the foregoing rights will not be deemed a
waiver of any right, the waiver of such right with respect to any particular
facts or circumstances shall not be deemed a waiver with respect to any other
facts or circumstances, and each right will be deemed an ongoing right which may
be asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions, all
tendered Shares not theretofore accepted for payment shall forthwith be returned
by the Depositary to the tendering stockholders.
16. CERTAIN REGULATORY AND LEGAL MATTERS.
Except as set forth in this Section, the Offeror is not aware of any
approval or other action by any governmental or administrative agency which
would be required for the acquisition or ownership of Shares by the Offeror as
contemplated herein. Should any such approval or other action be required, it
will be sought, but the Offeror has no current intention to delay the purchase
of Shares tendered pursuant to the Offer pending the outcome of any such matter,
subject, however, to the Offeror's right to decline to purchase Shares if any of
the conditions specified in Section 15 shall have occurred. There can be no
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions, or that adverse
consequences might not result to the Company's business or that certain parts of
the Company's business might not have to be disposed of if any such approvals
were not obtained or other action taken.
Antitrust. Under the provisions of the HSR Act applicable to the Offer, the
acquisition of Shares under the Offer may be consummated following the
expiration of a 15-day waiting period following the filing by the Parent of a
Notification and Report Form with respect to the Offer, unless the Parent
receives a request for additional information or documentary material from the
Department of Justice, Antitrust Division (the "Antitrust Division") and the
Federal Trade Commission ("FTC") or unless early termination of the waiting
period is granted. The Offeror made such a filing on April 26, 1996. If, within
the initial 15-day waiting period, either the Antitrust Division or the FTC
requests additional information or material from the Parent concerning the
Offer, the waiting period will be extended to the tenth calendar day after the
date of substantial compliance by the Parent with such request. Complying with a
request for additional information or material can take a significant amount of
time.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Offeror's proposed acquisition of
the Company. At any time before or after the Offeror's acquisition of Shares
pursuant to the Offer, the Antitrust Division or the FTC could take such action
under the antitrust laws as either deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer or the consummation of the Merger or seeking the divestiture of Shares
acquired by the Offeror or the divestiture of substantial assets of the Company
or its subsidiaries or the Parent or its subsidiaries. Private parties may also
bring legal action under the antitrust laws under certain circumstances. There
can be no assurance that a challenge to the Offer on antitrust grounds will not
be made, or, if such a challenge is made, of the result thereof.
If any applicable waiting period under the HSR Act has not expired or been
terminated prior to the Expiration Date, the Offeror will not be obligated to
proceed with the Offer or the purchase of any Shares not theretofore purchased
pursuant to the Offer. See Section 15.
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<PAGE> 31
State Takeover Laws. The Company is incorporated under the laws of the
State of Delaware. In general, Section 203 of the DGCL prevents an "interested
stockholder" (including a person who owns or has the right to acquire 15% or
more of a corporation's outstanding voting stock) from engaging in a "business
combination" (defined to include mergers and certain other transactions) with a
Delaware corporation for a period of three years following the date such person
became an interested stockholder unless, among other things, prior to the date
the interested stockholder became such, the corporation's board of directors
approved such business combination or the transaction in which the interested
stockholder became such. The Board of Directors of the Company has approved the
Offer, the Merger, the Merger Agreement and the transactions contemplated by the
Option Agreement for the purposes of Section 203 of the DGCL.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, stockholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects in such states. In Edgar v. MITE Corp., the Supreme Court of
the United States invalidated on constitutional grounds the Illinois Business
Takeover statute, which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. However in 1987, in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of
Indiana may, as a matter of corporate law and, in particular, with respect to
those aspects of corporate law concerning corporate governance, constitutionally
disqualify a potential acquirer from voting on the affairs of a target
corporation without the prior approval of the remaining presenting stockholders.
The state law before the Supreme Court was by its terms applicable only to
corporations that had a substantial number of stockholders in the state and were
incorporated there.
The Company, directly or through subsidiaries, conducts business in a
number of states, some of which have enacted takeover laws. Except as described
above with respect to Section 203 of the DGCL, the Offeror has not attempted to
comply with any such laws. Should any person seek to apply any state takeover
law, the Offeror will take such action as then appears desirable, which may
include challenging the validity or applicability of any such statute in
appropriate court proceedings. In the event it is asserted that one or more
state takeover laws is applicable to the Offer or the Merger, and an appropriate
court does not determine that it is inapplicable or invalid as applied to the
Offer, the Offeror might be required to file certain information with, or
receive approvals from, the relevant state authorities. In addition, if
enjoined, the Offeror might be unable to accept for payment any Shares tendered
pursuant to the Offer, or be delayed in continuing or consummating the Offer and
the Merger. In such case, the Offeror may not be obligated to accept for payment
any Shares tendered. See Section 15.
Appraisal Rights. Holders of the Shares do not have appraisal rights as
result of the Offer. However, if the Merger is consummated, holders of the
Shares at the Effective Time of the Merger will have certain rights pursuant to
the provisions of Section 262 of the DGCL to dissent and demand appraisal of
their Shares. Under Section 262, dissenting stockholders who comply with the
applicable statutory procedures will be entitled to receive a judicial
determination of the fair value of their Shares (exclusive of any element of
value arising from the accomplishment or expectation of the Merger) and to
receive payment of such fair value in cash, together with a fair rate of
interest, if any. Any such judicial determination of the fair value of the
Shares could be based upon factors other than, or in addition to, the price per
share to be paid in the Merger or the market value of the Shares. The value so
determined could be more or less than the price per share to be paid in the
Merger.
Going Private Transactions. The Commission has adopted Rule 13e-3 under the
Exchange Act which is applicable to certain "going private" transactions and
which may under certain circumstances be applicable to the Merger or any other
merger involving the Company. However, Rule 13e-3 would be inapplicable if (a)
the Shares are deregistered under the Exchange Act prior to the merger or (b)
any such merger is consummated within one year after the purchase of the Shares
pursuant to the Offer and such merger provides for stockholders to receive cash
for their Shares in an amount at least equal to the amount paid per Share in the
Offer. If applicable, Rule 13e-3 requires, among other things, that certain
financial information concerning the fairness of the proposed transaction and
the consideration offered to minority stockholders in such transaction be filed
with the Commission and disclosed to stockholders prior to the consummation of
the transaction.
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<PAGE> 32
Legal Proceedings. The Offeror is not aware of any pending or overtly
threatened legal proceedings which would affect the Offer or the Merger. If any
such matters were to arise, the Merger Agreement provides that, under certain
circumstances, the Offeror could decline to accept for payment or pay for any
Shares tendered in the Offer. See Section 15.
17. FEES AND EXPENSES.
Neither the Offeror nor the Parent, nor any officer, director, stockholder,
agent or other representative of the Offeror or the Parent, will pay any fees or
commissions to any broker, dealer or other person (other than the Dealer
Manager, the Information Agent and the Depositary) for soliciting tenders of
Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust
companies and other nominees will, upon request, be reimbursed by the Offeror
for customary mailing and handling expenses incurred by them in forwarding
materials to their customers.
Rodman & Renshaw, Inc. ("Rodman & Renshaw") is acting as Dealer Manager in
connection with the Offer and has provided certain financial advisory services
to the Parent and the Offeror in connection with the Offer and the Merger.
Pursuant to its engagement letter with Rodman & Renshaw, the Parent is paying
Rodman & Renshaw a monthly retainer fee of $50,000 (50% of which is creditable
against the transaction fee described below) and has agreed to pay Rodman &
Renshaw a transaction fee equal to 1% of the aggregate "Transaction Value" in
connection with the Offer and the Merger. For this purpose, the "Transaction
Value" means the aggregate amount of cash paid by the Parent or the Offeror plus
the net amount of indebtedness assumed in connection with the Offer and the
Merger. Rodman & Renshaw will receive an additional fee of $50,000 for its
services as Dealer Manager. In addition, the Offeror has agreed to reimburse
Rodman & Renshaw for certain reasonable out-of-pocket expenses incurred by
Rodman & Renshaw in connection with the Offer, including the reasonable fees of
its counsel, and to indemnify Rodman & Renshaw against certain liabilities and
expenses, including certain liabilities under the federal securities laws.
The Offeror has retained Chemical Mellon Shareholder Services, L.L.C. as
Information Agent and The First National Bank of Boston as Depositary in
connection with the Offer. The Information Agent and the Depositary will receive
reasonable and customary compensation for their services hereunder and
reimbursement for their reasonable out-of-pocket expenses. The Information Agent
and the Depositary will also be indemnified by the Offeror against certain
liabilities in connection with the Offer.
18. MISCELLANEOUS.
The Offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of Shares residing in any jurisdiction in which the making or
acceptance thereof would not be in compliance with the securities, blue sky or
other laws of such jurisdiction. In any jurisdiction where the securities, blue
sky or other laws require the Offer to be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of the Offeror by the Dealer
Manager or one or more registered brokers or dealers licensed under the laws of
such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the Offeror other than as contained in this Offer to
Purchase or in the Letter of Transmittal, and, if any such information or
representation is given or made, it should not be relied upon as having been
authorized by the Offeror.
The Offeror, EPFS and the Parent have filed with the Commission the
Schedule 14D-1, pursuant to Section 14(d)(1) of the Exchange Act and Rule 14d-1
promulgated thereunder, furnishing certain information with respect to the
Offer. Such Schedule 14D-1 and any amendments thereto, including exhibits, may
be examined and copies may be obtained at the same places and in the same manner
as set forth with respect to the Company in Section 8 (except that they will not
be available at the regional offices of the Commission).
THE EL PASO COMPANY
April 26, 1996
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ANNEX I
CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE
OFFICERS OF THE PARENT, EPFS AND THE OFFEROR
1. BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE PARENT. Set forth below
is the name, current business address, present principal occupation or
employment and five-year employment history of each director and executive
officer of the Parent. Unless otherwise indicated, each person identified below
has been employed by the Parent for the last five years, and each such person's
business address is One Paul Kayser Center, 100 North Stanton Street, El Paso,
Texas 79901. All persons listed below, except Mr. Eugenio Garza Laguera, who is
a citizen of Mexico, are citizens of the United States.
<TABLE>
<CAPTION>
OFFICER OR
NAME OFFICE DIRECTOR SINCE
- ----------------------------------------- ------------------------------------------ --------------
<S> <C> <C>
William A. Wise.......................... Chairman of the Board and Chief Executive 1984
Officer
Richard Owen Baish....................... President 1987
H. Brent Austin.......................... Executive Vice President and Chief 1992
Financial Officer
Michael C. Holland....................... Senior Vice President 1982
Joel Richards III........................ Senior Vice President 1990
Britton White, Jr........................ Senior Vice President and General Counsel 1991
Byron Allumbaugh......................... Director 1992
1100 West Artesia Blvd.
Compton, CA 90220
Eugenio Garza Laguera.................... Director 1993
Ave. Alfonso Reyes
No. 2202 Norte
Monterrey, N.L. 64000
Mexico
James F. Gibbons, Ph.D................... Director 1994
School of Engineering
Terman 214
(Mail Stop 4027)
Stanford, CA 94305
Ben F. Love.............................. Director 1992
600 Travis, 18th Floor
Houston, TX 77002
Kenneth L. Smalley....................... Director 1992
3686 Lost Creek Blvd.
Austin, TX 78735
Malcolm Wallop........................... Director 1995
1735 N. Lynn Street
Suite 1050
Arlington, VA 22209
</TABLE>
Mr. Wise has been Chairman of the Board and Chief Executive Officer of the
Parent since April 1, 1996. He was Chairman of the Board, President and Chief
Executive Officer from January 1994 to April 1996. He has been Chief Executive
Officer since January 1990 and President since April 1989. From March 1987 until
April 1989, Mr. Wise was an Executive Vice President of the Parent. From January
1984 to February 1987, he
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<PAGE> 34
was Senior Vice President of the Parent. Mr. Wise is a member of the Board of
Directors of Battle Mountain Gold Company.
Mr. Baish has been President of the Parent since April 1, 1996. Mr. Baish
was Executive Vice President of the Parent from September 1994 to April 1996. He
was Senior Vice President from November 1990 to August 1994. He was General
Counsel and Corporate Secretary from November 1990 to December 1990 and Vice
President and Associate General Counsel from March 1987 to October 1990.
Mr. Austin has been Executive Vice President of the Parent since May 1995.
He has been Chief Financial Officer of the Parent since April 1992. He was
Senior Vice President of the Parent from April 1992 to April 1995. He was Vice
President, Planning and Treasurer of Burlington Resources, Inc. from November
1990 to March 1992 and Assistant Vice President, Planning of Burlington
Resources, Inc. from January 1989 to October 1990.
Mr. Holland has been Senior Vice President of the Parent since January
1991. He was a Vice President from June 1982 to December 1990. He has also been
President and Chief Executive Officer of Mojave Pipeline Operating Company, a
wholly owned indirect subsidiary of the Parent since October 1989. Mr. Holland
has announced his intention to retire in 1996.
Mr. Richards has been Senior Vice president of the Parent since January
1991. He was Vice President from June 1990 to December 1990. He was Senior Vice
President, Finance and Human Resources of Meredian Minerals Company, a wholly
owned subsidiary of Burlington Resources, Inc., from October 1988 to June 1990.
Mr. White has been Senior Vice President and General Counsel of the Parent
since March 1991. From March 1991 to April 1992, he was also Corporate Secretary
of the Parent. For more than five years prior to that time, Mr. White was a
partner in the law firm of Holland & Hart.
Mr. Allumbaugh has been Chairman of the Board of Ralphs Grocery Company
since February 1996. He served as Chief Executive Officer of Ralphs Grocery
Company from June 1995 until February 1996. For more than five years prior to
such date, Mr. Allumbaugh served as Chairman of the Board and Chief Executive
Officer of Ralphs Grocery Company. Mr. Allumbaugh is a member of the Board of
Directors of H.F. Ahmanson & Company and Ultramar Inc.
Mr. Garza Laguera has served as Chairman of the Board of Directors of
Valores Industriales, S.A. and Fomento Economico Mexicano, S.A. de C.V. and
Chairman of the Board of Regents of Instituto Tecnologico Y de Estudios
Superiores de Monterrey, A.C. for more than five years. He has been chairman of
the Board of Directors of Grupo Financiero Bancomer, S.A. de C.V. and BANCOMER
since 1991.
Dr. Gibbons is Dean of the School of Engineering, Stanford University. Dr.
Gibbons has been on the faculty of Stanford University since 1957 and has been
the Dean of the School of Engineering since September 1984. He is a member of
the Board of Directors of Amati Communications Corp., Centigram Communications
Corp., Cisco Systems, Inc., Lockheed Martin, Inc. and Raychem Inc.
Mr. Love has been an investor since December 1989. For more than five years
prior to that date, Mr. Love was Chairman of the Board and Chief Executive
Officer of Texas Commerce Bancshares, Inc. He is a member of the Board of
Directors of Burlington Northern Santa Fe Corporation and Mitchell Energy &
Development Corp.
Mr. Smalley has been retired since February 1992. For more than five years
prior to that date, Mr. Smalley was a Senior Vice President of Phillips
Petroleum Company and President of Phillips 66 Natural Gas Company, a Phillips
Petroleum Company subsidiary.
Mr. Wallop has been President of Frontiers of Freedom Foundation since
January 1995. For eighteen years prior to that date, Mr. Wallop was a member of
the United States Senate. He is a member of the Board of Directors of Hubbell
Inc.
A-2
<PAGE> 35
2. BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF EPFS. Set forth below is
the name and, except in the case of individuals previously listed above, the
current business address, present principal occupation or employment and
five-year employment history of each director and executive officer of EPFS.
Each such person's business address is 100 North Stanton Street, El Paso, Texas
79901. All persons listed below are citizens of the United States.
<TABLE>
<CAPTION>
OFFICER OR
NAME OFFICE DIRECTOR SINCE
------------------------------------ -------------------------------------- --------------
<S> <C> <C>
William A. Wise..................... Chairman of the Board 1996
Robert G. Phillips.................. President and Chief Executive Officer 1996
John W. Somerhalder II.............. Executive Vice President 1996
Larry R. Tarver..................... Senior Vice President 1996
H. Brent Austin..................... Director 1996
</TABLE>
Mr. Phillips has been President and Chief Executive Officer of EPFS since
April 1, 1996. Mr. Phillips was Senior Vice President of the Parent from
September 1995 to April 1996. He was Chief Executive Officer of Eastex Energy
Inc. from March 1983 to March 1996.
Mr. Somerhalder has been Executive Vice President of EPFS since April 1,
1996. Mr. Somerhalder was Senior Vice President of the Parent from August 1992
to April 1996. He was Vice President of the Parent from January 1990 to July
1992.
Mr. Tarver has been Senior Vice President of EPFS since April 1, 1996. Mr.
Tarver was Senior Vice President of the Parent from September 1994 to April
1996. He was Vice President of the Parent from December 1988 to August 1994.
3. BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE OFFEROR. Set forth
below is the name of each director and executive officer of the Offeror. The
current business address, citizenship, present principal occupation or
employment and five-year employment history for each director or officer of the
Offeror has been provided above.
<TABLE>
<CAPTION>
OFFICER OR
NAME OFFICE DIRECTOR SINCE
----------------------------------- ---------------------------------------- --------------
<S> <C> <C>
William A. Wise.................... President and Director 1996
Robert G. Phillips................. Senior Vice President 1996
Richard Owen Baish................. Senior Vice President and Director 1996
H. Brent Austin.................... Vice President, Treasurer and Director 1996
</TABLE>
A-3
<PAGE> 36
Facsimile copies of the Letter of Transmittal will be accepted. The Letter
of Transmittal and certificates for Shares and any other required documents
should be sent or delivered by each stockholder of the Company or his broker,
dealer, commercial bank, trust company or other nominee to the Depositary at one
of the addresses set forth below:
The Depositary for the Offer is:
THE FIRST NATIONAL BANK OF BOSTON
---------------------
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
The First National Bank of Boston The First National Bank of Boston Banc Boston Trust Company
Shareholder Services Division Shareholder Services Division of New York
P.O. Box 1889 150 Royall Street 55 Broadway, Third Floor
Mail Stop 45-02-53 Mail Stop: 45-02-53 New York, New York
Boston, Massachusetts 02105 Canton, Massachusetts 02021
</TABLE>
By Facsimile:
(617) 575-2232
(617) 575-2233
(For Eligible Institutions Only)
Confirm Facsimile by Telephone:
(800) 736-3001
(For Confirmation Only)
Any questions or requests for assistance or additional copies of the Offer
to Purchase and the Letter of Transmittal and Notice of Guaranteed Delivery may
be directed to the Information Agent or the Dealer Manager at their respective
telephone numbers and locations listed below. Stockholders may also contact
their broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
450 West 33rd Street
15th Floor
New York, New York 10001-2697
Toll Free (800) 306-8594
Banks and Brokerage Firms, please call:
(212) 946-7712
The Dealer Manager for the Offer is:
RODMAN & RENSHAW, INC.
Two World Financial Center
225 Liberty Street
30th Floor
New York, New York 10281
Call Collect (212) 416-7333
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
CORNERSTONE NATURAL GAS, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED APRIL 26, 1996
BY
THE EL PASO COMPANY
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
EL PASO NATURAL GAS COMPANY
EACH A UNIT OF
EL PASO ENERGY CORPORATION
*******************************************************************************
* THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT *
* 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, MAY 24, 1996, *
* UNLESS THE OFFER IS EXTENDED. *
*******************************************************************************
THE DEPOSITARY:
THE FIRST NATIONAL BANK OF BOSTON
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
The First National Bank of Boston The First National Bank of Boston Banc Boston Trust Company
Shareholder Services Division Shareholder Services Division of New York
P.O. Box 1889 150 Royall Street 55 Broadway, Third Floor
Mail Stop 45-02-53 Mail Stop: 45-02-53 New York, New York
Boston, Massachusetts 02105 Canton, Massachusetts 02021
</TABLE>
By Facsimile:
(617) 575-2232
(617) 575-2233
(For Eligible Institutions Only)
Confirm Facsimile by Telephone:
(800) 736-3001
(For Confirmation Only)
---------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE
A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE
SPACE THEREFOR PROVIDED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH
BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders of
Cornerstone Natural Gas, Inc. if certificates are to be forwarded herewith or,
unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if
delivery of Shares (as defined below) is to be made by book-entry transfer to
the Depositary's account at The Depository Trust Company, the Midwest Securities
Trust Company or the Philadelphia Depository Trust Company (hereinafter
collectively referred to as the "Book-Entry Transfer Facilities") pursuant to
the procedures set forth in Section 3 of the Offer to Purchase (as defined
below).
<PAGE> 2
Stockholders whose certificates for Shares are not immediately available or
who cannot deliver their Shares and all other documents required hereby to the
Depositary by the Expiration Date (as defined in the Offer to Purchase), or who
cannot comply with the book-entry transfer procedures on a timely basis, may
nevertheless tender their Shares pursuant to the guaranteed delivery procedure
set forth in Section 3 of the Offer to Purchase. See Instruction 2.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARES TENDERED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------------
NUMBER
SHARE OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL SHARES
- ------------------------------------------------------------------------------------------------------------------
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares represented by any certificates are being
tendered. See Instruction 4.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
/ / IF ANY CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE BEEN LOST OR
DESTROYED, CHECK THIS BOX. PLEASE FILL OUT THE REMAINDER OF THIS LETTER OF
TRANSMITTAL AND INDICATE HERE THE NUMBER OF SHARES REPRESENTED BY THE LOST
OR DESTROYED CERTIFICATES. THE DEPOSITARY WILL NOTIFY CHEMICAL MELLON
SHAREHOLDER SERVICES, L.L.C. TO INITIATE LOST/REPLACEMENT PROCEDURES. NUMBER
OF SHARES:
---------------------
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
--------------------------------------------------
Account No. at
------------------------------------------------------------------
/ / The Depository Trust Company
/ / Midwest Securities Trust Company
/ / Philadelphia Depository Trust Company
Transaction Code No.
-----------------------------------------------------------
<PAGE> 3
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Stockholder(s)
-------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-----------------------------
Window Ticket Number (if any)
--------------------------------------------------
Name of Institution which Guaranteed Delivery
----------------------------------
If delivery is by book-entry transfer
-----------------------------------------
Name of Tendering Institution
-----------------------------------------
Account No. at
----------------------------------------------------------
/ / The Depository Trust Company
/ / Midwest Securities Trust Company
/ / Philadelphia Depository Trust Company
Transaction Code No.
--------------------------------------------------
<PAGE> 4
Ladies and Gentlemen:
The undersigned hereby tenders to The El Paso Company (the "Offeror"), a
Delaware corporation and an indirect wholly owned subsidiary of El Paso Natural
Gas Company, a Delaware corporation (the "Parent"), the above-described shares
of common stock, $0.10 par value per share (the "Shares"), of Cornerstone
Natural Gas, Inc., a Delaware corporation (the "Company"), pursuant to the
Offeror's offer to purchase all of the outstanding Shares at a purchase price of
$6.00 per Share, net to the seller in cash, without interest, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated April 26,
1996 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in
this Letter of Transmittal (which together with the Offer to Purchase constitute
the "Offer"). The Offer is being made in connection with the Agreement and Plan
of Merger, dated as of April 20, 1996, among the Parent, the Offeror and the
Company.
Subject to and effective upon acceptance for payment of and payment for the
Shares tendered herewith, the undersigned hereby sells, assigns and transfers to
or upon the order of the Offeror all right, title and interest in and to all the
Shares that are being tendered hereby (and any and all other Shares or other
securities issued or issuable in respect thereof on or after April 20, 1996) and
appoints the Depositary the true and lawful agent and attorney-in-fact of the
undersigned with respect to such Shares (and all such other Shares or
securities), with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (a) deliver
certificates for such Shares (and all such other Shares or securities), or
transfer ownership of such Shares (and all such other Shares or securities) on
the account books maintained by any of the Book-Entry Transfer Facilities,
together, in any such case, with all accompanying evidences of transfer and
authenticity, to or upon the order of the Offeror, (b) present such Shares (and
all such other Shares or securities) for transfer on the books of the Company
and (c) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Shares (and all such other Shares or securities), all in
accordance with the terms of the Offer.
The undersigned hereby irrevocably appoints representatives of the Offeror
as the attorneys and proxies of the undersigned, each with full power of
substitution, to exercise all voting and other rights of the undersigned in such
manner as each such attorney and proxy or his substitute shall in his sole
judgment deem proper, with respect to all of the Shares tendered hereby which
have been accepted for payment by the Offeror prior to the time of any vote or
other action (and any and all other Shares or other securities or rights issued
or issuable in respect of such Shares on or after April 20, 1996), at any
meeting of stockholders of the Company (whether annual or special and whether or
not an adjourned meeting) or otherwise. This proxy is irrevocable and is granted
in consideration of, and is effective upon, the acceptance for payment of such
Shares by the Offeror in accordance with the terms of the Offer. Such acceptance
for payment shall revoke any other proxy or written consent granted by the
undersigned at any time with respect to such Shares (and all such other Shares
or other securities or rights), and no subsequent proxies will be given or
written consents will be executed by the undersigned (and if given or executed,
will not be deemed effective).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby (and any and all other Shares or other securities or rights
issued or issuable in respect of such Shares on or after April 20, 1996) and
that when the same are accepted for payment by the Offeror, the Offeror will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claims.
The undersigned will, upon request, execute and deliver any additional documents
deemed by the Depositary or the Offeror to be necessary or desirable to complete
the sale, assignment and transfer of the Shares tendered hereby (and all such
other Shares or other securities or rights).
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Except as stated in the Offer, this tender is
irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute an agreement between the undersigned and the
Offeror upon the terms and subject to the conditions of the Offer.
<PAGE> 5
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the purchase price of any Shares purchased, and return any
Shares not tendered or not purchased, in the name(s) of the undersigned (and, in
the case of Shares tendered by book-entry transfer, by credit to the account at
the Book-Entry Transfer Facility designated above). Similarly, unless otherwise
indicated under "Special Delivery Instructions," please mail the check for the
purchase price of any Shares purchased and return any certificates for Shares
not tendered or not purchased (and accompanying documents, as appropriate) to
the undersigned at the address shown below the undersigned's signature(s). In
the event that both "Special Payment Instructions" and "Special Delivery
Instructions" are completed, please issue the check for the purchase price of
any Shares purchased and return any Shares not tendered or not purchased in the
name(s) of, and mail said check and any certificates to, the person(s) so
indicated. The undersigned recognizes that the Offeror has no obligation,
pursuant to the "Special Payment Instructions," to transfer any Shares from the
name of the registered holder(s) thereof if the Offeror does not accept for
payment any of the Shares so tendered.
<PAGE> 6
===============================================================================
SPECIAL PAYMENT
INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or certificates for Shares not tendered or not purchased are to be
issued in the name of someone other than the undersigned, or if Shares tendered
by book-entry transfer that are not purchased are to be returned by credit to an
account at one of the Book-Entry Transfer Facilities other than that designated
above.
Issue check and/or certificates to:
Name
---------------------------------------------------------------------------
(Please Print)
Address
------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Zip Code)
- -------------------------------------------------------------------------------
(Taxpayer Identification No.)
(See Substitute Form W-9)
/ / Credit unpurchased Shares tendered by book-entry transfer to the account set
forth below:
Name of Account Party
---------------------------------------------------------
Account No.
--------------------------------------------------------------------
at
/ / The Depository Trust Company
/ / Midwest Securities Trust Company
/ / Philadelphia Depository Trust Company
===============================================================================
SPECIAL DELIVERY
INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or certificates for Shares not tendered or not purchased are to be
mailed to someone other than the undersigned or to the undersigned at an address
other than that shown below the undersigned's signature(s).
Mail check and/or certificates to:
Name
-------------------------------------------------------------------------
Address
------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Zip Code)
- -------------------------------------------------------------------------------
(Taxpayer Identification No.)
===============================================================================
<PAGE> 7
SIGN HERE
(COMPLETE SUBSTITUTE FORM W-9 BELOW)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of Owner(s)
- --------------------------------------------------------------------------------
Name(s)
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity (full title)
----------------------------------------------------------
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
Area Code and Telephone Number
-------------------------------------------------
Taxpayer Identification Number
-------------------------------------------------
Dated: , 1996
-------------------------------------------------------------------
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or on a security position listing or by the person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, agent, officer of a corporation or other person
acting in a fiduciary or representative capacity, please set forth full title
and see Instruction 5).
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE
BELOW.
Authorized signature(s)
---------------------------------------------------------
Name
----------------------------------------------------------------------------
Name of Firm
-------------------------------------------------------------------
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number
-------------------------------------------------
Dated: , 1996
--------------------------------------------------------------------
<PAGE> 8
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: THE FIRST NATIONAL BANK OF BOSTON
- ------------------------------------------------------------------------------------------------------------------
PART 1 -- PLEASE PROVIDE YOUR TIN IN PART III -- Social Security Number or
THE BOX AT THE RIGHT AND CERTIFY BY Employer Identification Number
SIGNING AND DATING BELOW.
-------------------------------------
(If awaiting TIN write "Applied For")
----------------------------------------------------------------------------
PART II -- For Payees exempt from backup withholding, see the enclosed
SUBSTITUTE Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 and complete as instructed therein.
FORM W-9
DEPARTMENT OF THE TREASURY Certification -- Under penalties of perjury, I certify that:
INTERNAL REVENUE SERVICE
(1) The number shown on this form is my correct TIN (or I am waiting for a
PAYOR'S REQUEST FOR number to be issued to me); and
TAXPAYER IDENTIFICATION
NUMBER ("TIN") (2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out Item (2) above if you
have been notified by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your tax return.
However, if after being notified by the IRS that you were subject to
backup withholding, you received another notification from the IRS that
you were no longer subject to backup withholding, do not cross out item
(2). (Also see instructions in the enclosed Guidelines).
----------------------------------------------------------------------------
SIGNATURE: DATE:
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU
MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a TIN has not been issued to me,
and either (1) I have mailed or delivered an application to receive a TIN to the
appropriate IRS Center or Social Security Administration Office or (2) I intend
to mail or deliver an application in the near future. I understand that if I do
not provide a TIN by the time of payment, 31% of all payments pursuant to the
Offer made to me thereafter will be withheld until I provide a number.
Signature: Date:
------------------------------------------- -----------------
- --------------------------------------------------------------------------------
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, signatures
on all Letters of Transmittal must be guaranteed by a firm that is a bank,
broker, dealer, credit union, savings association or other entity which is a
member in good standing of the Securities Transfer Agents Medallion Program or
by any other bank, broker, dealer, credit union, savings association or other
entity which is an "eligible guarantor institution," as such term is defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each of the
foregoing constituting an "Eligible Institution"), unless the Shares tendered
thereby are tendered (i) by a registered holder of Shares who has not completed
either the box labeled "Special Payment Instructions" or the box labeled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. See Instruction 5. If the certificates are
registered in the name of a person or persons other than the signer of this
Letter of Transmittal, or if payment is to be made or delivered to, or
certificates evidencing unpurchased Shares are to be issued or returned to, a
person other than the registered owner or owners, then the tendered certificates
must be endorsed or accompanied by duly executed stock powers, in either case
signed exactly as the name or names of the registered owner or owners appear on
the certificates or stock powers, with the signatures on the certificates or
stock powers guaranteed by an Eligible Institution as provided herein. See
Instruction 5.
2. Delivery of Letter of Transmittal and Shares. This Letter of Transmittal
is to be used either if certificates are to be forwarded herewith or, unless an
Agent's Message (as defined in the Offer to Purchase) is utilized, if the
delivery of Shares is to be made by book-entry transfer pursuant to the
procedures set forth in Section 3 of the Offer to Purchase. Certificates for all
physically delivered Shares, or a confirmation of a book-entry transfer into the
Depositary's account at one of the Book-Entry Transfer Facilities of all Shares
delivered electronically, as well as a properly completed and duly executed
Letter of Transmittal (or a manually signed facsimile thereof) and any other
documents required by this Letter of Transmittal, or an Agent's Message in the
case of a book entry delivery, must be received by the Depositary at one of its
addresses set forth on the front page of this Letter of Transmittal by the
Expiration Date. Stockholders who cannot deliver their Shares and all other
required documents to the Depositary by the Expiration Date must tender their
Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of
the Offer to Purchase. Pursuant to such procedure: (a) such tender must be made
by or through an Eligible Institution; (b) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form provided by
the Offeror, must be received by the Depositary prior to the Expiration Date;
and (c) the certificates for all tendered Shares, in proper form for tender, or
a confirmation of a book-entry transfer into the Depositary's account at one of
the Book-Entry Transfer Facilities of all Shares delivered electronically, as
well as a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile thereof), and any other documents required by this
Letter of Transmittal, must be received by the Depositary within three American
Stock Exchange trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase.
The method of delivery of Shares, the Letter of Transmittal and all other
required documents, including delivery through a Book-Entry Transfer Facility,
is at the option and risk of the tendering stockholder. If delivery is by mail,
registered mail with return receipt requested, properly insured, is recommended.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased. By executing this Letter of Transmittal (or
a manually signed facsimile thereof), the tendering stockholder waives any right
to receive any notice of the acceptance for payment of the Shares.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. Partial Tenders (not applicable to stockholders who tender by book-entry
transfer). If fewer than all the Shares represented by any certificate delivered
to the Depositary are to be tendered, fill in the number of Shares which are to
be tendered in the box entitled "Number of Shares Tendered." In such case, a new
certificate for the remainder of the Shares represented by the old certificate
will be sent to the person(s)
<PAGE> 10
signing this Letter of Transmittal, unless otherwise provided in the appropriate
box on this Letter of Transmittal, as promptly as practicable following the
expiration or termination of the Offer. All Shares represented by certificates
delivered to the Depositary will be deemed to have been tendered unless
otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificates without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby are held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock powers
are required unless payment of the purchase price is to be made, or Shares not
tendered or not purchased are to be returned, in the name of any person other
than the registered holder(s). Signatures on any such certificates or stock
powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the certificate must be
endorsed or accompanied by appropriate stock powers, in either case, signed
exactly as the name(s) of the registered holder(s) appear(s) on the certificates
for such Shares. Signature(s) on any such certificates or stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificate or stock power is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Offeror of the authority of such person so to act must be submitted.
6. Stock Transfer Taxes. The Offeror will pay any stock transfer taxes with
respect to the sale and transfer of any Shares to it or its order pursuant to
the Offer. If, however, payment of the purchase price is to be made to, or
Shares not tendered or not purchased are to be returned in the name of, any
person other than the registered holder(s), then the amount of any stock
transfer taxes (whether imposed on the registered holder(s), such other person
or otherwise) payable on account of the transfer to such person will be deducted
from the purchase price unless satisfactory evidence of the payment of such
taxes, or exemption therefrom, is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter of
Transmittal.
7. Special Payment and Delivery Instruction. If the check for the purchase
price of any Shares purchased is to be issued, or any Shares not tendered or not
purchased are to be returned, in the name of a person other than the person(s)
signing this Letter of Transmittal or if the check or any certificates for
Shares not tendered or not purchased are to be mailed to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal at an address other than that shown above, the appropriate
boxes on this Letter of Transmittal should be completed. Stockholders tendering
Shares by book-entry transfer may request that Shares not purchased be credited
to such account at any of the Book-Entry Transfer Facilities as such stockholder
may designate under "Special Payment Instructions." If no such instructions are
given, any such Shares not purchased will be returned by crediting the account
at the Book-Entry Transfer Facilities designated above.
8. Substitute Form W-9. The tendering stockholder is required to provide
the Depositary with such stockholder's correct TIN on Substitute Form W-9, which
is provided above, unless an exemption applies. Failure to provide the
information on the Substitute Form W-9 may subject the tendering stockholder to
a
<PAGE> 11
$50 penalty and to 31% federal income tax backup withholding on the payment of
the purchase price for the Shares.
9. Requests for Assistance or Additional Copies. Requests for assistance or
additional copies of the Offer to Purchase and this Letter of Transmittal may be
obtained from the Information Agent or the Dealer Manager at their respective
addresses or telephone numbers set forth below.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE COPY
HEREOF (TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND
ALL OTHER REQUIRED DOCUMENTS) OR NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED
BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO
PURCHASE).
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary with such
stockholder's correct TIN on the Substitute Form W-9. If such stockholder is an
individual, the TIN is such stockholder's social security number. If the
Depositary is not provided with the correct TIN, the stockholder may be subject
to a $50 penalty imposed by the Internal Revenue Service. In addition, payments
that are made to such stockholder with respect to Shares purchased pursuant to
the Offer may be subject to backup withholding.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. Such statements may be
obtained from the Depositary. All exempt recipients (including foreign persons
wishing to qualify as exempt recipients) should see the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If backup withholding results in an
overpayment of taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup federal income tax withholding on payments that are made
to a stockholder with respect to Shares purchased pursuant to the Offer, the
stockholder is required to notify the Depositary of his or her correct TIN by
completing the form certifying that the TIN provided on the Substitute Form W-9
is correct.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares. If
the Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidelines on which number to
report.
<PAGE> 12
The Information Agent for the Offer is:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
450 West 33rd Street
15th Floor
New York, New York 10001-2697
Toll Free (800) 306-8594
Banks and Brokerage Firms, please call:
(212) 946-7712
The Dealer Manager for the Offer is:
RODMAN & RENSHAW, INC.
Two World Financial Center
225 Liberty Street
30th Floor
New York, New York 10281
Call Collect (212) 416-7333
April 26, 1996
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK OF
CORNERSTONE NATURAL GAS, INC.
AT
$6.00 NET PER SHARE
BY
THE EL PASO COMPANY
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
EL PASO NATURAL GAS COMPANY
EACH A UNIT OF
EL PASO ENERGY CORPORATION
********************************************************************************
* THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT *
* 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, MAY 24, 1996, *
* UNLESS THE OFFER IS EXTENDED *
********************************************************************************
To Brokers, Dealers, Commercial Banks, April 26, 1996
Trust Companies and Other Nominees:
We have been appointed by The El Paso Company, a Delaware corporation (the
"Offeror") and an indirect wholly owned subsidiary of El Paso Natural Gas
Company, a Delaware corporation (the "Parent"), to act as Dealer Manager in
connection with the Offeror's offer to purchase all outstanding shares of common
stock, $0.10 par value per share (the "Shares"), of Cornerstone Natural Gas,
Inc., a Delaware corporation (the "Company"), at a purchase price of $6.00 per
Share, net to the seller in cash, without interest, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated April 26, 1996 (the
"Offer to Purchase"), and in the related Letter of Transmittal (which together
constitute the "Offer") enclosed herewith. The Offer is being made in connection
with the Agreement and Plan of Merger, dated as of April 20, 1996, among the
Parent, the Offeror and the Company (the "Merger Agreement"). Holders of Shares
whose certificates for such Shares (the "Certificates") are not immediately
available or who cannot deliver their Certificates and all other required
documents to the Depositary or complete the procedures for book-entry transfer
prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase)
must tender their Shares according to the guaranteed delivery procedure set
forth in Section 3 of the Offer to Purchase.
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Shares in your name or in the name of your nominee.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Offer to Purchase, dated April 26, 1996.
2. The Letter of Transmittal to tender Shares for your use and for the
information of your clients. Facsimile copies of the Letter of Transmittal
(with manual signatures) may be used to tender Shares.
3. A letter to stockholders of the Company from Ray C. Davis, the
Chairman of the Company, together with a Solicitation/Recommendation
Statement on Schedule 14D-9 filed with the Securities and Exchange
Commission by the Company and mailed to the stockholders of the Company.
<PAGE> 2
4. The Notice of Guaranteed Delivery for Shares to be used to accept
the Offer if neither of the two procedures for tendering Shares set forth
in the Offer to Purchase can be completed on a timely basis.
5. A printed form of letter which may be sent to your clients for
whose accounts you hold Shares registered in your name, with space provided
for obtaining such clients' instructions with regard to the Offer.
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, MAY 24, 1996, UNLESS
THE OFFER IS EXTENDED.
Please note the following:
1. The tender price is $6.00 per Share, net to the seller in cash,
without interest.
2. The Offer is being made for all of the outstanding Shares.
3. The Offer and withdrawal rights will expire at 12:00 Midnight, New
York City time, on Friday, May 24, 1996, unless the Offer is extended.
4. The Offer is conditioned upon, among other things, (i) there being
validly tendered by the expiration date and not withdrawn that number of
Shares which, when added to the number of Shares then issuable upon
exercise of presently exercisable warrants previously delivered to the
Offeror in accordance with the terms of the Option Agreement described
below, would represent at least a majority of the outstanding Shares on a
fully diluted basis and (ii) satisfaction of certain other terms and
conditions. See Section 15 of the Offer to Purchase.
5. THE OFFER IS BEING MADE PURSUANT TO THE MERGER AGREEMENT. IN
CONNECTION WITH THE MERGER AGREEMENT, CERTAIN HOLDERS OF SHARES, STOCK
OPTIONS AND WARRANTS TO PURCHASE SHARES REPRESENTING IN THE AGGREGATE
APPROXIMATELY 50.3% OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS HAVE
ENTERED INTO AN OPTION AGREEMENT WITH THE PARENT AND THE OFFEROR. PURSUANT
TO THE OPTION AGREEMENT, SUCH HOLDERS HAVE AGREED TO TENDER THEIR SHARES IN
THE OFFER AND HAVE GRANTED TO THE OFFEROR AN IRREVOCABLE OPTION TO PURCHASE
THEIR SHARES, SHARES ISSUABLE UPON THE EXERCISE OF THE STOCK OPTIONS AND
WARRANTS UNDER CERTAIN CIRCUMSTANCES.
6. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
OFFER, THE MERGER AND THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THE OPTION AGREEMENT, HAS DETERMINED THAT THE TERMS OF EACH
OF THE OFFER, THE MERGER AND THE MERGER AGREEMENT ARE FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND RECOMMENDS THAT THE
COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE
OFFER.
7. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the transfer of Shares pursuant to the
Offer.
In order to take advantage of the Offer, (i) a duly executed and properly
completed Letter of Transmittal (or a manually signed facsimile thereof) and any
required signature guarantees or, in the case of a book-entry transfer, an
Agent's Message (as defined in the Offer to Purchase) or other required
documents should be sent to the Depositary and (ii) Certificates representing
the tendered Shares or a timely Book-Entry Confirmation (as defined in the Offer
to Purchase) should be delivered to the Depositary in accordance with the
instructions set forth in the Offer.
If holders of Shares wish to tender, but it is impracticable for them to
forward their Certificates or other required documents or complete the
procedures for book-entry transfer prior to the Expiration Date, a tender may be
effected by following the guaranteed delivery procedure specified in Section 3
of the Offer to Purchase.
<PAGE> 3
Neither the Offeror, the Parent nor any officer, director, stockholder,
agent or other representative of the Offeror will pay any fees or commissions to
any broker, dealer or other person (other than the Dealer Manager, the
Depositary and the Information Agent as described in the Offer to Purchase) for
soliciting tenders of Shares pursuant to the Offer. The Offeror will, however,
upon request, reimburse you for customary mailing and handling expenses incurred
by you in forwarding any of the enclosed materials to your clients. The Offeror
will pay or cause to be paid any transfer taxes payable on the transfer of
Shares to it, except as otherwise provided in Instruction 6 of the Letter of
Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
Chemical Mellon Shareholder Services, L.L.C., 450 West 33rd Street, 15th Floor,
New York, New York 10001-2697, (800) 306-8594 or Rodman & Renshaw, Inc., the
Dealer Manager for the Offer, at Two World Financial Center, 225 Liberty Street,
30th Floor, New York, New York 10281 (212) 416-7333.
Requests for copies of the enclosed materials may be directed to the
Information Agent at the above address and telephone number.
Very truly yours,
RODMAN & RENSHAW, INC.
Two World Financial Center
225 Liberty Street
30th Floor
New York, N.Y. 10281
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF THE PARENT, THE OFFEROR, THE DEPOSITARY, THE
INFORMATION AGENT, THE DEALER MANAGER OR ANY AFFILIATE OF ANY OF THEM, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED
DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CORNERSTONE NATURAL GAS, INC.
AT
$6.00 NET PER SHARE
BY
THE EL PASO COMPANY
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
EL PASO NATURAL GAS COMPANY
EACH A UNIT OF
EL PASO ENERGY CORPORATION
************************************************************************
* THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT *
* 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, MAY 24, 1996, *
* UNLESS THE OFFER IS EXTENDED. *
************************************************************************
April 26, 1996
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated April 26,
1996 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer") relating to an offer by The El Paso Company, a
Delaware corporation (the "Offeror") and an indirect wholly owned subsidiary of
El Paso Natural Gas Company, a Delaware corporation (the "Parent"), to purchase
all outstanding shares of common stock, par value $0.10 per share (the "Shares")
of Cornerstone Natural Gas, Inc., a Delaware corporation (the "Company"), at a
purchase price of $6.00 per Share, net to the seller in cash, without interest,
upon the terms and subject to the conditions set forth in the Offer. The Offer
is being made in connection with the Agreement and Plan of Merger, dated as of
April 20, 1996, among the Parent, the Offeror and the Company (the "Merger
Agreement"). This material is being forwarded to you as the beneficial owner of
Shares carried by us in your account but not registered in your name.
A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND
PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR
YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR
YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish to tender any
or all of the Shares held by us for your account, upon the terms and conditions
set forth in the Offer.
Please note the following:
1. The tender price is $6.00 per Share, net to the seller in cash,
without interest.
2. The Offer is being made for all of the outstanding Shares.
3. The Offer and withdrawal rights will expire at 12:00 Midnight, New
York City time, on Friday, May 24, 1996, unless the Offer is extended.
<PAGE> 2
4. The Offer is conditioned upon, among other things, (i) there being
validly tendered by the expiration date and not withdrawn that number of
Shares which, when added to the number of Shares then issuable upon
exercise of presently exercisable warrants previously delivered to the
Offeror in accordance with the terms of the Option Agreement described
below, would represent at least a majority of the outstanding Shares on a
fully diluted basis and (ii) satisfaction of certain other terms and
conditions. See Section 15 of the Offer to Purchase.
5. THE OFFER IS BEING MADE PURSUANT TO THE AGREEMENT AND PLAN OF
MERGER DATED AS OF APRIL 20, 1996, AMONG THE PARENT, THE OFFEROR AND THE
COMPANY. IN CONNECTION WITH THE MERGER AGREEMENT, CERTAIN HOLDERS OF
SHARES, STOCK OPTIONS AND WARRANTS TO PURCHASE SHARES REPRESENTING IN THE
AGGREGATE APPROXIMATELY 50.3% OF THE OUTSTANDING SHARES ON A FULLY DILUTED
BASIS HAVE ENTERED INTO AN OPTION AGREEMENT WITH THE PARENT AND THE
OFFEROR. PURSUANT TO THE OPTION AGREEMENT, SUCH HOLDERS HAVE AGREED TO
TENDER THEIR SHARES IN THE OFFER AND HAVE GRANTED TO THE OFFEROR AN
IRREVOCABLE OPTION TO PURCHASE THEIR SHARES, SHARES ISSUABLE UPON THE
EXERCISE OF STOCK OPTIONS AND WARRANTS UNDER CERTAIN CIRCUMSTANCES.
6. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
OFFER, THE MERGER AND THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THE OPTION AGREEMENT, HAS DETERMINED THAT THE TERMS OF EACH
OF THE OFFER, THE MERGER AND THE MERGER AGREEMENT ARE FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND RECOMMENDS THAT THE
COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE
OFFER.
7. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the transfer of Shares pursuant to the
Offer.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing, detaching and returning to us the instruction form
contained in this letter. An envelope to return your instruction form to us is
enclosed. If you authorize tender of your Shares, all such Shares will be
tendered unless otherwise indicated in such instruction form. PLEASE FORWARD
YOUR INSTRUCTIONS TO US AS SOON AS POSSIBLE TO ALLOW US AMPLE TIME TO TENDER
YOUR SHARES ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and any supplements or amendments thereto. The Offer is not being
made to, nor will tenders be accepted from or on behalf of, holders of Shares
residing in any jurisdiction in which the making of the Offer or acceptance
thereof would not be in compliance with the securities laws of such
jurisdiction. In any jurisdiction where the securities, blue sky, or other laws
require the Offer to be made by a licensed broker or dealer, the Offer will be
deemed to be made on behalf of the Offeror by Rodman & Renshaw, Inc. or one or
more registered brokers or dealers licensed under the laws of such jurisdiction.
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO
THE OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CORNERSTONE NATURAL GAS, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase dated April 26, 1996 (the "Offer to Purchase"), and the
related Letter of Transmittal (which together constitute the "Offer") in
connection with the offer by The El Paso Company, a Delaware corporation (the
"Offeror") and an indirect wholly owned subsidiary of El Paso Natural Gas
Company, a Delaware corporation, to purchase all outstanding shares of common
stock, par value $0.10 per share ("Shares"), of Cornerstone Natural Gas, Inc., a
Delaware corporation.
This will instruct you to tender to the Offeror the number of Shares
indicated below (or if no number is indicated below, all Shares) which are held
by you for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer.
<TABLE>
<S> <C>
****************************
* Number of Shares to be * SIGN HERE
* Tendered:(1)__________ *
****************************
-----------------------------------
Signature(s)
Account Number: -----------------------------------
-----------------------------------
(Print Name(s))
Date: -----------------------------------
-----------------------------------
(Print Address(es))
-----------------------------------
(Area Code and Telephone Number(s))
-----------------------------------
(Taxpayer Identification or
Social Security Number(s))
</TABLE>
- ---------------
(1) Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered.
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
CORNERSTONE NATURAL GAS, INC.
This form, or one substantially equivalent hereto, must be used to accept
the Offer (as defined below) if certificates for shares of common stock, $0.10,
par value per share (the "Shares"), of Cornerstone Natural Gas, Inc., a Delaware
corporation (the "Company"), are not immediately available or if the procedure
for book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Depositary on or prior to the
Expiration Date (as defined in the Offer to Purchase). Such form may be
delivered by hand or facsimile transmission, or mail to the Depositary. See
Section 3 of the Offer to Purchase, dated April 26, 1996 (the "Offer to
Purchase").
THE DEPOSITARY FOR THE OFFER IS:
THE FIRST NATIONAL BANK OF BOSTON
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
The First National Bank of The First National Bank of Banc Boston Trust Company
Boston Boston of New York
Shareholder Services Division Shareholder Services Division 55 Broadway, Third Floor
P.O. Box 1889 150 Royall Street New York, New York
Mail Stop 45-02-53 Mail Stop: 45-02-53
Boston, Massachusetts 02105 Canton, Massachusetts 02021
</TABLE>
By Facsimile:
(617) 575-2232
(617) 575-2233
(For Eligible Institutions Only)
Confirm Facsimile by Telephone:
(800) 736-3001
(For Confirmation Only)
---------------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION OF INSTRUMENTS VIA A FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES
NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal or an
Agent's Message and certificates for Shares to the Depositary within the time
period shown herein. Failure to do so could result in a financial loss to such
Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to The El Paso Company, a Delaware
corporation, upon the terms and subject to the conditions set forth in the Offer
to Purchase, and the related Letter of Transmittal (which together constitute
the "Offer"), receipt of which is hereby acknowledged, Shares of the Company,
pursuant to the guaranteed delivery procedure set forth in Section 3 of the
Offer to Purchase.
<TABLE>
<S> <C>
Number of Shares: SIGN HERE
---------------------------
Certificate No(s) (if available): Name(s):
- -------------------------------------------- --------------------------------------------
- -------------------------------------------- --------------------------------------------
(Please Print)
If Shares will be tendered by
book-entry transfer: Address:
------------------------ ------------------------------------
--------------------------------------------
Name of Tendering Institutions (Zip Code)
Area Code and Telephone No.:
- --------------------------------------------
Account No.: at
---------------------------- --------------------------------------------
/ / The Depository Trust Company
/ / Midwest Securities Trust Company Signature(s):
/ / Philadelphia Depository Trust Company -------------------------------
--------------------------------------------
</TABLE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a bank, broker, dealer, credit union, savings association
or other entity which is a member in good standing of the Securities Transfer
Agents Medallion Program or a bank, broker, dealer, credit union, savings
association or other entity which is an "eligible guarantor institution," as
such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934,
as amended, guarantees the delivery to the Depositary of the Shares tendered
hereby, together with a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile(s) thereof) and any other required
documents, or an Agent's Message (as defined in the Offer to Purchase) in the
case of a book-entry delivery of Shares, all within three American Stock
Exchange trading days of the date hereof.
<TABLE>
<S> <C>
Name of Firm: Title:
------------------------------- --------------------------------------
Name:
- -------------------------------------------- --------------------------------------
(Authorized Signature) (Please Print or Type)
Address: Area Code and Telephone No.:
------------------------------------ -----------------
</TABLE>
DO NOT SEND CERTIFICATES FOR SHARES WITH THIS FORM --
CERTIFICATES SHOULD BE SENT WITH LETTER OF TRANSMITTAL
Dated: , 1996
2
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
FOR THIS TYPE OF ACCOUNT: GIVE THE
SOCIAL SECURITY
NUMBER OF --
- --------------------------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of the
account) account or, if combined
funds, any one of the
individuals (1)
3. Custodian and wife (joint account) The actual owner of the
account or, if joint funds,
either person (1)
4. Custodian account of a minor The minor (2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor
is the only contributor,
the minor (1)
6. Account in the name of guardian or The ward, minor, or
committee for a designated ward, incompetent person (3)
minor, or incompetent person
7. a The usual revocable savings trust The grantor-trustee (1)
account (grantor is also trustee)
b So-called trust account that is The actual owner (1)
not a legal or valid trust under
State law
- --------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF --
- --------------------------------------------------------------------------------
8. Sole proprietorship account The Owner (4)
9. A valid trust, estate, or pension Legal entity (Do not
trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.) (5)
10. Corporate account The Corporation
11. Religious, charitable, or The organization
educational organization account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other tax- The organization
exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or
prison) that receives agricultural
program payments
</TABLE>
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the lgeal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or
agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A (a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
<PAGE> 1
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares. The Offer is made solely by the Offer to Purchase dated
April 26, 1996 and the related Letter of Transmittal and is being made to all
holders of Shares. The Purchaser is not aware of any state where the making of
the Offer is prohibited by administrative or judicial action pursuant to any
valid state statute. If the Purchaser becomes aware of any valid state statute
prohibiting the making of the Offer or the acceptance of Shares pursuant
thereto, the Purchaser will make a good faith effort to comply with such state
statute or seek to have such statute declared inapplicable to the Offer. If,
after such good faith effort, the Purchaser cannot comply with such state
statute, the Offer will not be made to (nor will tenders be accepted from or on
behalf of) the holders of Shares in such state. In any jurisdiction where the
securities, blue sky or other laws require the Offer to be made by a licensed
broker or dealer, the Offer shall be deemed to be made on behalf of the
Purchaser by Rodman & Renshaw, Inc. ("Rodman & Renshaw") or one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
Cornerstone Natural Gas, Inc.
at
$6.00 Net Per Share
by
The El Paso Company
an Indirect Wholly Owned Subsidiary of
El Paso Natural Gas Company
each a Unit of
El Paso Energy Corporation
The El Paso Company, a Delaware corporation (the "Purchaser") and an
indirect wholly owned subsidiary of El Paso Natural Gas Company, a Delaware
corporation (the "Parent"), is offering to purchase all outstanding shares of
common stock, $.10 par value (the "Shares"), of Cornerstone Natural Gas, Inc., a
Delaware corporation (the "Company"), at a price of $6.00 per Share, net to the
seller in cash without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated April 26, 1996 and the
related Letter of Transmittal (which together constitute the "Offer").
----------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON FRIDAY, MAY 24, 1996, UNLESS THE OFFER IS EXTENDED.
----------------------------------------------------------------------
The Offer is conditioned upon, among other things, (i) there being validly
tendered by the expiration date and not withdrawn that number of Shares which,
when added to the number of Shares then issuable upon exercise of presently
exercisable warrants previously delivered to the Purchaser in accordance with
the terms of the Option Agreement described below, would represent at least a
majority of the outstanding Shares on a fully diluted basis and (ii)
satisfaction of certain other terms and conditions. See Section 15 of the Offer
to Purchase.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of April 20, 1996 (the "Merger Agreement"), among the Parent, the Purchaser
and the Company. The Merger Agreement provides that, among other things, as soon
as practicable after the purchase of Shares pursuant to the Offer and the
satisfaction of the other conditions set forth in the Merger Agreement and in
accordance with the relevant provisions of the General Corporation Law of the
State of Delaware ("Delaware Law"), the Purchaser will be merged with and into
the Company (the "Merger"). Following the consummation of the Merger, the
Company will continue as the surviving corporation and will be an indirect
wholly owned subsidiary of the Parent. At the effective time of the Merger, each
outstanding Share (other than Shares owned by the Company as treasury stock,
Shares owned by any subsidiary of the Company, Shares owned by the Parent or the
Purchaser or any subsidiary thereof, or Shares with respect to which appraisal
rights are properly exercised under Delaware Law) will be converted into and
represent the right to receive $6.00 (or any higher price that may be paid for
each Share pursuant to the Offer) in cash, without interest thereon.
The Parent, the Purchaser and certain holders (the "Holders") of Shares,
Shares issuable upon the exercise of stock options ("Stock Options") or warrants
to purchase Shares ("Warrants") have entered into an Option Agreement, dated as
of April 20, 1996 (the "Option Agreement"), pursuant to which the Holders have
granted to the Purchaser an irrevocable option, upon the terms and subject to
the conditions set forth in the Option Agreement, to purchase at the Offer Price
or, in the case of the Warrants, at the excess of the Offer Price over the
exercise price of such Warrants, an aggregate of 5,446,514 Shares, an aggregate
of 204,500 Shares issuable upon exercise of Stock Options and Warrants
exercisable for an aggregate of 2,564,103 Shares, representing in the aggregate
8,215,117 Shares or approximately 50.3% of the outstanding Shares on a fully
diluted basis. The Option Agreement further provides, among other things, that
the Holders are required to tender all of the Shares held by them in the Offer.
See Section 13 of the Offer to Purchase.
The Board of Directors of the Company has unanimously approved the Offer,
the Merger and the Merger Agreement and the transactions contemplated by the
Option Agreement, has determined that the terms of each of the Offer and the
Merger and the terms of the Merger Agreement are fair to and in the best
interests of the Company's stockholders and recommends that the Company's
stockholders accept the Offer and tender their Shares in the Offer.
<PAGE> 2
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in the Letter of Transmittal, transfer
taxes on the purchase of Shares pursuant to the Offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered and not properly
withdrawn as, if and when the Purchaser gives oral or written notice to the
depositary (the "Depositary") of its acceptance of such Shares for payment. Upon
the terms and subject to the conditions of the Offer, payment for Shares
accepted pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering stockholders
for the purposes of receiving payments from the Purchaser and transmitting
payments to tendering stockholders whose Shares have theretofore been accepted
for payment. In all cases, payment for Shares purchased pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) the certificates
for such Shares or timely Book-Entry Confirmation (as defined in Section 2 of
the Offer to Purchase) of such Shares, if such procedure is available, into the
Depositary's account at The Depository Trust Company, the Midwest Securities
Trust Company or the Philadelphia Depository Trust Company pursuant to the
procedures set forth in Section 3 of the Offer to Purchase, (ii) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed with
all required signature guarantees or, in the case of a book-entry transfer, an
Agent's Message and (iii) all other documents required by the Letter of
Transmittal. Under no circumstances will interest be paid on the purchase price
for Shares to be paid by the Purchaser, regardless of any delay in making such
payment.
The term "Expiration Date" shall mean 12:00 midnight, New York City time,
on Friday, May 24, 1996, unless and until the Purchaser, in accordance with the
terms of the Offer and the Merger Agreement, shall have extended the period of
time during which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date at which the Offer, as so extended by the
Purchaser, shall expire. Subject to the terms of the Merger Agreement, the
Purchaser expressly reserves the right, in its sole discretion, at any time or
from time to time, to extend for any reason the period of time during which the
Offer is open, including the occurrence of any of the events specified in
Section 15 of the Offer to Purchase, by giving oral or written notice of such
extension to the Depositary. Any such extension will be followed by a public
announcement thereof by no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. During any such
extension, all Shares previously tendered and not withdrawn will remain subject
to the Offer, subject to the right of a tendering stockholder to withdraw such
stockholder's Shares. Without limiting the manner in which the Purchaser may
choose to make any public announcement, the Purchaser will have no obligation to
publish, advertise or otherwise communicate any such announcement other than by
issuing a press release to the Dow Jones News Service or as otherwise may be
required by law.
Except as otherwise provided below, tenders of Shares made pursuant to the
Offer are irrevocable. Shares tendered pursuant to the Offer may be withdrawn
any time prior to the Expiration Date and, unless theretofore accepted for
payment by the Purchaser pursuant to the Offer, may also be withdrawn at any
time after June 24, 1996. For a withdrawal to be effective, a written,
telegraphic or facsimile transmission notice of withdrawal must be timely
received by the Depositary at one of its addresses set forth below. Any such
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If certificates evidencing Shares have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the tendering stockholder must also submit the serial numbers
shown on the particular certificate evidencing the Shares to be withdrawn, and
the signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, as defined in Section 3 of the Offer to Purchase. If Shares have
been tendered pursuant to the procedure for book-entry transfer set forth in
Section 3 of the Offer to Purchase, any notice of withdrawal must also specify
the name and number of the account at the applicable Book-Entry Transfer
Facility (as defined in Section 2 of the Offer to Purchase) to be credited with
the withdrawn Shares. All questions as to the form and validity (including time
of receipt) of notices of withdrawal will be determined by the Purchaser, in its
sole discretion, whose determination shall be final and binding on all parties.
None of the Purchaser, the Parent, the Dealer Manager, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failure to give any such notification. Any Shares
properly withdrawn will thereafter be deemed not validly tendered for purposes
of the Offer, but may be tendered at any time prior to the Expiration Date by
following any of the procedures described in Section 3 of the Offer to Purchase.
The Company has provided the Purchaser with the Company's stockholder list
and security position listings for the purpose of disseminating the Offer to
stockholders. The Offer to Purchase, the related Letter of Transmittal and other
tender offer materials will be mailed to record holders of Shares whose names
appear on the Company's stockholder list and will be furnished, for subsequent
transmittal to beneficial owners of Shares, to brokers, dealers, commercial
banks, trust companies and similar persons whose names, or the names of whose
nominees appear on the Company's stockholder list or, if applicable, who are
listed as participants in a clearing agency's security position listing.
The information required to be disclosed by paragraph (e)(1)(vii) of Rule
14d-6 under the Securities Exchange Act of 1934, as amended, is contained in the
Offer to Purchase and is incorporated herein by reference.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
Requests for copies of the Offer to Purchase, the related Letter of
Transmittal and other tender offer documents may be directed to the Information
Agent as set forth below, and copies will be furnished promptly at the
Purchaser's expense. Questions or requests for assistance may be directed to the
Information Agent or the Dealer Manager as set forth below. Neither the Parent
nor the Purchaser will pay any fees or commissions to any broker or dealer or
other person (other than the Dealer Manager, the Depositary and the Information
Agent) in connection with the solicitation of tenders of Shares pursuant to the
Offer.
The Information Agent for the Offer is:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
450 West 33rd Street
15th Floor
New York, New York 10001-2697
Toll Free (800) 306-8594
Banks and Brokerage Firms, please call:
(212) 946-7712
The Dealer Manager for the Offer is:
RODMAN & RENSHAW, INC.
Two World Financial Center
225 Liberty Street
30th Floor
New York, New York 10281
(800) 763-6266 (212) 416-7333
April 26, 1996
<PAGE> 1
FOR IMMEDIATE RELEASE
EL PASO ENERGY CORPORATION TO ACQUIRE
CORNERSTONE NATURAL GAS, INC.
EL PASO, HOUSTON, AND DALLAS, TEXAS, APRIL 22, 1996 - El Paso Energy
Corporation (NYSE:EPG) and Cornerstone Natural Gas, Inc. (AMEX:CGA) jointly
announced today the execution of a definitive merger agreement which provides
for the acquisition by EPG of all of the outstanding shares of Cornerstone
common stock and the merger of Cornerstone with a subsidiary of El Paso Field
Services Company (EPFS), the gathering and processing arm of EPG. The net value
of the transaction is approximately $115 million.
Pursuant to the agreement, a subsidiary of EPG will commence a cash tender
offer for all outstanding shares of common stock of Cornerstone at $6.00 per
share in cash within five business days. Rodman & Renshaw, Inc. will act as
Dealer Manager for the offer.
The tender offer will be conditioned upon, among other things, the
acquisition of at least a majority of the outstanding shares of common stock of
Cornerstone on a fully diluted basis (taking into account shares subject to an
option agreement in favor of EPG) and the expiration of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act. The agreement provides
that shares of Cornerstone common stock not purchased in the tender offer will
be acquired in the subsequent merger at the same price as that paid in the
tender offer.
In connection with execution of the merger agreement, the holders of
over 50% of the fully diluted outstanding shares of Cornerstone common stock
have granted to EPG options to purchase all shares of Cornerstone common stock
and Cornerstone stock options and warrants held by them. The merger agreement
also provides for specified fees and expenses to be paid to EPG under certain
circumstances.
The merger is expected to close in the second quarter of 1996.
Following the close, Cornerstone will become a subsidary of EPFS. Cornerstone's
operations are comprised of approximately 700 miles of gathering and
transportation systems and 7 natural gas processing and treating facilities
principally located in East Texas and Louisiana. Additionally, the Company
markets natural gas and gas liquids through its headquarters in Dallas, Texas
and regional marketing offices located in Pittsburgh.
<PAGE> 2
Pennsylvania and Shreveport, Louisiana. Cornerstone's systems and plants
currently gather, process and treat approximately 250 MMcf/d, with third party
marketing of another 100 MMcf/d.
"The acquisition of Cornerstone represents a significant addition to El Paso
Field Services as we continue our strategy of expanding El Paso's non-regulated
business activities into key geographic regions," said William A. Wise,
Chairman, President and Chief Executive Officer of El Paso Energy Corporation.
"Coupled with last year's acquisition of Eastex Energy and Premier Gas and the
formation of El Paso's Merchant Services Group, Cornerstone represents an
opportunity to enhance our presence in supply basins where drilling activity
has escalated due to higher energy prices, benefit from a broader scale of
operations in gathering, processing and marketing, and compete for new business
opportunities in these area."
El Paso Energy Corporation, through El Paso Natural Gas Company, owns and
operates one of the nation's largest mainline transmission systems serving the
southwestern region of the United States with first quarter 1996 throughput of
over 3.5 Bcf/d. El Paso Field Services owns and operates over 7,000 miles of
gathering systems connected to more than 10,000 wells in the San Juan, Anadarko
and Permian basins with first quarter 1996 gathering and treating volumes of
1.5 Bcf/d. The El Paso Merchant Services Group is a nationwide provider of
natural gas and power marketing services with first quarter 1996 sales volumes
of 3.8 Bcf/d.
Cornerstone is engaged in natural gas pipeline and processing operations
in Texas and Louisiana which include the purchasing, gathering, treating,
transportation and marketing of natural gas and the recovery and marketing of
natural gas liquids.
EPG will host a conference call to discuss this merger on April 22nd at
2:00 P.M. EDT (1:00 P.M. CDT, 12:00 P.M. MDT). If you would like to participate
in the conference call, contact SNET at 1-800-841-9385 at least 15 minutes
before the call begins.
Contacts: El Paso Energy Corporation
Ms. Norma Dunn (915) 541-5443
Vice President, Investor & Public Relations
Cornerstone Natural Gas, Inc.
Mr. Robert Cavnar (214) 691-5536
Chief Financial Officer
# # #
<PAGE> 1
================================================================================
AGREEMENT AND PLAN OF MERGER
among
EL PASO NATURAL GAS COMPANY,
THE EL PASO COMPANY
and
CORNERSTONE NATURAL GAS, INC.
Dated as of April 20, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Company Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3. Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. Certificate of Incorporation and By-laws of the Surviving Corporation . . . . . . . . . 5
3.1. Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2. By-laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Directors and Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . . 6
4.1. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Conversion of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1. Conversion of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6. Dissenting Shares; Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2. Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . 10
7.1. Existence; Good Standing; Corporate Authority; Compliance With Law . . . . . . . 10
7.2. Authorization, Validity and Effect of Agreements . . . . . . . . . . . . . . . . 11
7.3. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.5. Other Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.6. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.7. Proxy Statement; Offer Documents; Schedule 14D-1; Schedule 14D-9 . . . . . . . . 13
7.8. SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.9. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.10. Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.12. Certain Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.13. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.14. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.15. Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.16. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.17. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8. Representations and Warranties of Parent and Merger Sub . . . . . . . . . . . . . . . . 19
8.1. Existence; Good Standing; Corporate Authority; Compliance with Law . . . . . . . 19
8.2. Authorization, Validity and Effect of Agreements . . . . . . . . . . . . . . . . 19
8.3. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.4. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.5. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.6. Proxy Statement; Offer Documents; Schedule 14D-1; Schedule 14D-9 . . . . . . . . 20
9. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.1. No Solicitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . 21
9.2. Conduct of Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.3. Board Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.4. Meeting of the Company's Stockholders . . . . . . . . . . . . . . . . . . . . . 25
9.5. Filings; Other Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6. Inspection of Records; Access . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7. Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.8. Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.9. Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.10. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.11. Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.12. Certain Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13. Headquarters of the Surviving Corporation . . . . . . . . . . . . . . . . . . . 29
10. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.1. Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . 29
10.2. Conditions to Obligation of the Company to Effect the Merger . . . . . . . . . . 30
10.3. Conditions to Obligation of Parent and Merger Sub to Effect the Merger . . . . . 30
11. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1. Termination by Mutual Consent . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.2. Termination by Either Parent or the Company . . . . . . . . . . . . . . . . . . 30
11.3. Termination by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.4. Termination by Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.5. Effect of Termination and Abandonment . . . . . . . . . . . . . . . . . . . . . 32
11.6. Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.1. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . 33
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
12.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.3. Assignment; Binding Effect; Benefit . . . . . . . . . . . . . . . . . . . . . . 34
12.4. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.5. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.8. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.9. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.10. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.12. Enforcement of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
(iii)
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
April 20, 1996, among El Paso Natural Gas Company, a Delaware corporation
("Parent"), The El Paso Company, a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), and Cornerstone Natural Gas, Inc., a
Delaware corporation (the "Company").
RECITALS
A. The respective Boards of Directors of Parent, Merger Sub
and the Company have each approved the acquisition of the Company on the terms
and subject to the conditions set forth herein.
B. In furtherance of such acquisition, Parent agrees to cause
Merger Sub to make a tender offer to purchase all the issued and outstanding
shares of Common Stock, par value $.10 per share, of the Company (the "Common
Stock"), at a price of $6.00 per share net to the seller in cash, without
interest, upon the terms and subject to the conditions set forth herein (such
tender offer, as it may be amended or supplemented from time to time as
permitted under this Agreement, the "Offer"); and the Board of Directors of the
Company has adopted resolutions approving the Offer and recommending that the
Company's stockholders accept the Offer.
C. The respective Boards of Directors of Parent, Merger Sub
and the Company have each approved, upon the terms and subject to the
conditions set forth in this Agreement, the merger of Merger Sub with and into
the Company (the "Merger"), whereby each issued and outstanding share of Common
Stock not owned directly or indirectly by Parent or the Company, except shares
of Common Stock held by persons who object to the Merger and comply with all
provisions of Delaware law concerning the right of stockholders to dissent from
the Merger and require appraisal of their shares of Common Stock, will be
converted into the right to receive the per share consideration paid pursuant
to the Offer.
D. The Company has received a fairness opinion relating to
the transactions contemplated hereby as more fully described herein.
E. Parent and Merger Sub have required, as a condition to
entering into this Agreement, that, simultaneously with the execution and
delivery of this Agreement, certain holders of shares of Common Stock, stock
options or warrants of the Company enter into an agreement (the "Option
Agreement") with Parent and Merger Sub. Pursuant
<PAGE> 6
to the Option Agreement, such holders have agreed to tender their shares of
Common Stock in the Offer and have granted to Merger Sub an option to purchase
their shares of Common Stock, stock options and warrants upon the terms and
subject to the conditions set forth therein.
F. Parent, Merger Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Offer and the
Merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
1. The Offer.
1.1. The Offer. (a) Subject to the provisions of this
Agreement, as promptly as practicable (but in no event later than five business
days after the date of this Agreement), Merger Sub shall, and Parent shall
cause Merger Sub to, commence, within the meaning of Rule 14d-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Offer at
a cash price of $6.00 per share, net to the seller in cash, without interest.
The obligation of Merger Sub to, and of Parent to cause Merger Sub to,
consummate the Offer and accept for payment and pay for any shares of Common
Stock tendered shall be subject to the satisfaction of the conditions set forth
in Annex I and to the terms and conditions of this Agreement.
(b) On the date of commencement of the Offer, Parent and
Merger Sub shall file with the Securities and Exchange Commission (the "SEC")
with respect to the Offer a Tender Offer Statement on Schedule l4D-l (as
amended and supplemented from time to time, the "Schedule 14D-1"), which shall
comply in all material respects with the provisions of applicable federal
securities laws, and shall contain the offer to purchase relating to the Offer
and the form of the related letter of transmittal (which documents, as amended
or supplemented from time to time, are referred to collectively as the "Offer
Documents"). Parent shall deliver copies of the proposed forms of the Schedule
14D-1 and the Offer Documents to the Company within a reasonable time prior to
the commencement of the Offer for review and comment by the Company and its
counsel (who shall provide any comments thereon as soon as practicable).
Parent agrees to provide in writing to the Company and its counsel, promptly
after receipt thereof, any comments that either Parent, Merger Sub or their
counsel may receive from the SEC or its staff with respect to the Schedule
14D-1 or the Offer Documents. Parent and Merger Sub shall promptly correct any
information in the Schedule l4D-l or the Offer Documents that shall become
false or misleading in any material respect, and shall take all steps necessary
2
<PAGE> 7
to cause the Schedule 14D-1 or the Offer Documents as so corrected to be filed
with the SEC and disseminated to the stockholders of the Company as and to the
extent required by applicable laws.
(c) The Offer shall initially expire 20 business days after
the date of its commencement, unless this Agreement is terminated in accordance
with Article 11, in which case the Offer (whether or not previously extended in
accordance with the terms hereof) shall expire on such date of termination.
Neither Parent nor Merger Sub shall, without the prior written consent of the
Company, decrease the price per share of Common Stock payable in the Offer,
change the form of consideration payable in the Offer, decrease the number of
shares of Common Stock sought pursuant to the Offer, change or impose
additional conditions to the Offer or otherwise amend the Offer in any manner
adverse to the Company's stockholders. Notwithstanding the foregoing, Merger
Sub may, without the consent of the Company, extend the Offer (i) if at the
then scheduled expiration date of the Offer any of the conditions to Merger
Sub's obligation to accept for payment and pay for shares of Common Stock shall
not be satisfied or waived, until such time as such conditions are satisfied or
waived; (ii) for an aggregate period of not more than ten business days beyond
the initial expiration date of the Offer if all conditions have been satisfied
but less than 90% of the outstanding shares of Common Stock have been validly
tendered and not withdrawn (not including shares covered by notices of
guaranteed delivery); and (iii) for any period required by any rule,
regulation, interpretation or position of the SEC or the staff applicable to
the Offer. Assuming the prior satisfaction or waiver of the conditions of the
Offer and subject to clauses (ii) and (iii) of the preceding sentence, Merger
Sub shall, and Parent shall cause Merger Sub to, accept for payment and pay for
shares of Common Stock validly tendered and not withdrawn pursuant to the Offer
as soon as legally permitted after the commencement thereof.
(d) Parent shall provide or cause to be provided to Merger Sub
on a timely basis the funds necessary to purchase any shares of Common Stock
that Merger Sub becomes obligated to purchase pursuant to the Offer and shall
be liable on a direct and primary basis for the performance by Merger Sub of
its obligations under this Agreement.
1.2 Company Actions. (a) The Company hereby approves of and
consents to the Offer and represents that (i) the Board of Directors of the
Company, at a meeting duly called and held, has adopted resolutions (A)
determining that this Agreement and the terms of each of the Offer and the
Merger are fair to and in the best interests of the Company and its
stockholders, (B) approving the Offer, the Merger, this Agreement and the
transactions contemplated by the Option Agreement and acknowledging that such
approval is effective for purposes of Section 203 of the Delaware General
Corporation Law (the "DGCL") and Article Eleventh of the Company's
3
<PAGE> 8
Restated Certificate of Incorporation and (C) recommending acceptance of the
Offer and approval of the Merger and this Agreement by the Company's
stockholders and (ii) Salomon Brothers, Inc. has delivered to the Board of
Directors of the Company its opinion that the proposed consideration to be
received by the Company's stockholders pursuant to the Offer and the Merger is
fair to such stockholders from a financial point of view. The Company hereby
consents to the inclusion in the Offer Documents of the recommendation of the
Board of Directors of the Company described in the first sentence of this
Section 1.2(a) and Salomon Brothers, Inc. has consented to inclusion of its
opinion in the Offer Documents.
(b) The Company shall file with the SEC on the date of
commencement of the Offer a Solicitation/Recommendation Statement on Schedule
14D-9 (as amended and supplemented from time to time, the "Schedule 14D-9")
containing such recommendations of the Board of Directors of the Company with
respect to the Offer and the Merger and shall disseminate the Schedule 14D-9 to
stockholders of the Company as required by Rule 14d-9 promulgated under the
Exchange Act. The Schedule 14D-9 shall comply in all material respects with
the provisions of applicable federal securities laws. The Company shall
deliver copies of the proposed form of the Schedule 14D-9 to Parent within a
reasonable time prior to the filing thereof with the SEC for review and comment
by Parent and its counsel (who shall provide any comments thereon as soon as
practicable). The Company agrees to provide in writing to Parent and its
counsel, promptly after receipt thereof, any comments that the Company or its
counsel may receive from the SEC or its staff with respect to the Schedule
l4D-9. The Company shall promptly correct any information in the Schedule
l4D-9 that shall become false or misleading in any material respect, and shall
take all steps necessary to cause the Schedule 14D-9 as so corrected to be
filed with the SEC and disseminated to the stockholders of the Company as and
to the extent required by applicable laws.
(c) In connection with the Offer, the Company shall promptly
furnish Parent with (or cause Parent to be furnished with) mailing labels,
security position listings and any available listing or computer file
containing the names and addresses of the record holders of the shares of
Common Stock as of a recent date, and of those persons becoming record holders
after such date, and shall furnish Parent with such information and assistance
as Parent or its agents may reasonably request in communicating the Offer to
the stockholders of the Company. Subject to the requirements of applicable
law, and except for such steps as are necessary to disseminate the Offer
Documents and any other documents necessary to consummate the Merger, Parent
and Merger Sub shall, and shall cause each of their affiliates to, hold in
confidence the information contained in any of such labels, listings and files,
use such information only in connection with the Offer and the Merger, and, if
this Agreement is terminated, deliver to the Company all copies of such
information or extracts therefrom then in their possession or under their
control.
4
<PAGE> 9
ARTICLE 2
2. The Merger.
2.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 2.3), Merger Sub shall
be merged with and into the Company in accordance with this Agreement and the
separate corporate existence of Merger Sub shall thereupon cease. The Company
shall be the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation"). The Merger shall have the effects
specified in the DGCL.
2.2. The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place at the
offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New
York, New York, at 9:00 a.m., local time, on the first business day immediately
following the day on which the last to be fulfilled or waived of the conditions
set forth in Article 10 shall be fulfilled or waived in accordance herewith, or
at such other time, date or place as Parent and the Company may agree. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
2.3. Effective Time. If all the conditions to the Merger set
forth in Article 10 shall have been fulfilled or waived in accordance herewith
and this Agreement shall not have been terminated as provided in Article 11,
the parties hereto shall cause a Certificate of Merger meeting the requirements
of Sections 103 and 251 of the DGCL to be properly executed and filed in
accordance with such Sections on the Closing Date. The Merger shall become
effective at the time of filing of the Certificate of Merger with the Secretary
of State of the State of Delaware in accordance with the DGCL or at such later
time which the parties hereto shall have agreed upon and designated in such
filing as the effective time of the Merger (the "Effective Time").
ARTICLE 3
3. Certificate of Incorporation and By-laws of the Surviving
Corporation.
3.1. Certificate of Incorporation. The Certificate of
Incorporation of the Surviving Corporation shall be identical to the
Certificate of Incorporation of Merger Sub, except that the name of the
Surviving Corporation shall be "Cornerstone Natural Gas, Inc." and except as
provided in Section 9.11. At the Effective Time, the parties hereto shall take
all necessary action to cause the Certificate of Incorporation of the Surviving
Corporation to be amended to read as provided in the preceding sentence.
5
<PAGE> 10
3.2. By-laws. The By-laws of Merger Sub in effect immediately
prior to the Effective Time shall be the By-laws of the Surviving Corporation,
until duly amended in accordance with applicable law.
ARTICLE 4
4. Directors and Officers of the Surviving Corporation.
4.1. Directors. The directors of Merger Sub immediately prior
to the Effective Time shall be the directors of the Surviving Corporation as of
the Effective Time.
4.2. Officers. The officers of the Company immediately prior
to the Effective Time (other than those who have elected not to continue their
employment) shall be the officers of the Surviving Corporation as of the
Effective Time.
ARTICLE 5
5. Conversion of Company Stock.
5.1. Conversion of Company Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Merger Sub,
the Company or the holders of any of the following securities:
(a) each share of Common Stock held by the Company or any
subsidiary of the Company as treasury stock and each issued and outstanding
share of Common Stock owned by Parent, Merger Sub or any other subsidiary of
Parent shall be cancelled and retired and shall cease to exist, and no payment
or consideration shall be made with respect thereto;
(b) each issued and outstanding share of Common Stock, other
than (i) shares of Common Stock referred to in paragraph (a) above and (ii)
Dissenting Shares (as defined in Section 6.1) shall be converted into the right
to receive from the Surviving Corporation an amount in cash, without interest,
equal to the price per share of Common Stock paid pursuant to the Offer (the
"Merger Consideration"). At the Effective Time, all such shares of Common
Stock shall no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a certificate representing
any such shares of Common Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration, without
interest;
(c) each issued and outstanding share of capital stock of
Merger Sub shall be converted into one fully paid and nonassessable share of
common stock, par value $.10, of the Surviving Corporation; and
6
<PAGE> 11
(d) Immediately prior to the Effective Time, except as
described in the second succeeding sentence, all options (individually, an
"Option" and collectively, the "Options") then outstanding under the Company's
1993 Long Term Incentive Compensation Plan or any other incentive compensation
or stock option plan of the Company (the "Option Plans") and all warrants listed
on Schedule 5.1(d) attached hereto (the "Warrants"), whether or not then
exercisable, shall be canceled and each holder of an Option or Warrant will be
entitled to receive from the Company, for each share of Common Stock subject to
an Option or Warrant, an amount in cash equal to the excess, if any, of the
Merger Consideration over the per share exercise price of such Option or
Warrant. The Company will use its reasonable best efforts to obtain any
necessary consents from holders of Options or Warrants to the cancellation and
payment provided for in this Section 5.1(d). At the Effective Time, the
Company's obligations with respect to each outstanding Option set forth on
Schedule 5.1(d) shall be assumed by Parent. The Options assumed by Parent shall
continue to have, and be subject to, the same terms and conditions set forth in
the Option Plans and agreements pursuant to which such Options were issued as in
effect immediately prior to the Effective Time, except that (a) such Options
shall be exercisable for that number of whole shares of common stock, $.10 par
value, of Parent ("Parent Shares"), equal to the product of the number of shares
of Common Stock covered by the Option immediately prior to the Effective Time
multiplied by the quotient (the "Exchange Ratio") determined by dividing the
purchase price paid pursuant to the Offer by the average closing price of Parent
Shares for the ten trading days preceding the Effective Time, rounded up to the
nearest whole number of Parent Shares, (b) the per share exercise price for the
Parent Shares issuable upon the exercise of such assumed Option shall be equal
to the quotient determined by dividing the exercise price per share specified
for such Option under the applicable Option Plan immediately prior to the
Effective Time by the Exchange Ratio, rounding the resulting exercise price down
to the nearest whole cent and (c) all of the Options listed in Schedule 5.1(d)
shall be deemed vested automatically.. The date of grant shall be the date on
which the Option was originally granted. Parent shall (i) reserve for issuance
the number of Parent Shares that will become issuable upon the exercise of such
Options pursuant to this Section 5.1(d) and (ii) at the Effective Time, execute
a document evidencing the assumption by Parent of the Company's obligations with
respect thereto under this Section 5.1(d). As soon as practicable after the
Effective Time, Parent shall file a registration statement on Form S-8 (or any
successor form), or another appropriate form with respect to the Parent Shares
subject to such options and shall use its best efforts to maintain the
effectiveness of such registration statement (and maintain the current status of
the prospectus contained therein) for so long as such options remain
outstanding. From and after the date of this Agreement, no additional Options
shall be granted by the Company or its Subsidiaries (as defined in Section 12.9
hereof) under the Option Plans or otherwise.
7
<PAGE> 12
ARTICLE 6
6. Dissenting Shares; Exchange of Shares
6.1. Dissenting Shares. (a) Notwithstanding anything in this
Agreement to the contrary, shares of Common Stock which are held by any record
holder who has not voted in favor of the Merger or consented thereto in writing
and who has demanded appraisal rights in accordance with Section 262 of the
DGCL (the "Dissenting Shares") shall not be converted into the right to receive
the Merger Consideration but shall become the right to receive such
consideration as may be determined to be due in respect of such Dissenting
Shares pursuant to the DGCL; 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
DGCL, shall forfeit the right to appraisal of such Dissenting Shares, and such
Dissenting Shares shall be deemed to have been converted into the right to
receive, as of the Effective Time, the Merger Consideration without interest.
Notwithstanding anything to the contrary contained in this Section 6.1, if (i)
the Merger is rescinded or abandoned or (ii) if the stockholders of the Company
revoke the authority to effect the Merger, then the right of any stockholder to
be paid the fair value of such stockholder's Dissenting Shares pursuant to
Section 262 of the DGCL shall cease. The Surviving Corporation shall comply
with all of its obligations under the DGCL with respect to holders of
Dissenting Shares.
(b) 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 DGCL and
received by the Company, and (ii) the opportunity to direct all negotiations
and proceedings with respect to demands for appraisal under the DGCL. The
Company shall not, except with the prior written consent of Parent, make any
payment with respect to any demands for appraisal or offer to settle or settle
any such demands.
6.2. Exchange of Certificates. (a) Prior to the Effective
Time, Parent shall appoint a bank or trust company to act as paying agent
hereunder, which shall be The First National Bank of Boston, or such other
entity as Parent and the Company may mutually select (the "Paying Agent") for
the payment of the Merger Consideration upon surrender of certificates formerly
representing shares of Common Stock (the "Certificates"). All of the fees and
expenses of the Paying Agent shall be borne by Parent.
(b) On the Closing Date, Parent shall take all steps necessary
to enable and cause the Surviving Corporation to provide the Paying Agent with
cash in amounts necessary to pay the Merger Consideration, when and as such
amounts are needed by the Paying Agent (the "Exchange Fund").
8
<PAGE> 13
(c) As soon as reasonably practicable after the Effective
Time, the Paying Agent shall mail to each holder of record of Common Stock
immediately prior to the Effective Time (excluding any shares of Common Stock
which will be canceled pursuant to Section 5.1(a) and any Dissenting Shares)
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of such Certificates to the Paying Agent and shall be in such form and
have such other provisions as Parent shall reasonably specify) and (ii)
instructions for the use thereof in effecting the surrender of the Certificates
in exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by the Surviving Corporation, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Paying Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor a bank check in the amount of cash into which
the shares of Common Stock theretofore represented by such Certificate shall
have been converted pursuant to Section 5.1, and the Certificates so
surrendered shall forthwith be canceled. No interest will be paid or will
accrue on the cash payable upon the surrender of any Certificate. If payment
is to be made to a person other than the person in whose name the Certificate
so surrendered is registered, it shall be a condition of payment that such
Certificate shall be properly endorsed or otherwise in proper form for transfer
and, that the person requesting such payment shall pay any transfer or other
taxes required by reason of the transfer of such Certificate or establish to
the satisfaction of the Surviving Corporation that such tax has been paid or is
not applicable. Until surrendered as contemplated by this Section 6.2, each
Certificate (other than Certificates representing Dissenting Shares and
Certificates representing any shares of Common Stock to be canceled as set
forth in Section 5.1(a) shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the amount of cash,
without interest, into which the shares of Common Stock theretofore represented
by such Certificate shall have been converted pursuant to Section 5.1.
(d) Parent shall have the right to make additional rules, not
inconsistent with the terms of this Agreement, governing the payment of cash
for shares of Common Stock converted into the right to receive the Merger
Consideration.
(e) At or after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the shares of Common
Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for the Merger Consideration
deliverable in respect thereof pursuant to this Agreement in accordance with
the procedures set forth in this Article 6.
(f) Any portion of the Exchange Fund (including the proceeds
of any investments thereof) that remains unclaimed by the former stockholders
of the Company
9
<PAGE> 14
two (2) years after the Effective Time shall be delivered to the Surviving
Corporation. Any former stockholders of the Company who have not theretofore
complied with this Article 6 shall thereafter look only to the Surviving
Corporation and Parent for payment of the Merger Consideration deliverable in
respect of each share of Common Stock such stockholder holds as determined
pursuant to this Agreement, in each case, without any interest thereon.
(g) None of Parent, the Surviving Corporation, the Paying
Agent or any other person shall be liable to any former holder of shares of
Common Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(h) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Paying Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration, deliverable in respect thereof pursuant
to this Agreement.
ARTICLE 7
7. Representations and Warranties of the Company.
Except as set forth in the disclosure letter delivered by or on
behalf of the Company to Parent and Merger Sub at or prior to the execution of
this Agreement (the "Company Disclosure Letter"), the Company represents and
warrants to Parent and Merger Sub as follows:
7.1. Existence; Good Standing; Corporate Authority; Compliance
With Law. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of Delaware. The Company is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified would not have a material adverse effect on the financial condition,
operations, assets, liabilities or results of operations of the Company and its
Subsidiaries taken as a whole (a "Company Material Adverse Effect"). The
Company has all requisite corporate power and authority to own, operate and
lease its properties and carry on its business as now conducted. Each of the
Company's Subsidiaries is either (i) a corporation or limited liability company
duly organized, validly
10
<PAGE> 15
existing and in good standing under the laws of its respective jurisdiction of
incorporation or organization, or (ii) a partnership duly formed and validly
existing under the laws of its respective jurisdiction of formation. Each of
the Company's Subsidiaries has the requisite power and authority to own its
properties and to carry on its business as it is now being conducted, and is
duly qualified to do business and is in good standing in each jurisdiction in
which the ownership of its property or the conduct of its business requires
such qualification, except for jurisdictions in which such failure to be so
qualified or to be in good standing would not have a Company Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is in violation of any
order of any court, governmental authority or arbitration board or tribunal, or
any law, ordinance, governmental rule or regulation to which the Company or any
of its Subsidiaries or any of their respective properties or assets is subject,
except where such violation, individually or in the aggregate, is not and would
not reasonably be expected to have a Company Material Adverse Effect. The
Company and its Subsidiaries have obtained all licenses, permits and other
authorizations and have taken all actions required by applicable law or
governmental regulations in connection with their business as now conducted,
where the failure to obtain any such item or to take any such action,
individually or in the aggregate, is or would reasonably be expected to have a
Company Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is an "electric utility company" or "gas utility company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended. The
copies of the Company's Restated Certificate of Incorporation and By-laws
previously delivered to Parent are true and correct.
7.2. Authorization, Validity and Effect of Agreements. The
Company has the requisite corporate power and authority to execute and deliver
this Agreement and all agreements and documents contemplated hereby. Subject
only to the approval of the Merger by the holders of a majority of the
outstanding shares of Common Stock, the consummation by the Company of the
transactions contemplated hereby has been duly authorized by all requisite
corporate action. The Board of Directors has approved the transactions
contemplated by each of this Agreement, the Merger and the Option Agreement for
the purposes of Section 203 of the DGCL and Article Eleventh of the Company's
Restated Certificate of Incorporation. This Agreement constitutes, and all
agreements and documents contemplated hereby (when executed and delivered
pursuant hereto for value received) will constitute, the valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
7.3. Capitalization. The authorized capital stock of the
Company consists of 25,000,000 shares of Common Stock, and 5,000,000 shares of
preferred stock, par value $.10 per share (the "Preferred Stock"). As of April
1, 1996, there were 12,515,959 shares of Common Stock issued and outstanding
and no shares of Preferred Stock issued
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and outstanding. Since such date, no additional shares of capital stock of the
Company have been issued. The Company has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or,
except for Warrants and the Options, which are convertible into, exchangeable
for or exercisable for securities having the right to vote) with the
stockholders of the Company on any matter. All such issued and outstanding
shares of Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Other than as contemplated by
this Agreement, there are no options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate the Company or any of its Subsidiaries to issue, transfer or sell any
shares of capital stock of the Company or any of its Subsidiaries or any
securities exercisable for, exchangeable for or convertible into such capital
stock. After the Effective Time, the Surviving Corporation will have no
obligation to issue, transfer or sell any shares of capital stock of the
Company or the Surviving Corporation pursuant to any Company Benefit Plan (as
defined in Section 7.11).
7.4. Subsidiaries. The Company owns directly or indirectly
each of the outstanding shares of capital stock or other equity or ownership
interests of each of its Subsidiaries. Each of the outstanding shares of
capital stock or other equity or ownership interests of each of the Company's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable,
and is owned, directly or indirectly, by the Company free and clear of all
liens, pledges, security interests, claims or other encumbrances other than
liens imposed by local law which would not have a Company Material Adverse
Effect. The following information for each Subsidiary of the Company has been
previously provided to Parent, if applicable: (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock or other
equity or ownership interests; and (iii) the number of issued and outstanding
shares of capital stock or other equity or ownership interests.
7.5. Other Interests. Except for interests in its
Subsidiaries, neither the Company nor any of its Subsidiaries owns directly or
indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity.
7.6. No Violation. Neither the execution and delivery by the
Company of this Agreement nor the consummation by the Company of the
transactions contemplated hereby in accordance with the terms hereof will: (i)
conflict with or result in a breach of any provisions of the Restated
Certificate of Incorporation or By-laws of the Company; (ii) except as
disclosed in the Company Reports (as defined in Section 7.7), result in a
breach or violation of, a default under, or the triggering of any payment or
other material obligations pursuant to any of the Option Plans, or any grant or
award made under any of the foregoing, provided, however, that the consummation
of the Offer and the Merger will result in the acceleration of vesting of
Options under the Option Plans; (iii) violate, or
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<PAGE> 17
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the triggering of any payments or obligations under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
material properties of the Company or its Subsidiaries under, or result in
being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust or any material license, franchise, permit, lease, contract, agreement or
other instrument, commitment or obligation (collectively, "Contracts") to which
the Company or any of its Subsidiaries is a party, or by which the Company or
any of its Subsidiaries or any of their properties is bound or affected, except
for any of the foregoing matters which, individually or in the aggregate, are
not and would not reasonably be expected to have a Company Material Adverse
Effect; or (iv) other than the filings provided for in Article 2, certain
federal, state and local regulatory filings, filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the
Exchange Act, the Securities Act of 1933, as amended (the "Securities Act"), or
applicable state securities and "Blue Sky" laws or filings in connection with
the maintenance of qualification to do business in other jurisdictions
(collectively, the "Regulatory Filings"), require any consent, approval or
authorization of, or declaration, filing or registration with, any domestic
governmental or regulatory authority, the failure to obtain or make which would
have a Company Material Adverse Effect. There are no Contracts which the
Company or any of its Subsidiaries is a party or by which any of them is bound
pursuant to which any rights or obligations will be triggered or affected by
any stockholder, director, officer or employee of the Company or any of its
Subsidiaries ceasing to be a stockholder, director, officer or employee. Each
of the Contracts listed on Schedule 7.6 to the Company Disclosure Schedule is a
valid and binding Contract, enforceable in accordance with its terms, is in
full force and effect and no event has occurred which constitutes a default
(or, with notice or lapse of time or both would constitute a default) under, or
result in the termination of or in a right of termination or cancellation of,
or result in being declared void, voidable or without further binding effect,
any of the terms, conditions or provisions of such Contract.
7.7. Proxy Statement; Offer Documents; Schedule 14D-1; Schedule
14D-9. (a) The Schedule 14D-9 will not, at the time filed with the SEC, and,
as such Schedule 14D-9 may have been amended, upon expiration of the Offer,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by the Company with respect
to information supplied by Parent or Merger Sub in writing specifically for
inclusion in the Schedule 14D-9.
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(b) The Proxy Statement and the information supplied by the
Company in writing specifically for inclusion or incorporation by reference in
the Schedule 14D-1 and the Offer Documents will not, in the case of the
Schedule 14D-1 and the Offer Documents, at the time filed with the SEC and, as
such documents may have been amended from time to time, upon expiration of the
Offer or, in the case of the Proxy Statement, at the time it is mailed, at the
time of the special meeting of the stockholders of the Company to approve the
Merger (the "Meeting") or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
Parent or Merger Sub in writing specifically for inclusion or incorporation by
reference in the Proxy Statement. The letter to the stockholders, notice of
meeting, proxy statement and form of proxy, or the information statement, as
the case may be, if any, distributed to the stockholders of the Company in
connection with the Option and Merger, or any schedule required to be filed
with the SEC in connection therewith, are collectively referred to as the
"Proxy Statement." If, prior to the Effective Time, any event relating to the
Company or its Subsidiaries or any of their affiliates, officers or directors
is discovered by the Company that should be set forth in an amendment of or
supplement to the Schedule 14D-1 or the Offer Documents, the Company will
promptly inform Parent.
7.8. SEC Documents. The Company has delivered to Parent each
registration statement, report, proxy statement or information statement
prepared by it since December 31, 1994, each in the form (including exhibits
and any amendments thereto) filed with the SEC (collectively, the "Company
Reports"). As of their respective dates, the Company Reports (i) were prepared
in all material respects in accordance with the applicable requirements of the
Securities Act, the Exchange Act, and the respective rules and regulations
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. Each of the consolidated balance sheets of the
Company included in or incorporated by reference into the Company Reports
(including the related notes and schedules) fairly presents the consolidated
financial position of the Company and the Company's Subsidiaries as of its date
and each of the consolidated statements of income, retained earnings and cash
flows of the Company included in or incorporated by reference into the Company
Reports (including any related notes and schedules) fairly presents the results
of operations, retained earnings or cash flows, as the case may be, of the
Company and its Subsidiaries for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments which would
not be material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved, except as may be noted
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<PAGE> 19
therein. Except as and to the extent set forth on the consolidated balance
sheet of the Company and its Subsidiaries at December 31, 1995, including all
notes thereto, or as set forth in the Company Reports, neither the Company nor
any of its Subsidiaries has any material liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise), except liabilities
arising in the ordinary course of business since such date. The Company and
its Subsidiaries have no obligations under any earnout or deferred payment
provisions of any agreement relating to the acquisition of stock or assets of
any person.
7.9. Litigation. Except as disclosed in the Company Reports
filed with the SEC prior to the date of this Agreement, there are no actions,
suits or proceedings pending against the Company or any of its Subsidiaries or,
to the actual knowledge of the executive officers of the Company, threatened
against the Company or any of its Subsidiaries, at law or in equity, or before
or by any federal or state commission, board, bureau, agency or
instrumentality, that, individually or in the aggregate, are or would
reasonably be expected to have a Company Material Adverse Effect.
7.10. Absence of Certain Changes. Except as disclosed in the
Company Reports filed with the SEC prior to the date of this Agreement, since
December 31, 1995, the Company has conducted its business only in the ordinary
course of such business consistent with past practice and there has not been
(i) any adverse change in the financial condition, operations, assets,
liabilities or results of operations of the Company and its Subsidiaries which
has or is reasonably likely to have a Company Material Adverse Effect, (ii) any
declaration, setting aside or payment of any dividend or other distribution
with respect to its capital stock or any redemption or repurchase of any shares
of its capital stock, (iii) any material change in its accounting principles,
practices or methods, (iv) any increase in the salaries or other compensation
payable to any officer, director or employee of the Company or any of its
Subsidiaries (except for normal increases in the ordinary course of business
consistent with past practice) or any increase in, or addition to, other
benefits to which any officer, director or employee may be entitled (except as
required by the terms of plans as in effect on the date of this Agreement or as
required by law), (v) any incurrence of indebtedness for borrowed money (except
in the ordinary course of business consistent with past practice), (vi) any
material adverse change or threat of a material adverse change in the Company's
or any of its Subsidiaries' relations with, or any loss or threat of loss of,
any of the Company's important suppliers or customers, the loss of which is
material to the Company and its Subsidiaries taken as a whole, (vii) any
termination, cancellation or waiver of any contract or other right material to
the operation of the business of the Company and its Subsidiaries taken as a
whole or (viii) any material damage, destruction or loss, whether or not
covered by insurance, adversely affecting the properties, business or prospects
of the Company and its Subsidiaries taken as a whole, or any deterioration in
the operating condition of the assets
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of the Company and its Subsidiaries which would have a Company Material Adverse
Effect.
7.11. Taxes. The Company and each of its Subsidiaries (i) have
timely filed all material 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 shall have
been granted and not expired and all such returns are complete in all material
respects, (ii) have paid or accrued all taxes that may be due and payable with
respect to such returns, (iii) have properly accrued in all material respects
all such taxes for such periods subsequent to the periods covered by such
returns, and (iv) have "open" years for federal income tax returns only as set
forth in the Company Reports. There is no tax examination, investigation,
audit, claim or assessment pending or, to the knowledge of the executives of
the Company, threatened, which would or would reasonably be expected to have a
Company Material Adverse Effect.
7.12. Certain Employee Plans. (a) Each employee benefit or
compensation plan or arrangement, including each "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") maintained by the Company or any of its Subsidiaries (the
"Company Benefit Plans") complies, and has been administered, in all material
respects in accordance with all applicable requirements of law, and no
"reportable event" or "prohibited transaction" (as such terms are defined in
ERISA) or termination has occurred with respect to any Company Benefit Plan
under circumstances which present a risk of liability by the Company or any of
its Subsidiaries to any governmental entity or other person, including a
Company Benefit Plan, which liability would have a Company Material Adverse
Effect. The Company Benefit Plans are listed on Schedule 7.11(a) and copies or
descriptions of all material Company Benefit Plans have previously been
provided to Parent.
(b) Each Company Benefit Plan intended to qualify under
Section 401(a) of the Code is so qualified and a determination letter has been
issued by the Internal Revenue Service ("IRS") with respect to the
qualification of each Company Benefit Plan and no circumstances exist which
would adversely affect such qualification. Each Company Benefit Plan which is
subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code
has been maintained in compliance with the minimum funding standards of ERISA
and the Code and no such Company Benefit Plan has incurred any "accumulated
funding deficiency" (as defined in Section 412 of the Code and Section 302 of
ERISA), whether or not waived. Neither the Company nor any of its Subsidiaries
has sought or received a waiver of its minimum funding requirements with
respect to any Company Benefit Plan. Neither the Company nor any of its
Subsidiaries has incurred, nor reasonably expects to incur, any liability in
respect of any Company Benefit Plan under Title IV of ERISA (other than with
respect to the payment of premiums), which
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liability would have a Company Material Adverse Effect. Neither the Company
nor any of its Subsidiaries has incurred any material withdrawal liability
under any "multiemployer plan" within the meaning of Section 3(37) of ERISA
which has not been satisfied in full nor do any of them reasonably expect to
incur such liability.
(c) Except as required by applicable law or as set forth on
Schedule 7.11(c), neither the Company nor any of its Subsidiaries provides any
health, welfare or life insurance benefits to any of their former or retired
employees.
(d) Except as disclosed on Schedule 7.11(d), no payment or
benefit which will or may be made by the Company or any of its Subsidiaries
will be characterized as an "excess parachute payment" within the meaning of
Section 280G(b)(1) of the Code.
7.13. Labor Matters. Neither the Company nor any of its
Subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization. There is no unfair labor practice or labor arbitration
proceeding pending or, to the actual knowledge of the executive officers of the
Company, threatened against the Company or its Subsidiaries relating to their
business, except for any such proceeding which, individually or in the
aggregate, is not and would not reasonably be expected to be material to the
Company and its Subsidiaries taken as a whole. To the actual knowledge of the
executive officers of the Company, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made
or threatened involving employees of the Company or any of its Subsidiaries.
7.14. No Brokers. The Company has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company or Parent to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except that the Company has retained Salomon Brothers,
Inc., the arrangements with which have been disclosed in writing to Parent
prior to the date hereof. Other than the foregoing arrangements, the Company
is not aware of any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
7.15. Fairness Opinion. The Company has received the opinion of
Salomon Brothers, Inc., to the effect that, as of the date of this Agreement,
the terms of the Offer and the Merger are fair from a financial point of view
to the holders of Common Stock.
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7.16. Environmental Matters.
(a) For the purposes of this Agreement:
"Environmental Matters" means any matter arising out of,
relating to or resulting from pollution, protection of the environment and
human health or safety, health or safety of employees, sanitation, and any
matters relating to emissions, discharges, releases or threatened releases of
Hazardous Materials or otherwise arising out of, resulting from or relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
"Environmental Costs" means, without limitation, any
actual or potential cleanup costs, remediation, removal, or other response
costs, investigation costs, losses, liabilities or obligations, payments,
damages, 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 Laws" means, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Sections 9601 et seq., the Emergency Planning and Community Right-to-Know Act
of 1986, 42 U.S.C. Sections 11001 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Sections 6901 et seq., the Toxic Substances Control
Act, 15 U.S.C. Sections 2601 et seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. Sections 136 et seq., the Clean Air Act, 42 U.S.C.
Sections 7401 et seq., the Clean Water Act (Federal Water Pollution Control
Act), 33 U.S.C. Sections 1251 et seq., the Safe Drinking Water Act, 42 U.S.C.
Sections 300f et seq., the Occupational Safety and Health Act, 29 U.S.C.
Sections 641 et seq., the Hazardous Materials Transportation Act, 49 U.S.C.
Sections 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 with respect to Environmental
Matters, and all applicable judicial and administrative decisions, orders, and
decrees relating to Environmental Matters.
"Hazardous Materials" means any pollutants, contaminants,
or hazardous or toxic substances, materials, wastes, constituents or chemicals
that are regulated by, or form the basis for liability under, any Environmental
Laws.
(b) (i) To the best knowledge of the management of
the Company, without due inquiry, the Company and each of its Subsidiaries is
in compliance in all material respects with all applicable Environmental Laws.
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(ii) The Company and each of its Subsidiaries has
obtained, and is in compliance in all material respects with, all permits,
licenses, authorizations, registrations and other governmental consents
("Environmental Permits") required to be obtained by it by applicable
Environmental Laws for 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 its business.
(iii) All such Environmental Permits are in all
material respects in full force and effect, and the Company and each of its
Subsidiaries has made all appropriate filings for issuance or renewal of such
Environmental Permits.
(iv) There are no Hazardous Materials in amounts
required to be remediated under applicable Environmental Laws at, on, under or
within any real property owned, leased or occupied by the Company or any of its
Subsidiaries.
(v) There are no material claims, notices,
civil, criminal or administrative actions, suits, hearings, investigations,
inquiries or proceedings pending or threatened that are based on or related to
any Environmental Matters or the failure to have any required Environmental
Permits.
(vi) 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 Materials to
any place or location, in violation of any Environmental Laws.
(vii) There are no underground storage tanks or
surface impoundments at, on, under or within any of real property owned, leased
or occupied by the Company or any of its Subsidiaries, or any portion thereof.
(viii) None of the Company or its Subsidiaries has
received any notice asserting that it may be a potentially responsible party at
any waste disposal site or other location used for the disposal of any
Hazardous Materials.
7.17. Related Party Transactions. There are no contracts,
arrangements or transactions in effect between the Company or any of its
Subsidiaries, on the one hand, and any officer, director or 5% stockholder of
the Company, or any affiliate or immediate family member of any of the
foregoing persons, on the other hand, except as set forth in the Company
Disclosure Letter.
ARTICLE 8
8. Representations and Warranties of Parent and Merger Sub.
Parent and Merger Sub represent and warrant to the Company as follows:
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8.1. Existence; Good Standing; Corporate Authority; Compliance
with Law. Each of Parent and Merger Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Parent has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted.
8.2. Authorization, Validity and Effect of Agreements. Each of
Parent and Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement and all agreements and documents
contemplated hereby. The consummation by Parent and Merger Sub of the
transactions contemplated hereby has been duly authorized by all requisite
corporate action. This Agreement constitutes, and all agreements and documents
contemplated hereby (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of Parent
and Merger Sub, enforceable in accordance with their respective terms, subject
to applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity.
8.3. No Violation. Neither the execution and delivery by
Parent and Merger Sub of this Agreement, nor the consummation by Parent and
Merger Sub of the transactions contemplated hereby in accordance with the terms
hereof, will: (i) conflict with or result in a breach of any provisions of the
Certificate of Incorporation or By-laws of Parent or Merger Sub; (ii) violate,
or conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of Parent or its Subsidiaries under, or
result in being declared void, voidable, or without further binding effect, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust or any material license, franchise, permit, lease, contract,
agreement or other instrument, commitment or obligation to which Parent or any
of its Subsidiaries is a party, or by which Parent or any of its Subsidiaries
or any of their properties is bound or affected, except for any of the
foregoing matters which would not reasonable be expected to have a material
adverse effect on the ability of Parent and Merger Sub to consummate the
transactions contemplated hereby (a "Parent Material Adverse Effect"); or (iii)
other than the Regulatory Filings, require any material consent, approval or
authorization of, or declaration, filing or registration with, any domestic
governmental or regulatory authority, the failure to obtain or make which would
have a Parent Material Adverse Effect.
8.4. No Brokers. Neither Parent nor any of its Subsidiaries
has entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of the Company or Parent to pay any
finder's fees, brokerage or agent's
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commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby,
except that Parent has retained Rodman & Renshaw, Inc. Other than the
foregoing arrangements, Parent is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
8.5. Financing. Parent and Merger Sub have and will have
sufficient funds to enable them to consummate the Offer and the Merger on the
terms contemplated by this Agreement.
8.6. Proxy Statement; Offer Documents; Schedule 14D-1; Schedule
14D-9. (a) The Schedule 14D-1 and the Offer Documents will not, in the case
of the Schedule 14D-1, at the time filed with the SEC, and, in the case of the
Offer Documents, when first published, sent or given to the stockholders of the
Company and, as such documents may have been amended, upon expiration of the
Offer, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by Parent or Merger Sub
with respect to information supplied by the Company in writing specifically for
inclusion in the Schedule 14D-1 or the Offer Documents.
(b) None of the information supplied by Parent, Merger Sub and
their respective affiliates in writing specifically for inclusion or
incorporation by reference in the Schedule 14D-9 and/or the Proxy Statement
will, in the case of the Schedule 14D-9, at the time filed with the SEC and, as
such Schedule 14D-9 may have been amended, upon expiration of the Offer, or, in
the case of the Proxy Statement, at the time the Proxy Statement is mailed, at
the time of the Meeting or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If, prior to the
Effective Time, any event relating to Parent, Merger Sub or any of their
affiliates, officers or directors is discovered by Parent that should be set
forth in an amendment of or supplement to the Schedule 14D-9 or the Proxy
Statement, Parent will promptly inform the Company.
ARTICLE 9
9. Covenants.
9.1. No Solicitation of Transactions. Neither the Company nor
any Subsidiary of the Company shall, directly or indirectly, through any
officer, director, employee, agent or otherwise, initiate, solicit or knowingly
encourage any inquiries or the
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making of any proposal that constitutes, or may reasonably be expected to lead
to, any "Proposal" (as defined below in this Section 9.1), or enter into
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain a Proposal, or agree to or endorse any Proposal, and the
Company shall notify Parent orally (within three business days) of the fact
that the Company has received any Proposal and the identity of the person
making such Proposal, but the Company shall not be required to disclose to
Parent or Merger Sub the terms of any Proposal which it or any such officer,
director, employee, agent or other representative may receive or to provide to
Parent or Merger Sub a copy of any such Proposal; and provided, however, that
nothing contained in this Section 9.1 shall prohibit the Company from: (i)
referring a third party to this Section 9.1; (ii) furnishing information to, or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited Proposal, if (A) the Board of Directors of the Company after
consultation with its counsel and financial advisor, determines consistent with
its fiduciary duties that such action should be pursued because it is
reasonably likely to result in the Company or its stockholders receiving a
"Superior Proposal" (as defined below in this Section 9.1) which is reasonably
likely to be consummated and (B) prior to furnishing such information to, or
entering into discussions or negotiations with, such person or entity, the
Company (x) provides reasonable notice to Parent to the effect that it is
furnishing information to, or entering into discussions or negotiations with,
such person or entity and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form; (iii) complying with
Rules 14e-2 and 14d-9 promulgated under the Exchange Act with regard to a
tender or exchange offer; (iv) failing to make or withdrawing or modifying its
recommendation referred to in Section 9.4 if there exists a Proposal and the
Board of Directors of the Corporation, after consultation with its counsel and
financial advisor, determines consistent with its fiduciary duties that such
Proposal is a Superior Proposal; (v) making such disclosures as are required by
applicable law; and (vi) after termination pursuant to Section 11.2, entering
into an agreement with respect to a Superior Proposal.
For purposes of this Agreement: "Proposal" shall mean any
proposal, offer or expression of interest by any person involving with respect
to the Company or any of its Subsidiaries any of the following: (i) any
merger, consolidation, share exchange, business combination, or other similar
transaction (other than any transaction contemplated hereby); (ii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of 15% or more
of the assets of such party and its Subsidiaries, taken as a whole, in a single
transaction or series of transactions; (iii) any tender offer or exchange offer
for 50% or more of the outstanding shares of capital stock of the Company or
the filing of a registration statement under the Securities Act in connection
therewith (other than the Offer); or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing; provided, however, that the transactions
contemplated by the Option Agreement and the transactions
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contemplated hereby shall not constitute a Proposal; and "Superior Proposal"
shall mean a bona fide Proposal from an unaffiliated third party that is more
favorable to the Company and its stockholders than the transactions
contemplated hereby and is reasonably likely to be consummated.
9.2. Conduct of Businesses. Prior to the Effective Time,
except as specifically set forth in the Company Disclosure Letter or as
contemplated by any other provision of this Agreement, unless Parent has
consented in writing thereto, the Company:
(a) shall, and shall cause each of its Subsidiaries to,
conduct its operations according to its usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(b) shall use its reasonable efforts, and shall cause
each of its respective Subsidiaries to use its reasonable efforts, to preserve
intact its business organization and goodwill, keep available the services of
its officers and employees and maintain satisfactory relationships with those
persons having business relationships with it;
(c) shall confer on a regular basis with one or more
representatives of Parent to report operational matters of materiality and any
proposals to engage in material transactions;
(d) shall not amend its organizational documents;
(e) shall promptly notify Parent of (i) any material
emergency or other material change in the condition (financial or otherwise) of
the Company's or any Subsidiary's business, properties, assets, liabilities,
prospects or the normal course of its businesses or in the operation of its
properties, (ii) any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or (iii) the breach in any material respect of any
representation or warranty or covenant contained herein;
(f) shall promptly deliver to Parent true and correct
copies of any report, statement or schedule filed by the Company with the SEC
subsequent to the date of this Agreement;
(g) shall not (i) issue any shares of its capital
stock, effect any stock split or otherwise change its capitalization as it
exists on the date of this Agreement, (ii) grant, confer or award any option,
warrant, conversion right or other right not existing on the date hereof to
acquire any shares of its capital stock from the Company, (iii) increase any
compensation or enter into or amend any employment, severance,
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termination or similar agreement with any of its present or future officers or
directors, except for normal increases in compensation to employees consistent
with past practice and the payment of cash bonuses to employees pursuant to and
consistent with existing plans or programs, or (iv) adopt any new employee
benefit plan (including any stock option, stock benefit or stock purchase plan)
or amend any existing employee benefit plan in any material respect, except for
changes which are less favorable to participants in such plans or as may be
required by applicable law;
(h) shall not (i) declare, set aside or pay any
dividend or make any other distribution or payment with respect to any shares
of its capital stock; (ii) directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock or capital stock of any of its
Subsidiaries, or make any commitment for any such action or (iii) split,
combine or reclassify any of its capital stock;
(i) shall not, and shall not permit any of its
Subsidiaries to sell, lease or otherwise dispose of any of its assets
(including capital stock of Subsidiaries) which are material, individually or
in the aggregate, except in the ordinary course of business;
(j) shall not (i) incur or assume any long-term or
short-term debt or issue any debt securities except for borrowings under
existing lines of credit (or any amendments thereto) in the ordinary course of
business; (ii) except for obligations of wholly owned Subsidiaries of the
Company, assume, guaranty, endorse or otherwise become liable or responsible
(whether directly, indirectly, contingently or otherwise) for the obligations
of any other person except in the ordinary course of business consistent with
past practices in an amount not material to the Company and its Subsidiaries,
taken as a whole; (iii) other than wholly owned Subsidiaries of the Company,
make any loans, advances or capital contributions to, or investments in, any
other person; (iv) modify in any material manner adverse to the Company or any
of its Subsidiaries any outstanding indebtedness or obligation of the Company
or any of its Subsidiaries; (v) pledge or otherwise encumber shares of capital
stock of the Company or its Subsidiaries; or (vi) mortgage or pledge any of its
material assets, tangible or intangible, or create or suffer to create any
material mortgage, lien, pledge, charge, security interest or encumbrance of
any kind in respect to such asset;
(k) shall not acquire, sell, lease or dispose of any
assets outside the ordinary course of business or any assets which in the
aggregate are material to the Company and its Subsidiaries taken as a whole, or
enter into any commitment or transaction outside the ordinary course of
business consistent with past practices which would be material to the Company
and its Subsidiaries taken as a whole;
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(l) shall not change any of the accounting principles
or practices used by the Company;
(m) shall not (i) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof or any equity interest therein; (ii) enter
into any contract or agreement other than in the ordinary course of business
consistent with past practice which would be material to the Company and its
Subsidiaries taken as a whole; (iii) authorize any new capital expenditure or
expenditures which, individually, is in excess of $50,000 or, in the aggregate,
are in excess of $150,000; or (iv) enter into or amend any contract, agreement,
commitment or arrangement providing for the taking of any action which would be
prohibited hereunder;
(n) shall not make any tax election or settle or
compromise any income tax liability material to the Company and its
Subsidiaries taken as a whole;
(o) shall not pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary course of business of liabilities reflected, reserved against or
disclosed in the consolidated financial statements (or the notes thereto) of
the Company and its Subsidiaries or incurred in the ordinary course of business
consistent with past practice;
(p) shall not settle or compromise any pending or
threatened suit, action or claim relating to the transactions contemplated
hereby; or
(q) shall not take, or agree in writing or otherwise to
take, any of the actions described in Section 9.2(a) through 9.2(p) or any
action that would make any of the representations and warranties of the Company
contained in this Agreement untrue or incorrect as of the date when made.
9.3. Board Representation. Promptly upon the purchase
of shares of Common Stock pursuant to the Offer, Merger Sub shall be entitled
to designate such number of directors, rounded up to the next whole number, on
the Board of Directors of the Company as will give Merger Sub, subject to
compliance with Section l4(f) of the Exchange Act and the rules and regulations
promulgated thereunder, representation on the Board of Directors equal to the
product of (a) the total number of directors on the Board of Directors and (b)
the percentage that the number of shares of Common Stock purchased by Merger
Sub bears to the number of shares of Common Stock outstanding, and the Company
shall, upon request by Merger Sub, promptly increase the size of the Board of
Directors and/or exercise its reasonable best efforts to secure the
resignations of such number of directors as is necessary to enable Merger Sub's
designees to be elected to
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the Board of Directors and shall cause Merger Sub's designees to be so elected.
The Company shall take, at its expense, all action required pursuant to Section
14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 9.3
and shall include in the Schedule 14D-9 or otherwise timely mail to its
stockholders such information with respect to the Company and its officers and
directors as is required by Section 14(f) and Rule 14f-l in order to fulfill
its obligations under this Section 9.3. Parent will supply to the Company in
writing and be solely responsible for any information with respect to itself
and its or Merger Sub's nominees, officers, directors and affiliates required
by Section 14(f) and Rule 14f-l. In the event that Merger Sub's designees are
elected to the Board of Directors of the Company, until the Effective Time, the
Board of Directors shall have at least one director who is a director on the
date hereof (the "Company Director"). In such event, if the Company Director
is unable to serve for any reason whatsoever, the other directors shall
designate a person to fill such vacancy who shall not be a designee,
stockholder or affiliate of Parent or Merger Sub and such person shall be
deemed to be a Company Director for purposes of this Agreement.
Notwithstanding anything in this Agreement to the contrary, in the event that
Merger Sub's designees are elected to the Board of Directors of the Company,
after the acceptance for payment of shares of Common Stock pursuant to the
Offer and prior to the Effective Time, the affirmative vote of the Company
Director shall be required to (a) amend or terminate this Agreement by the
Company, (b) exercise or waive any of the Company's rights, benefits or
remedies hereunder, (c) extend the time for performance of Parent's and Merger
Sub's respective obligations hereunder or (d) take any other action by the
Board of Directors of the Company under or in connection with this Agreement.
9.4. Meeting of the Company's Stockholders. (a) If required
by applicable law in order to consummate the Merger, the Company shall take all
action necessary in accordance with the DGCL and its Restated Certificate of
Incorporation and By-laws to convene the Meeting as promptly as practicable
following the purchase of shares of Common Stock in the Offer. At the Meeting,
all of the shares of Common Stock then owned by Parent, Merger Sub or any other
Subsidiary of Parent shall be voted to approve the Merger and this Agreement
(subject to applicable law and subject to the right of Parent, Merger Sub or
any other Subsidiary of Parent to vote such shares of Common Stock as they may
elect in the event of a Superior Proposal that is being recommended by the
Board of Directors of the Company in lieu of the Merger). Subject to the
provisions of Section 9.1, the Board of Directors of the Company shall
recommend that the Company's stockholders vote to approve the Merger and this
Agreement if such vote is sought, shall use its best efforts to solicit from
stockholders of the Company proxies in favor of the Merger and shall take all
other action in its judgment necessary and appropriate to secure the vote of
stockholders required by the DGCL to effect the Merger.
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(b) Parent and Merger Sub shall not, and shall cause their
Subsidiaries not to, sell, transfer, assign, encumber or otherwise dispose of
the shares of Common Stock acquired pursuant to the Offer or otherwise prior to
the Meeting; provided, that this Section 9.4(b) shall not apply to the sale,
transfer, assignment, encumbrance or other disposition of any or all of such
shares of Common Stock in transactions solely involving Parent, Merger Sub
and/or one or more of their wholly-owned Subsidiaries.
9.5. Filings; Other Action. Subject to the terms and
conditions herein provided, the Company and Parent shall: (a) promptly make
their respective filings and thereafter make any other required submissions
under the HSR Act with respect to the Offer or the Merger; (b) use all
reasonable efforts to cooperate with one another in (i) promptly determining
which filings are required to be made prior to the Effective Time with, and
which consents, approvals, permits or authorizations are required to be
obtained from, governmental or regulatory authorities of the United States, the
several states and foreign jurisdictions in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby and (ii) timely making all such filings and timely seeking
all such consents, approvals, permits or authorizations; and (c) use all
reasonable efforts to take, or cause to be taken, all other action and do, or
cause to be done, all other things necessary, proper or appropriate to promptly
consummate and make effective the transactions contemplated by this Agreement.
Each of Parent and the Company will use all reasonable efforts to resolve such
objections, if any, as may be asserted with respect to the Offer or the Merger
under the HSR Act or other antitrust laws. If, at any time after the Effective
Time, any further action is necessary or desirable to carry out the purpose of
this Agreement, the proper officers and directors of Parent and the Company
shall take all such necessary action.
9.6. Inspection of Records; Access. From the date of this
Agreement to the Effective Time, the Company shall allow all designated
officers, attorneys, accountants and other representatives of Parent ("Parent's
Representatives") access at all reasonable times to all employees, plants,
offices, warehouses, transmission facilities and other facilities and to the
records and files, correspondence, audits and properties, as well as to all
information relating to commitments, contracts, titles and financial position,
or otherwise pertaining to the business and affairs, of the Company and its
Subsidiaries; provided, however, that Parent's Representatives shall use their
reasonable best efforts to avoid unreasonably interfering with, hindering or
otherwise disrupting the employees of the Company in the execution of their
employment duties during any visit to, or inspection of, the Company's
facilities.
9.7. Publicity. The initial press release relating to this
Agreement shall be a joint press release and thereafter the Company and Parent
shall, subject to their respective legal obligations (including requirements of
stock exchanges and other similar regulatory bodies), consult with each other,
and use reasonable efforts to agree upon the
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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 filings with any federal or state governmental or regulatory
agency or with any national securities exchange with respect thereto.
9.8. Proxy Statement. If required under applicable law, the
Company shall prepare the Proxy Statement, file it with the SEC under the
Exchange Act as promptly as practicable after Merger Sub purchases shares of
Common Stock pursuant to the Offer, and use all reasonable efforts to have it
cleared by the SEC. Parent, Merger Sub and the Company shall cooperate with
each other in the preparation of the Proxy Statement, and the Company shall
notify Parent of the receipt of any comments of the SEC with respect to the
Proxy Statement and of any requests by the SEC for any amendment or supplement
thereto or for additional information and shall provide to Parent promptly
copies of all correspondence between the Company or any representative of the
Company and the SEC. The Company shall give Parent and its counsel the
opportunity to review the Proxy Statement prior to its being filed with the SEC
and shall give Parent and its counsel the opportunity to review all amendments
and supplements to the Proxy Statement and all responses to requests for
additional information and replies to comments prior to their being filed with,
or sent to, the SEC. Each of the Company, Parent and Merger Sub agrees to use
its reasonable best efforts, after consultation with the other parties hereto
to respond promptly to all such comments of and requests by the SEC. As
promptly as practicable after the Proxy Statement has been cleared by the SEC,
the Company shall mail the Proxy Statement to the stockholders of the Company.
If a Proxy Statement is not required to be disseminated to
stockholders of the Company under the federal securities laws in connection
with the Merger, the Company shall prepare and mail to stockholders of the
Company, as promptly as practicable following the purchase of shares of Common
Stock in the Offer, such notices and other materials as may be required under
the DGCL in connection with the consummation of the Merger. The Company shall
give Parent and its counsel the opportunity to review such notices and other
materials and all amendments and supplements thereto prior to their being
mailed.
9.9. Further Action. Each party hereto shall, subject to the
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the Offer or
the Merger.
9.10. Expenses. Whether or not the Merger is consummated,
except as provided in Section 11.5(b), all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses.
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9.11. Indemnification and Insurance.
(a) Parent shall cause the Surviving Corporation to
keep in effect provisions in its Certificate of Incorporation and By-laws
providing for exculpation of director and officer liability and indemnification
of the indemnified parties under the Company's Restated Certificate of
Incorporation and By-laws (the "Indemnified Parties") to the fullest extent
permitted under the DGCL, which provisions shall not be amended except as
required by applicable law or except to make changes permitted by law that
would enlarge the Indemnified Parties' right of indemnification.
(b) The provisions of this Section shall survive the
consummation of the Merger and expressly are intended to benefit each of the
Indemnified Parties.
(c) For a period of three years after the Effective
Time, Parent shall cause to be maintained officers' and directors' liability
insurance covering the parties who are currently covered, in their capacities
as officers and directors, by the Company's existing officers' and directors'
liability insurance policies on terms substantially no less advantageous to
such parties than such existing insurance; provided, however, that Parent shall
not be required, in order to maintain or procure such coverage, to pay premiums
in excess of $350,000 in the aggregate over such three year period (the "Cap");
and provided, further, that if equivalent coverage cannot be obtained, or can
be obtained only by paying an amount in excess of the Cap, Parent shall only be
required to obtain such coverage for such three-year period as can be obtained
by paying aggregate premiums equal to the Cap.
9.12. Certain Benefits.
(a) From and after the Effective Time, subject to
applicable law, Parent and its Subsidiaries will honor in accordance with their
terms, all Company Benefit Plans; provided, however, that nothing herein shall
preclude any change effected on a prospective basis in any Company Benefit
Plan.
(b) The Surviving Corporation shall employ at the
Effective Time all employees of the Company and its Subsidiaries who are
employed on the Closing Date on terms consistent with the Company's current
employment practices and at comparable levels of compensation and positions.
Subject to the obligations of the Surviving Corporation under existing
employment agreements, such employment shall be at will and Parent and the
Surviving Corporation shall be under no obligation to continue to employ any
individuals. For purposes of eligibility to participate in and vesting in
various benefits (but not for determination of benefits) provided to employees,
employees of the
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Company and its Subsidiaries will be credited with their years of service with
the Company and its Subsidiaries.
9.13. Headquarters of the Surviving Corporation. Parent agrees
that, for one year following the Effective Time, the headquarters of the
Surviving Corporation (other than with respect to gas marketing operations)
will be located in Dallas, Texas.
ARTICLE 10
10. Conditions.
10.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Merger Sub shall have purchased pursuant to the
Offer a number of shares of Common Stock which satisfies the Minimum Condition;
(b) The waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated.
(c) Neither of the parties hereto shall be subject to
any order or injunction of a court of competent jurisdiction which prohibits
the consummation of the transactions contemplated by this Agreement.
(d) This Agreement and the Merger shall have been
approved by the stockholders of the Company in accordance with the DGCL and the
Company's Restated Certificate of Incorporation and By-laws.
10.2. Conditions to Obligation of the Company to Effect
the Merger. The obligation of the Company to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the condition
that Parent shall have performed its agreements contained in this Agreement
required to be performed on or prior to the Closing Date and the
representations and warranties of Parent and Merger Sub contained in this
Agreement shall be true and correct in all material respects as of the date
when made and (unless made as of a specified date) as of the Closing Date, and
the Company shall have received a certificate of the President or a Vice
President of Parent, dated the Closing Date, certifying to such effect.
10.3. Conditions to Obligation of Parent and Merger Sub
to Effect the Merger. The obligations of Parent and Merger Sub to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the condition that the Company shall have performed its agreements contained in
this Agreement required to be
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performed on or prior to the Closing Date and the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects as of the date when made and (unless made as of a
specified date) as of the Closing Date, and Parent shall have received a
certificate of the Company, dated the Closing Date, certifying to such effect.
ARTICLE 11
11. Termination.
11.1. Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned, notwithstanding the approval of the
stockholders entitled to vote thereon, at any time prior to the Effective Time
by the mutual consent of Parent and the Company.
11.2. Termination by Either Parent or the Company. This
Agreement may be terminated and the Merger may be abandoned at any time prior
to the Effective Time, notwithstanding the approval of the stockholders
entitled to vote thereon, by action of the Board of Directors of either Parent
or the Company if (a) the Offer shall have expired or been terminated in
accordance with its terms as the result of the failure of any of the conditions
set forth in Annex I hereto without Merger Sub having purchased any shares of
Common Stock pursuant to the Offer; provided, however, that the right to
terminate this Agreement pursuant to this Section 11.2 (a) shall not be
available to any party whose failure to fulfill any of its obligations under
this Agreement results in the failure of any such condition, (b) the Merger
shall not have been consummated by October 20, 1996 (the "Outside Closing
Date"), (c) the approval of the Company's stockholders required by Section
10.1(d) shall not have been obtained at a meeting duly convened therefor or at
any adjournment thereof; provided, however, that the right to terminate this
Agreement pursuant to this Section 11.2(c) shall not be available to Parent if
Parent or Merger Sub breaches its obligations under Section 9.4 of this
Agreement, (d) a United States federal or state court of competent jurisdiction
or United States federal or state governmental, regulatory or administrative
agency or commission shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, or ruling prevents the
Merger from being consummated on or before the Outside Closing Date; provided,
that the party seeking to terminate this Agreement pursuant to this clause (d)
shall have used all reasonable efforts to remove such injunction, order or
decree; and provided, in the case of a termination pursuant to clause (b)
above, that the terminating party shall not have breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger by the Outside
Closing Date, or (e) the Board of Directors of the Company shall have
recommended to the stockholders of the Company a Proposal which, after
consultation
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with counsel and its investment advisor, the Board of Directors of the Company
had determined to be a Superior Proposal.
11.3. Termination by the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, notwithstanding the approval of the stockholders entitled to vote
thereon, by action of the Board of Directors of the Company (a) if the Offer
shall not have been timely commenced in accordance with Section 1.l; (b) if the
Offer shall have expired or have been terminated without any shares of Common
Stock being purchased thereunder or if no shares of Common Stock shall have
been purchased thereunder within 120 days following the date of this Agreement
unless failure to so purchase shares of Common Stock has been caused by or
results from a breach by the Company of this Agreement; (c) there has been a
breach by Parent or Merger Sub of any representation or warranty contained in
this Agreement which would have or would be reasonably likely to have a Parent
Material Adverse Effect or (d) there has been a material breach of any of the
covenants or agreements set forth in this Agreement or the Option Agreement on
the part of Parent or Merger Sub, which breach is not curable or, if curable,
is not cured within 30 days after written notice of such breach is given by the
Company to Parent or the Outside Closing Date, whichever is the earlier.
11.4. Termination by Parent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time,
notwithstanding the approval of the stockholders entitled to vote thereon, by
action of the Board of Directors of Parent, if (a) there has been a breach by
the Company of any representation or warranty contained in this Agreement which
would have or would be reasonably likely to have a Company Material Adverse
Effect, (b) there has been a material breach of any of the covenants or
agreements set forth in this Agreement on the part of the Company, which breach
is not curable or, if curable, is not cured within 30 days after written notice
of such breach is given by Parent to the Company or the Outside Closing Date,
whichever is the earlier, (c) the Board of Directors of the Company withdraws,
modifies or changes its recommendation of this Agreement, the Offer or the
Merger in a manner adverse to Parent or Merger Sub, (d) a tender offer or
exchange offer (other than the Offer) for 50% or more of the outstanding shares
of capital stock of the Company is commenced, and the Board of Directors of the
Company recommends that stockholders tender their shares into such tender or
exchange offer, (e) any person (other than Parent or Merger Sub) shall have
acquired beneficial ownership or the right to acquire beneficial ownership of,
or any "group" (as such terms defined under section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder), shall have been formed
which beneficially owns, or has the right to acquire beneficial ownership of,
more than 50% of the shares of capital stock of the Company on a fully diluted
basis or (f) the Board of Directors or the Transfer Review Committee or the
Transfer Review Officer shall authorize a Transfer by or to a 5% Holder (as such
terms are defined in the Company's Restated Certificate of
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Incorporation) of shares of Common Stock or the provisions of Article Eleventh
of the Restated Certificate of Incorporation shall otherwise be waived or
deemed inapplicable to any acquisition of beneficial ownership of more than 5%
of the shares of Common Stock (other than by Parent or Merger Sub).
11.5. Effect of Termination and Abandonment. (a) In the event
that this Agreement is terminated by either party pursuant to Section 11.2(a)
by reason of the failure of any of the conditions set forth in paragraph (e) or
(f) of the conditions of the Offer set forth in Annex I, by either party
pursuant to Section 11.2(e) or by Parent and Merger Sub pursuant to Section
11.4(c), (d) or (f) and, in any such case, any person shall have made a
Superior Proposal or the Company shall enter into an agreement in principle or
definitive agreement with respect to a Superior Proposal within 9 months
following such termination, then the Company shall simultaneously with such
termination or the execution of such agreement, as the case may be, pay Parent
a fee of $2,500,000 and shall reimburse Parent for all reasonable out-
of-pocket expenses incurred in connection with the transactions contemplated by
this Agreement up to a maximum of $1,000,000, which amount shall be payable by
wire transfer of same day funds. The Company acknowledges that the agreements
contained in this Section 11.5(a) are an integral part of the transactions
contemplated in this Agreement, and that, without these agreements, Parent and
Merger Sub would not enter into this Agreement; accordingly, if Company fails
to promptly pay the amount due pursuant to this Section 11.5(a), and, in order
to obtain such payment, Parent or Merger Sub commences a suit which results in
a judgment against Company for the fee set forth in this Section 11.5(a), the
Company shall pay to Parent its costs and expenses (including reasonable
attorneys' fees) in connection with such suit, together with interest on the
amount of the fee at the rate of 8% per annum.
(b) In the event of termination of this Agreement and the
abandonment of the Merger pursuant to this Article 11, all obligations of the
parties hereto shall terminate, except the obligations of the parties pursuant
to this Section 11.5 and except for the provisions of the Confidentiality
Agreement between the Company and Parent and Sections 12.3, 12.4, 12.6, 12.8,
12.9 and 12.12. Notwithstanding the foregoing, in the event of termination of
this Agreement pursuant to Section 11.3 (a), (b), (c) or (d) or 11.4(a) or (b),
nothing herein shall prejudice the ability of the non-breaching party from
seeking damages from any other party for any breach of this Agreement,
including without limitation, attorneys' fees and the right to pursue any
remedy at law for damages or in equity; provided that in the event Parent has
received the fee payable under Section 11.5(a) hereof, it shall not (i) assert
or pursue in any manner, directly or indirectly, any claim or cause of action
based in whole or in part upon alleged tortious or other interference with
rights under this Agreement against any entity or person submitting a Superior
Proposal or (ii) assert or pursue in any manner, directly or indirectly, any
claim or cause of action against the Company or any of its officers, directors,
attorneys,
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advisors, agents or employees based in whole or in part upon its or their
receipt, consideration, recommendation or approval of a Superior Proposal.
11.6. Extension; Waiver. At any time prior to the Effective
Time, any party hereto by action taken by its Board of Directors may, to the
extent legally allowed, (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 made to such party contained
herein or in any document delivered pursuant hereto, and (c) waive compliance
with any of the agreements or conditions for the benefit of such party
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE 12
12. General Provisions.
12.1. Survival of Representations and Warranties. Unless this
Agreement is terminated pursuant to Article 11, the representations and
warranties and covenants made in this Agreement shall terminate at the Closing,
except that any covenant herein which by its terms contemplates performance
after the Closing Date shall survive the Closing Date for the period
contemplated thereby.
12.2. Notices. Any notice required to be given hereunder shall
be sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to the Company: If to Parent or Merger Sub:
Cornerstone Natural Gas, Inc. El Paso Natural Gas Company
8080 North Central Express One Paul Kayser Center
Suite 1200 100 North Stanton Street
Dallas, Texas 75206 El Paso, Texas 79901
Attention: Ray Davis Attention: H. Brent Austin
Chairman of the Board Executive Vice President
and Chief Executive Officer and Chief Financial Officer
Facsimile: (214) 739-8251 Facsimile: (915) 541-5008
34
<PAGE> 39
With copies to: With a copy to:
Schlanger, Mills, Mayer Gary P. Cooperstein, Esq.
& Grossberg, L.L.P. Fried, Frank, Harris,
5847 San Felipe, Suite 1700 Shriver & Jacobson
Houston, Texas 77057 One New York Plaza
Attention: Clarence Mayer, Esq. New York, NY 10004
Facsimile: (713) 785-2091 Facsimile: (212) 747-1526
and
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Dallas, Texas 75201
Attention: Jack Stillwell, Esq.
Facsimile: (214) 969-4343
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
12.3. Assignment; Binding Effect; Benefit. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties; provided,
however, that Parent may assign this Agreement to any of its Subsidiaries
whether or not such Subsidiaries exist at the date hereof; provided, further,
that no such assignment shall relieve Parent of any of its obligations
hereunder. 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 the provisions of Section 9.10, which are expressly
intended to be enforceable by the beneficiaries thereof, nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
12.4. Entire Agreement. This Agreement, the Company Disclosure
Letter and the Confidentiality Agreement between the Company and Parent
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings (oral and
written) among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
35
<PAGE> 40
12.5. Amendment. This Agreement may be amended, at any time
prior to the Effective Time, to the fullest extent permitted by Section 251(d)
of the DGCL and notwithstanding the approval of the Agreement by the
Stockholders entitled to vote thereon, by the parties hereto by an instrument
in writing signed by or on behalf of each of the parties hereto.
12.6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, except that
Delaware law shall apply to those matters required to be governed by Delaware
law under applicable choice of law principles.
12.7. 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 of this Agreement, each of which may be signed by less than
all of the parties hereto, but together all such copies are signed by all of
the parties hereto.
12.8. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
12.9. Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa. As used in this Agreement, the word "Subsidiary" when used
with respect to any party means any corporation or other organization, whether
incorporated or unincorporated, of which such party directly or indirectly owns
or controls at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions with respect to such corporation or
other organization, or any organization of which such party is a general
partner.
12.10. Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
36
<PAGE> 41
12.11. 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
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto 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 extent possible.
12.12. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof, this being in
addition to any other remedy to which they may be entitled at law or in equity.
37
<PAGE> 42
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf as of the day and year
first written above.
EL PASO NATURAL GAS COMPANY
By: /s/ H. BRENT AUSTIN
-----------------------------------
Name: H. Brent Austin
Title: Executive Vice President and
Chief Financial Officer
THE EL PASO COMPANY
By: /s/ ROBERT G. PHILLIPS
-----------------------------------
Name: Robert G. Phillips
Title: Senior Vice President
CORNERSTONE NATURAL GAS, INC.
By: /s/ RAY C. DAVIS
-----------------------------------
Name: Ray C. Davis
Title: Chairman of the Board and
Chief Executive Officer
38
<PAGE> 43
ANNEX I
to
Agreement and Plan of Merger
Conditions to the Offer. Notwithstanding any other term of the Offer or
this Agreement, Merger Sub shall not be required to accept for payment or pay
for, subject to any applicable rules and regulations of the SEC, including Rule
14e-l(c) of the Exchange Act, any shares of Common Stock not theretofore
accepted for payment or paid for and may terminate the Offer unless (i) there
shall have been validly tendered and not withdrawn prior to the expiration of
the Offer that number of shares of Common Stock which, when added to the number
of shares of Common Stock then issuable upon the exercise of presently
exercisable Warrants subject to the Option Agreement and previously delivered
to Merger Sub in accordance with the terms of the Option Agreement, would
represent at least a majority of the outstanding shares of Common Stock on a
fully diluted basis (the "Minimum Condition") and (ii) any waiting period under
the HSR Act applicable to the purchase of shares of Common Stock pursuant to
the Offer shall have expired or been terminated. Furthermore, notwithstanding
any other term of the Offer or the Merger Agreement, Merger Sub shall not be
required to accept for payment or, subject as aforesaid, to pay for any shares
of Common Stock not theretofore accepted for payment or paid for, and may
terminate the Offer if at any time on or after the date of this Agreement and
before the acceptance of such shares of Common Stock for payment or the payment
therefor, any of the following conditions exist or shall occur and remain in
effect:
(a) there shall have been instituted or pending any action or
proceeding by or before any court or governmental, regulatory or
administrative agency, authority or tribunal, domestic or foreign, which
restrains or prohibits the making or consummation of the Offer or the
Merger or which would be reasonably likely to (i) result in material
liability or material damages being incurred by Parent or Merger Sub or
(ii) have a Company Material Adverse Effect; or
(b) there shall have been enacted, entered, enforced or deemed
applicable to the Offer or the Merger, by any state, federal or foreign
government or governmental authority or by any court, domestic or
foreign, any statute, rule, regulation, judgment, decree, order or
injunction, that prohibits or makes illegal the making or consummation
of the Offer or the Merger; or
(c) the Company and Merger Sub shall have reached an agreement
or understanding that the Offer or the Merger Agreement be terminated or
the Merger Agreement shall have been terminated in accordance with its
terms; or
A-1
<PAGE> 44
(d) (i) (A) any of the representations and warranties made by
the Company in Sections 7.1, 7.2, 7.3 or 7.4 of the Merger Agreement
shall not have been true and correct in all material respects when made,
or shall thereafter have ceased to be true and correct in all material
respects as if made as of such later time (other than representations
and warranties made as of a specified date) or (B) any of the other
representations and warranties made by the Company in the Merger
Agreement shall not have been true and correct when made or shall
thereafter have ceased to be true and correct as if made as of such
later time (other than representations and warranties made as of a
specified date), with the result that such failure to be true and
correct, either singly or in the aggregate with all other such failures,
has or would reasonably be expected to have a Company Material Adverse
Effect (it being understood that the foregoing shall not be construed as
applying an additional standard of materiality to any representation or
warranty which by its terms is qualified by materiality or by "Company
Material Adverse Effect")or (ii) after notice of default by Merger Sub
to the Company, the Company shall not, prior to the earlier of (A) the
expiration of the time period prescribed in Section 11.4(b) of the
Merger Agreement and (B) the expiration date of the Offer, in all
material respects have performed each obligation and agreement and
complied with each covenant to be performed and complied with by it
under the Merger Agreement ; or
(e) the Company's Board of Directors shall have modified or
amended its recommendation of the Offer in any manner adverse to Parent
and Merger Sub or shall have withdrawn its recommendation of the Offer,
or shall have recommended acceptance of any Proposal or shall have
resolved to do any of the foregoing, or shall have failed to reject any
Proposal within 10 business days after public announcement thereof; or
(f) so long as Parent and Merger Sub have not breached their
obligation to purchase shares of Common Stock pursuant to the Offer or
the Option Agreement, if (i) any person (other than Merger Sub) shall
have acquired beneficial ownership of 50% or more of the shares of
Common Stock on a fully diluted basis, or shall have been granted any
option or right, conditional or otherwise, to acquire 50% or more of the
shares of Common Stock on a fully diluted basis; (ii) any new group
shall have been formed which beneficially owns more than 50% of the
shares of Common Stock on a fully diluted basis; (iii) any person shall
have entered into an agreement in principle or definitive agreement with
the Company with respect to a tender or exchange offer for any shares of
Common Stock or a merger, consolidation or other business combination
with or involving the Company; or (iv) the Board of Directors or the
Transfer Review Committee or the Transfer Review Officer shall authorize
a Transfer by or to a 5% Holder (as such terms are defined in the
Company's Restated Certificate of
A-2
<PAGE> 45
Incorporation) of shares of Common Stock or the provisions of Article
Eleventh of the Restated Certificate of Incorporation shall otherwise be
waived or deemed inapplicable to any acquisition of beneficial ownership
of more than 5% of the shares of Common Stock (other than by Parent or
Merger Sub); or
(g) any of the agreements with each of Ben H. Cook, Ray C.
Davis and Kelcy L. Warren dated as of the date of this Agreement, shall
not be in full force and effect, or any of such persons shall have
contested the validity of any such agreement or denied that he is bound
by the terms thereof;
which, in the reasonable judgment of Parent and Merger Sub, in any case,
makes it inadvisable to proceed with the Offer or with such acceptance for
payment, purchase of, or payment for the shares of Common Stock.
The foregoing conditions are for the sole benefit of Merger Sub and may
be asserted by Merger Sub regardless of the circumstances giving rise to any
such condition and may be waived by Merger Sub, in whole or in part, at any
time and from time to time, in the sole discretion of Merger Sub. The failure
by Merger Sub at any time to exercise any of the foregoing rights will not be
deemed a waiver of any right, the waiver of such right with respect to any
particular facts or circumstances shall not be deemed a waiver with respect to
any other facts or circumstances, and each right will be deemed an ongoing
right which may be asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions, all
tendered shares of Common Stock not theretofore accepted for payment shall
forthwith be returned by the Paying Agent to the tendering stockholders.
A-3
<PAGE> 1
EL PASO ENERGY CORPORATION COMMENCES
OFFER FOR CORNERSTONE NATURAL GAS, INC.
AT $6.00 PER SHARE
El Paso, Houston, and Dallas, Texas, April 26, 1996 -- El Paso Energy
Corporation (NYSE:EPG) announced that, in accordance with the terms of the
previously announced Merger Agreement with Cornerstone Natural Gas, Inc.
(AMEX:CGA), a subsidiary of EPG today commenced a tender offer for all of the
outstanding shares of Cornerstone Natural Gas at a price of $6.00 per share in
cash.
The offer and withdrawal rights will expire at 12:00 midnight, New York
City time, on Friday, May 24, 1996, unless the offer is extended.
Rodman & Renshaw, Inc. is acting as Dealer Manager for the offer. Any
questions regarding the offer or requests for documentation should be directed
to the Information Agent, Chemical Mellon Shareholder Services, L.L.C., toll
free (800) 306-8594.
El Paso Energy Corporation, through El Paso Natural Gas Company, El Paso
Field Services Company and the El Paso Merchant Services Group, provides
natural gas transmission, gathering and processing services and nationwide
natural gas and power marketing services.
Cornerstone is engaged in natural gas pipeline and processing operations
in Texas and Louisiana which include the purchasing, gathering, treating,
transportation and marketing of natural gas and the recovery and marketing of
natural gas liquids.
<PAGE> 2
Contacts: El Paso Energy Corporation
Ms. Norma Dunn (915) 541-5443
Vice President, Investor & Public Relations
Cornerstone Natural Gas, Inc.
Mr. Robert Cavnar (214) 691-5536
Chief Financial Officer
<PAGE> 1
================================================================================
EL PASO NATURAL GAS COMPANY
_____________________________________
$400,000,000
REVOLVING CREDIT AND COMPETITIVE
ADVANCE FACILITY AGREEMENT
DATED AS OF AUGUST 10, 1994
_____________________________________
CHEMICAL BANK,
AS ADMINISTRATIVE AGENT
AND CAF ADVANCE AGENT
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 1.3 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.1 The Revolving Credit Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.2 Revolving Credit Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.3 Making the Revolving Credit Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.4 CAF Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.5 Procedure for CAF Advance Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.6 CAF Advance Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.7 CAF Advance Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.8 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.9 Reduction of the Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.10 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.11 Interest on Revolving Credit Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.12 Additional Interest on Eurodollar Rate Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.13 Interest Rate Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.14 Voluntary Conversion of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.15 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.16 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.17 Increased Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.18 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.19 Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.20 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.21 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.22 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE III
CONDITIONS OF EFFECTIVENESS AND LENDING . . . . . . . . . . . . . . . . . . . 34
SECTION 3.1 Conditions Precedent to Effectiveness of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.2 Conditions Precedent to Initial Advances to Any Borrowing Subsidiary . . . . . . . . . . . . . . . . . . 35
SECTION 3.3 Conditions Precedent to Each Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
-i-
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 4.1 Representations and Warranties of the Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE V
COVENANTS OF THE BORROWERS . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.1 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.2 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.3 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VI
GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.1 Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.2 No Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.3 Amendments, etc. with respect to the Obligations; Waiver of Rights . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.4 Guarantee Absolute and Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.5 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE VII
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 7.1 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE VIII
THE ADMINISTRATIVE AGENT AND THE CAF ADVANCE AGENT . . . . . . . . . . . . . . . . . . 54
SECTION 8.1 Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 8.2 Administrative Agent's and CAF Advance Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.3 Chemical and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.4 Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 8.6 Successor Administrative Agent and CAF Advance Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
-ii-
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ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 9.1 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 9.2 Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 9.3 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 9.4 Costs and Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 9.5 Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 9.6 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 9.7 Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 9.8 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 9.9 Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 9.10 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 9.11 Rate of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 9.12 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SCHEDULE
Schedule I Commitments, Addresses, Etc.
EXHIBITS
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Notice of Borrowing
Exhibit C Form of CAF Advance Note
Exhibit D Form of CAF Advance Request
Exhibit E Form of CAF Advance Offer
Exhibit F Form of CAF Advance Confirmation
Exhibit G Form of Assignment and Acceptance
Exhibit H Form of Opinion of (Associate) General Counsel
of the Company
Exhibit I Form of Opinion of New York Counsel to the
Company
Exhibit J Form of Process Agent Letter
Exhibit K Form of Joinder Agreement
Exhibit L Form of Opinion of (Associate) General Counsel of
the Company
Exhibit M Form of Opinion of New York Counsel to the Company
</TABLE>
-iii-
<PAGE> 5
REVOLVING CREDIT AND COMPETITIVE ADVANCE FACILITY AGREEMENT,
dated as of August 10, 1994, among EL PASO NATURAL GAS COMPANY, a Delaware
corporation (the "Company"), the several banks and other financial institutions
from time to time parties to this Agreement (the "Lenders"), CHEMICAL BANK, a
New York banking corporation, as administrative agent (in such capacity, the
"Administrative Agent") and as CAF Advance Agent (in such capacity, the "CAF
Advance Agent") for the Lenders hereunder.
The parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Administrative Agent" shall have the meaning assigned to such
term in the preamble hereof.
"Advance" means an advance by a Lender to any Borrower
pursuant to Article II, and refers to a Base Rate Advance, a
Eurodollar Rate Advance or a CAF Advance.
"Affiliate" means as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
The term "control" (including the terms "controlled by" or "under
common control with") means, with respect to any Person, the
possession, direct or indirect, of the power to vote 20% or more of
the securities having ordinary voting power for the election of
directors of such Person or to direct or cause the direction of the
management and policies of such Person, whether through ownership of
voting securities or by contract or otherwise.
"Agreement" means this Revolving Credit and Competitive
Advance Facility, as amended, supplemented or otherwise modified from
time to time.
"Alternate Program" means any other program providing for the
sale or other disposition of trade or other receivables entered into
by the Company which is in addition to or in replacement of the
program evidenced by the Receivables Purchase and Sale Agreement,
provided that such program is on terms (a) substantially similar to
the Receivables Purchase and Sale Agreement or (b) customary for
similar transactions as reasonably determined by the Administrative
Agent.
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"Applicable LIBO Rate" means in respect of any CAF Advance
requested pursuant to a LIBO Rate CAF Advance Request, the London
interbank offered rate for deposits in Dollars for the period
commencing on the date of such CAF Advance and ending on the maturity
date thereof which appears on Telerate Page 3750 as of 11:00 A.M.,
London time, two Business Days prior to the beginning of such period.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit G hereto.
"Base CD Rate" means the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of
which is one and the denominator of which is one minus the C/D Reserve
Percentage and (b) the C/D Assessment Rate.
"Base Rate" means for any day, a rate per annum (adjusted to
the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, rounded
upwards to the next highest 1/16 of 1%) equal to the greatest of (a)
the Prime Rate in effect on such day, (b) the Base CD Rate in effect
on such day plus 1/2 of 1% and (c) the Effective Federal Funds Rate in
effect on such day plus 1/2 of 1%. Any change in the Base Rate due to
a change in the Prime Rate, the Three-Month Secondary CD Rate or the
Effective Federal Funds Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate, the
Three-Month Secondary CD Rate or the Effective Federal Funds Rate,
respectively.
"Base Rate Advance" means an Advance which bears interest as
provided in Section 2.11(a)(i).
"Borrowers" means the collective reference to the Company and
each Borrowing Subsidiary; each, a "Borrower".
"Borrowing" means a borrowing consisting of Advances of the
same Type made on the same day by the Lenders, it being understood
that there may be more than one Borrowing on a particular day.
"Borrowing Subsidiary" means each domestic Principal
Subsidiary of the Company which has been designated by the Borrower as
a "Borrowing Subsidiary" by written notice to the Administrative
Agent; collectively, the "Borrowing Subsidiaries".
"Burlington" means Burlington Resources Inc., a Delaware
corporation.
"Business Day" means a day of the year on which banks are not
required or authorized to close in New York, New
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York and, if the applicable Business Day relates to any Eurodollar
Rate Advances or LIBO Rate CAF Advances, on which dealings are carried
on in the London interbank market.
"CAF Advance" means an Advance made pursuant to Sections 2.4
and 2.5.
"CAF Advance Agent" shall have the meaning assigned to such
term in the preamble hereof.
"CAF Advance Availability Period" means the period from and
including the Closing Date until the earlier of (a) the date which is
14 days prior to the Stated Termination Date and (b) the Termination
Date.
"CAF Advance Confirmation" means each confirmation by the
applicable Borrower of its acceptance of CAF Advance Offers, which CAF
Advance Confirmation shall be substantially in the form of Exhibit F
and shall be delivered to the CAF Advance Agent by telecopy.
"CAF Advance Interest Payment Date" means as to each CAF
Advance, each interest payment date specified by the applicable
Borrower for such CAF Advance in the related CAF Advance Request.
"CAF Advance Lenders" means Lenders from time to time
designated by the Company, in consultation with the CAF Advance Agent,
as CAF Advance Lenders as provided in Section 2.4.
"CAF Advance Maturity Date" means as to any CAF Advance, the
date specified by the applicable Borrower pursuant to Section
2.4(d)(ii) in its acceptance of the related CAF Advance Offer.
"CAF Advance Note" shall have the meaning assigned to such
term in Section 2.7 (collectively, the "CAF Advance Notes").
"CAF Advance Offer" means each offer by a CAF Advance Lender
to make CAF Advances pursuant to a CAF Advance Request, which CAF
Advance Offer shall contain the information specified in Exhibit E and
shall be delivered to the CAF Advance Agent by telephone, immediately
confirmed by telecopy.
"CAF Advance Request" means each request by the applicable
Borrower for CAF Advance Lenders to submit bids to make CAF Advances,
which request shall contain the information in respect of such
requested CAF Advances specified in Exhibit D and shall be delivered
to the CAF Advance Agent in writing, by telecopy, or by telephone,
immediately confirmed by telecopy.
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"Capitalization" means the sum (without duplication) of (a)
consolidated Debt of the Company and its consolidated Subsidiaries,
plus (b) the aggregate amount of Guaranties entered into by the
Company and its consolidated Subsidiaries, plus (c) the Company's
common and preferred stockholders' equity.
"C/D Assessment Rate" means for any day as applied to any Base
Rate Advance, the annual assessment rate determined by Chemical to be
payable on such day to the Federal Deposit Insurance Corporation (the
"FDIC") for the FDIC's (or any successor's) insuring time deposits at
offices of Chemical in the United States.
"C/D Reserve Percentage" means for any day as applied to any
Base Rate Advance, that percentage (expressed as a decimal) which is
in effect on such day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) (the "Board"), for
determining the then current reserve requirement for the
Administrative Agent in respect of new non-personal time deposits in
Dollars having a maturity of 30 days or more.
"Chemical" means Chemical Bank.
"Closing Date" means the date on which the conditions
precedent set forth in Section 3.1 have been satisfied (or compliance
therewith shall have been waived by the Lenders).
"Commitment" means as to any Lender, the obligation of such
Lender to make Revolving Credit Advances to the Borrowers hereunder in
an aggregate principal amount at any one time outstanding not to
exceed the amount set forth opposite such Lender's name on Schedule I
(as such Schedule I is amended from time to time pursuant to Section
9.7(c)), as such amount may be reduced from time to time in accordance
with the provisions of this Agreement.
"Commitment Percentage" means as to any Lender at any time,
the percentage which such Lender's Commitment then constitutes of the
aggregate Commitments (or, at any time after the Commitments shall
have expired or terminated, the percentage which the aggregate
principal amount of such Lender's Advances then outstanding
constitutes of the aggregate principal amount of the Advances then
outstanding).
"Company" shall have the meaning assigned to such term in the
preamble hereof.
"Contingent Guaranty" shall have the meaning assigned to such
term in the definition of the term "Guaranty" contained in this
Section 1.1.
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"Convert", "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of another Type
pursuant to Section 2.13, 2.14 or 2.18.
"Debt" means, as to any Person, all Indebtedness of such
Person other than (a) any Project Financing of such Person and (b) in
the case of the Company, any liabilities of the Company under the
Receivables Purchase and Sale Agreement or any Alternate Program, or
any document executed by the Company in connection therewith;
provided, however, that for purposes of Article V hereof "Debt" shall
not include up to an aggregate amount of $100,000,000 of (i) the
amount of optional payments in lieu of asset repurchase or other
payments to similar effect, including extension or renewal payments,
on off balance sheet leases and (ii) the amount of the purchase price
for optional acquisition of such asset (in either case, calculated at
the lower amount payable in respect of such asset under clause (i) or
(ii) above.
"Dollars" and "$" means dollars in lawful currency of the
United States of America.
"Effective Federal Funds Rate" means, for any day, the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is
a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
"Eligible Assignee" means, with respect to any particular
assignment under Section 9.7, any bank or other financial institution
approved in writing by the Company expressly with respect to such
assignment and, except as to such an assignment by Chemical so long as
Chemical is the Administrative Agent hereunder, the Administrative
Agent as an Eligible Assignee for purposes of this Agreement, provided
that neither the Administrative Agent's nor the Company's approval
shall be unreasonably withheld.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated
and rulings issued from time to time thereunder.
"ERISA Affiliate" means any Person who is a member of the
Company's controlled group within the meaning of Section
4001(a)(14)(A) of ERISA.
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"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Eurodollar Rate" means, for any Interest Period for each
Eurodollar Rate Advance comprising part of the same Borrowing, an
interest rate per annum equal to the average (rounded upward to the
nearest whole multiple of 1/16 of 1% per annum, if such average is not
such a multiple) of the rate per annum at which deposits in Dollars
are offered by the principal office of each of the Reference Lenders
in London, England, to prime banks in the London interbank market at
11:00 A.M. (London, England time) two Business Days before the first
day of such Interest Period (if applicable or appropriate, in an
amount comparable to the amount of such Borrowing) and for a period
equal to such Interest Period. The Eurodollar Rate for the Interest
Period for each Eurodollar Rate Advance comprising part of the same
Borrowing shall be determined by the Administrative Agent on the basis
of applicable rates furnished to and received by the Administrative
Agent from the Reference Lenders two Business Days before the first
day of such Interest Period, subject, however, to the provisions of
Section 2.13.
"Eurodollar Rate Advance" means an Advance which bears
interest determined by reference to the Eurodollar Rate, as provided
in Section 2.11(a)(ii).
"Eurodollar Rate Margin" means for each day and each
Eurodollar Rate Advance, the rate per annum set forth below opposite
the applicable S&P Bond Rating and Moody's Bond Rating:
<TABLE>
<CAPTION>
Bond Rating Eurodollar
(S&P/Moody's) Level Rate Margin
<S> <C> <C>
BBB+/Baa1 or better I .250%
BBB/Baa2 II .275%
BBB-/Baa3 III .300%
BB+/Ba1 or below IV .375%;
</TABLE>
provided that if the ratings of such rating agencies do not fall
within the same Level, the Eurodollar Rate Margin applicable to such
day will be the lower Eurodollar Rate Margin and provided, further,
that in the event a rating is not available from either rating agency,
such rating agency will be deemed to have assigned its lowest rating.
"Eurodollar Reserve Percentage" for any Lender for any
Interest Period for any Eurodollar Rate Advance means the reserve
percentage applicable during such Interest Period under regulations
issued from time to time by the Board of Governors of the Federal
Reserve System (or if more than one
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such percentage shall be so applicable, the daily average of such
percentages for those days in such Interest Period during which any
such percentage shall be so applicable) for determining the maximum
reserve requirement (including, but not limited to, any emergency,
supplemental or other marginal reserve requirement) for such Lender
with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities having a term equal to such Interest Period.
"Events of Default" shall have the meaning assigned to such
term in Section 7.1.
"Excluded Acquisition Debt" means (a) Debt, Guaranties or
reimbursement obligations of any corporation acquired by the Company
or any of its Subsidiaries and which Debt, Guaranties or reimbursement
obligations exist immediately prior to such acquisition (provided that
(i) such Debt, Guaranties or reimbursement obligations are not
incurred solely in anticipation of such acquisition and (ii)
immediately prior to such acquisition such corporation is not a
Subsidiary of the Company) or (b) Debt, Guaranties or reimbursement
obligations in respect of any asset acquired by the Company or its
Subsidiaries and which Debt, Guaranties or reimbursement obligations
exists immediately prior to such acquisition (provided that (i) such
Debt, Guaranties or reimbursement obligations are not incurred solely
in anticipation of such acquisition and (ii) immediately prior to such
acquisition such asset is not an asset of the Company or any of its
Subsidiaries).
"FERC" means the Federal Energy Regulatory Commission, or any
agency or authority of the United States from time to time succeeding
to its function.
"Fixed Rate CAF Advance" means any CAF Advance made pursuant
to a Fixed Rate CAF Advance Request.
"Fixed Rate CAF Advance Request" means any CAF Advance Request
requesting the CAF Advance Lenders to offer to make CAF Advances at a
fixed rate (as opposed to a rate composed of the Applicable LIBO Rate
plus (or minus) a margin).
"Guaranty", "Guaranteed" and "Guaranteeing" each means any act
by which any Person assumes, guarantees, endorses or otherwise incurs
direct or contingent liability in connection with, or agrees to
purchase or otherwise acquire or otherwise assures a creditor against
loss in respect of, any Debt or Project Financing of any Person other
than the Company or any of its consolidated Subsidiaries (excluding
(a) any liability by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of
business, (b) any liability in connection with obligations of the
Company or any of its consolidated
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Subsidiaries, including, without limitation, obligations under any
conditional sales agreement, equipment trust financing or equipment
lease, and (c) any such act in connection with a Project Financing
that either (i) guarantees performance of the completion of the
project which is financed by such Project Financing, until such time,
if any, that such guaranty becomes a guaranty of payment of such
Project Financing (other than a guaranty of payment of the type
referred to in subclause (ii) below) or (ii) is contingent upon, or
the obligation to pay or perform under which is contingent upon, the
occurrence of any event other than or in addition to the passage of
time or any Project Financing becoming due (any such act referred to
in this clause (c) being a "Contingent Guaranty"); provided, however,
that for purposes of this definition the liability of the Company or
any of its Subsidiaries with respect to any obligation as to which a
third party or parties are jointly, or jointly and severally, liable
as a guarantor or otherwise as contemplated hereby and have not
defaulted on its or their portions thereof, shall be only its pro rata
portion of such obligation.
"Indebtedness" of any Person means, without duplication (a)
indebtedness of such Person for borrowed money, (b) obligations of
such Person (other than any portion of any trade payable obligation of
such Person which shall not have remained unpaid for 91 days or more
from the original due date of such portion) to pay the deferred
purchase price of property or services, and (c) obligations of such
Person as lessee under leases which shall have been or should be, in
accordance with generally accepted accounting principles, recorded as
capital leases, except that where such indebtedness or obligation of
such Person is made jointly, or jointly and severally, with any third
party or parties other than any consolidated Subsidiary of such
Person, the amount thereof for the purposes of this definition only
shall be the pro rata portion thereof payable by such Person, so long
as such third party or parties have not defaulted on its or their
joint and several portions thereof.
"Indemnified Party" means any or all of the Lenders, the
Administrative Agent and the CAF Advance Agent.
"Interest Period" means, for each Eurodollar Rate Advance
comprising part of the same Borrowing, the period beginning on the
date of such Advance or the date of the Conversion of any Advance into
such an Advance and ending on the last day of the period selected by
the applicable Borrower pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of
the period selected by the applicable Borrower pursuant to the
provisions below. The duration of each such
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Interest Period shall be one, two, three or six months, or, subject to
availability to each Lender, nine or twelve months, in each case as
the applicable Borrower may, upon notice received by the
Administrative Agent not later than 12:00 noon (New York City time) on
the third Business Day prior to the first day of such Interest Period
with respect to Eurodollar Rate Advances, select; provided, however,
that:
(a) the duration of any Interest Period which
commences before the Termination Date and would otherwise end
after the Termination Date shall end on the Termination Date;
(b) if the last day of such Interest Period
would otherwise occur on a day which is not a Business Day,
such last day shall be extended to the next succeeding
Business Day, except if such extension would cause such last
day to occur in a new calendar month, then such last day shall
occur on the next preceding Business Day; and
(c) Interest Periods commencing on the same
date for Advances comprising the same Borrowing shall be of
the same duration.
"Joinder Agreement" means a Joinder Agreement, substantially
in the form of Exhibit K hereto, duly executed and delivered by the
Company and the Borrowing Subsidiary party thereto.
"Lenders" shall have the meaning assigned to such term in the
preamble hereof.
"LIBO Rate CAF Advance" means any CAF Advance made pursuant to
a LIBO Rate CAF Advance Request.
"LIBO Rate CAF Advance Request" means any CAF Advance Request
requesting the CAF Advance Lenders to offer to make CAF Advances at an
interest rate equal to the Applicable LIBO Rate plus (or minus) a
margin.
"Lien" means any lien, security interest or other charge or
encumbrance, or any assignment of the right to receive income, or any
other type of preferential arrangement, in each case to secure any
Indebtedness or any Guaranty of any Person.
"Majority Lenders" means Lenders the Commitment Percentages of
which aggregate at least 51%.
"Margin Stock" means "margin stock" as defined in Regulation U
of the Board of Governors of the Federal Reserve System, as in effect
from time to time.
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"Material Adverse Effect" means a material adverse effect on
the financial condition or operations of the Company and its
consolidated Subsidiaries on a consolidated basis.
"Mojave" means Mojave Pipeline Company.
"Mojave Northward Expansion Project" means the expansion (by
construction, acquisition or otherwise) of the natural gas
transmission system owned or to be owned by the Company, Mojave or any
Subsidiary which is not a Principal Subsidiary on the date hereof to
extend such system from Topock, AZ to the vicinity of San Francisco,
CA and Sacramento, CA and the related looping and increased
compression facilities.
"Moody's Bond Rating" means for any day, the rating of the
Company's senior long-term unsecured debt by Moody's Investor Service,
Inc. in effect at 11:00 A.M., New York City time, on such day.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which the Company or any ERISA
Affiliate is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued an
obligation to make contributions and in respect of which the Company
or an ERISA Affiliate has any liability (contingent or otherwise),
such plan being maintained pursuant to one or more collective
bargaining agreements.
"Multiple Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, which (a) is maintained for
employees of the Company or an ERISA Affiliate and at least one Person
other than the Company and its ERISA Affiliates or (b) was so
maintained and in respect of which the Company or an ERISA Affiliate
could have liability under Section 4064 or 4069 of ERISA in the event
such plan has been or were to be terminated.
"Net Worth" means with respect to the Company, as of any date
of determination, the sum of the preferred stock and stockholders'
equity of the Company as shown on the most recent consolidated balance
sheet of the Company delivered pursuant to Section 5.3.
"Note" means any Revolving Credit Note or CAF Advance Note
(collectively, the "Notes").
"Notice of Borrowing" has the meaning specified in Section
2.3(a).
"Obligations" means the collective reference to the unpaid
principal of and interest on the Notes and all other
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financial liabilities of the Borrowers to the Administrative Agent,
the CAF Advance Agent and the Lenders (including, without limitation,
interest accruing at the then applicable rate provided in this
Agreement after the maturity of the Advances and interest accruing at
the then applicable rate provided in this Agreement after the filing
of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Borrower whether or
not a claim for post-filing or post-petition interest is allowed in
such proceeding), whether direct or indirect, absolute or contingent,
due or to become due, or now existing or hereafter incurred, which may
arise under, out of, or in connection with, this Agreement or the
Notes, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or
otherwise (including, without limitation, all fees and disbursements
of counsel to the Administrative Agent, the CAF Advance Agent or to
the Lenders that are required to be paid by any Borrower pursuant to
this Agreement).
"Other Taxes" shall have the meaning assigned to such term in
Section 2.20(b).
"Party" shall have the meaning assigned to such term in
Section 9.8.
"PBGC" means the Pension Benefit Guaranty Corporation (or
any successor).
"Permitted Claims" shall have the meaning assigned to such
term in Section 9.9(a).
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or a
country or any political subdivision thereof or any agency or
instrumentality of such country or subdivision.
"Plan" means a Single Employer Plan or a Multiple Employer
Plan.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by Chemical as its prime rate in effect at
its principal office in New York City. The Prime Rate is not intended
to be the lowest rate of interest charged by Chemical in connection
with extensions of credit to debtors.
"Principal Subsidiary" means, at any time, any Subsidiary of
the Company (other than a Project Financing Subsidiary) having assets
at such time greater than or equal to 5% of the consolidated assets of
the Company and its consolidated Subsidiaries at such time.
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"Process Agent" has the meaning specified in Section 9.9(a).
"Project Financing" means any Indebtedness incurred to finance
a project, other than any portion of such Indebtedness permitting or
providing for recourse against the Company or any of its Subsidiaries
other than (a) recourse to the stock or assets of the Project
Financing Subsidiary, if any, incurring or Guaranteeing such
Indebtedness, and (b) such recourse as exists under any Contingent
Guaranty.
"Project Financing Subsidiary" means any Subsidiary of the
Company whose principal purpose is to incur Project Financing, or to
become a partner in a partnership so created, and substantially all
the assets of which Subsidiary or partnership are limited to those
assets being financed (or to be financed) in whole or in part by a
Project Financing.
"Receivables Purchase and Sale Agreement" means the
Receivables Purchase and Sale Agreement dated as of January 14, 1992
among the Company, CIESCO L.P., a New York limited partnership,
Corporate Asset Funding Company, a Delaware corporation and Citicorp
North America, Inc., as agent, as such Agreement may be amended,
supplemented, restated or otherwise modified from time to time which
amendment, supplement, restatement or modification will not extend the
purchase of receivables and other assets thereunder to receivables and
assets other than present and future gas purchase contract take-or-pay
buyout and buydown receivables, the collateral and other support
therefor and the collections therefrom.
"Reference Lenders" means Chemical, Morgan Guaranty Trust
Company of New York and Swiss Bank Corporation.
"Register" has the meaning specified in Section 9.7(c).
"Revolving Credit Advances" shall have the meaning assigned to
such term in Section 2.1.
"Revolving Credit Note" shall have the meaning assigned to
such term in Section 2.3 (collectively, the "Revolving Credit Notes").
"S&P Bond Rating" means for any day, the rating of the
Company's senior long-term unsecured debt by Standard & Poor's Ratings
Group in effect at 11:00 A.M., New York City time, on such day.
"Single Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of the Company or an ERISA
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Affiliate and no Person other than the Company and its ERISA
Affiliates or (b) was so maintained and in respect of which the
Company or an ERISA Affiliate could have liability under Section 4069
of ERISA in the event such plan has been or were to be terminated.
"Stated Termination Date" means August 10, 1999.
"Subsidiary" means, as to any Person, any corporation of which
at least a majority of the outstanding stock having by the terms
thereof ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall or
might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly beneficially owned or controlled
by such Person or one or more of its Subsidiaries or such Person and
one or more of the Subsidiaries of such Person.
"Taxes" shall have the meaning assigned to such term in
Section 2.20(a).
"Termination Date" means the earlier of (a) the Stated
Termination Date and (b) the date of termination in whole of the
Commitments pursuant to Section 2.9 or 7.1.
"Termination Event" means (a) a "reportable event," as such term
is described in Section 4043 of ERISA (other than a "reportable event"
not subject to the provision for 30-day notice to the PBGC under
subsections .11, .12, .13, .14, .16, .18, .19 or .20 of PBGC Reg.
Section 2615), or an event described in Section 4062(e) of ERISA, or
(b) the withdrawal of the Company or any ERISA Affiliate from a
Multiple Employer Plan during a plan year in which it was a
"substantial employer," as such term is defined in Section 4001(a)(2)
of ERISA or the incurrence of liability by the Company or any ERISA
Affiliate under Section 4064 of ERISA upon the termination of a
Multiple Employer Plan, or (c) the filing of a notice of intent to
terminate a Plan or the treatment of a Plan amendment as a termination
under Section 4041 of ERISA, or (d) the institution of proceedings to
terminate a Plan by the PBGC under Section 4042 of ERISA, or (e) the
conditions set forth in Section 302(f)(1)(A) and (B) of ERISA to the
creation of a lien upon property or rights to property of the Company
or any ERISA Affiliate for failure to make a required payment to a
Plan are satisfied, or (f) the adoption of an amendment to a Plan
requiring the provision of security to such Plan, pursuant to Section
307 of ERISA, or (g) the occurrence of any other event or the
existence of any other condition which would reasonably be expected to
result in the termination of, or the appointment of a trustee to
administer, any Plan under Section 4042 of ERISA.
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"Three-Month Secondary CD Rate" means, for any day, the
secondary market rate (adjusted to the basis of a year of 365 or 366
days, as the case may be) for three-month certificates of deposit
reported as being in effect on such day (or, if such day shall not be
a Business Day, the next preceding Business Day) by the Board of
Governors of the Federal Reserve System (the "Board") through the
public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on
such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately
10:00 A.M., New York City time, on such day (or, if such day shall not
be a Business Day, on the next preceding Business Day) by the
Administrative Agent from three New York City negotiable certificate
of deposit dealers of recognized standing selected by it.
"Type" means (a) as to any Revolving Credit Advance, its
nature as a Base Rate Advance or a Eurodollar Rate Advance and (b) as
to any CAF Advance, its nature as a Fixed Rate CAF Advance or a LIBO
Rate CAF Advance.
"Withdrawal Liability" shall have the meaning given such term
under Part 1 of Subtitle E of Title IV of ERISA.
SECTION 1.2 Computation of Time Periods. Unless otherwise
stated in this Agreement, in the computation of a period of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding."
SECTION 1.3 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles either (a) consistent with those principles
applied in the preparation of the financial statements referred to in Section
4.1(e) or (b) not materially inconsistent with such principles (so that no
covenant contained in Section 5.1 or 5.2 would be calculated or construed in a
materially different manner or with materially different results than if such
covenant were calculated or construed in accordance with clause (a) of this
Section 1.3).
<PAGE> 19
15
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.1 The Revolving Credit Advances. Each Lender
severally agrees, on the terms and conditions hereinafter set forth, to make
revolving credit advances ("Revolving Credit Advances") to the Borrowers or any
one or more of them from time to time on any Business Day during the period
from the date hereof to and including the Termination Date in an aggregate
amount not to exceed at any time outstanding the amount of such Lender's
Commitment; provided that the aggregate amount of the Advances outstanding
shall not at any time exceed the aggregate amount of the Commitments. Each
Borrowing shall be in an aggregate amount of $5,000,000 in the case of a
Borrowing comprised of Base Rate Advances and $20,000,000 in the case of a
Borrowing comprised of Eurodollar Rate Advances, or, in each case, an integral
multiple of $1,000,000 in excess thereof (or, in the case of a Borrowing of
Base Rate Advances, the aggregate unused Commitments, if less) and shall
consist of Revolving Credit Advances of the same Type made on the same day by
the Lenders ratably according to their respective Commitments. Within the
limits of each Lender's Commitment, any Borrower may make more than one
Borrowing on any Business Day and may borrow, repay pursuant to Section 2.10 or
prepay pursuant to Section 2.15, and reborrow under this Section 2.1.
SECTION 2.2 Revolving Credit Notes. The Revolving Credit
Advances to each Borrower made by each Lender shall be evidenced by a
promissory note of such Borrower, substantially in the form of Exhibit A, with
appropriate insertions as to maker, payee, date and principal amount (a
"Revolving Credit Note"), payable to the order of such Lender and in a
principal amount equal to the lesser of (a) the amount of the initial
Commitment of such Lender and (b) the aggregate unpaid principal amount of all
Revolving Credit Advances made to such Borrower by such Lender. Each Lender is
hereby authorized to, and prior to any transfer thereof shall, record the date,
Type and amount of each Revolving Credit Advance made by such Lender, each
continuation thereof, each conversion of all or a portion thereof to another
Type, the date and amount of each payment or prepayment of principal thereof
and, in the case of Eurodollar Rate Advances, the length of each Interest
Period with respect thereto, on the schedule annexed to and constituting a part
of its Revolving Credit Note, and any such recordation shall constitute prima
facie evidence of the accuracy of the information so recorded; provided,
however, that the failure to make any such recordation shall not affect the
obligations of such Borrower hereunder or any Revolving Credit Note. Each
Revolving Credit Note shall (i) be dated (A) in the case of the Company, the
Closing Date or (B) in each other case, the date the applicable Subsidiary
Borrower became a Borrower hereunder, (ii) be stated to mature on the
Termination Date and (iii) provide for the payment of interest in accordance
with this Agreement.
<PAGE> 20
16
SECTION 2.3 Making the Revolving Credit Advances. (a) Each
Borrowing of Revolving Credit Advances shall be made on notice by the Company
to the Administrative Agent (a "Notice of Borrowing") received by the
Administrative Agent, (i) in the case of a proposed Borrowing comprised of Base
Rate Advances, not later than 10:00 A.M. (New York City time) on the Business
Day of such proposed Borrowing and (ii) in the case of a proposed Borrowing
comprised of Eurodollar Rate Advances, not later than 12:00 noon (New York City
time) on the third Business Day prior to the date of such proposed Borrowing.
Each Notice of Borrowing shall be by telecopy or telephone (and if by
telephone, confirmed promptly by telecopier), in substantially the form of
Exhibit B hereto, specifying therein the requested (A) Borrower, (B) date of
such Borrowing, (C) Type of Revolving Credit Advances comprising such
Borrowing, (D) aggregate amount of such Borrowing, and (E) in the case of a
Borrowing comprised of Eurodollar Rate Advances, the initial Interest Period
for each such Advance. Each Lender shall, before 1:00 P.M. (New York City
time) on the date of such Borrowing, make available to the Administrative Agent
at its address at 270 Park Avenue, New York, New York, 10017, Reference: El
Paso Natural Gas Company, or at such other address designated by notice from
the Administrative Agent to the Lenders pursuant to Section 9.2, in same day
funds, such Lender's ratable portion of such Borrowing. Immediately after the
Administrative Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article III, the Administrative Agent will
make such funds available to the applicable Borrower at Chemical, 270 Park
Avenue, New York, New York, 10017, Account No. 323291503, Reference: El Paso
Natural Gas Company, or at such other account of the applicable Borrower
maintained by the Administrative Agent (or any successor Administrative Agent)
designated by the applicable Borrower and agreed to by the Administrative Agent
(or such successor Administrative Agent), in same day funds.
(b) Each Notice of Borrowing shall be irrevocable and binding
on the applicable Borrower. In the case of any Borrowing which the related
Notice of Borrowing specified is to be comprised of Eurodollar Rate Advances,
if such Advances are not made as a result of any failure to fulfill on or
before the date specified for such Borrowing the applicable conditions set
forth in Article III, the applicable Borrower shall indemnify each Lender
against any loss, cost or expense incurred by such Lender as a result of such
failure, including, without limitation, any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such Lender to fund the Advance to be made by such Lender as part of such
Borrowing.
(c) Unless the Administrative Agent shall have received
notice from a Lender prior to the date of any Borrowing that such Lender will
not make available to the Administrative Agent such Lender's ratable portion of
such Borrowing, the Administrative Agent may assume that such Lender has made
such
<PAGE> 21
17
portion available to the Administrative Agent on the date of such Borrowing in
accordance with subsection (a) of this Section 2.2 and the Administrative Agent
may, in reliance upon such assumption, make available to the applicable
Borrower on such date a corresponding amount. If and to the extent such Lender
shall not have so made such ratable portion available to the Administrative
Agent, such Lender and the applicable Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the applicable Borrower until the date such amount is repaid to the
Administrative Agent, at the Effective Federal Funds Rate for such day. If
such Lender shall repay to the Administrative Agent such corresponding amount,
such amount so repaid shall constitute such Lender's Advance to the applicable
Borrower as part of such Borrowing for purposes of this Agreement.
(d) The failure of any Lender to make the Advance to be made
by it as part of any Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Advance on the date of such
Borrowing, but no Lender shall be responsible for the failure of any other
Lender to make the Advance to be made by such other Lender on the date of any
Borrowing.
SECTION 2.4 CAF Advances. Subject to the terms and
conditions of this Agreement, the Borrowers or any one or more of them may
borrow CAF Advances from time to time during the CAF Advance Availability
Period on any Business Day. The Company shall, in consultation with the CAF
Advance Agent, designate Lenders from time to time as CAF Advance Lenders by
written notice to the CAF Advance Agent. The CAF Advance Agent shall transmit
each such notice of designation promptly to each designated CAF Advance Lender.
CAF Advances shall be borrowed in amounts such that the aggregate amount of
Advances outstanding at any time shall not exceed the aggregate amount of the
Commitments at such time. Any CAF Advance Lender may make CAF Advances in
amounts which, individually and together with the aggregate amount of other
Advances of such CAF Advance Lender, exceed such CAF Advance Lender's
Commitment, and such CAF Advance Lender's CAF Advances shall not be deemed to
utilize such CAF Advance Lender's Commitment. Within the limits and on the
conditions hereinafter set forth with respect to CAF Advances, the Borrowers
from time to time may borrow, repay and reborrow CAF Advances.
SECTION 2.5 Procedure for CAF Advance Borrowings. (a) A
Borrower shall request CAF Advances by delivering a CAF Advance Request to the
CAF Advance Agent, not later than 12:00 Noon (New York City time) four Business
Days prior to the date of the proposed Borrowing (in the case of a LIBO Rate
CAF Advance Request), and not later than 10:00 A.M. (New York City time) one
Business Day prior to the date of the proposed Borrowing (in the case of a
Fixed Rate CAF Advance Request). Each CAF Advance Request may solicit bids for
CAF Advances in an aggregate
<PAGE> 22
18
principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess
thereof and having not more than three alternative maturity dates. The
maturity date for each CAF Advance shall be not less than 14 days nor more than
180 days after the date of the Borrowing therefor (and in any event shall be
not later than the Stated Termination Date); provided that each LIBO Rate CAF
Advance shall mature one, two, three or six months after the date of the
Borrowing therefor. The CAF Advance Agent shall notify each CAF Advance Lender
promptly by telecopy of the contents of each CAF Advance Request received by
the CAF Advance Agent.
(b) In the case of a LIBO Rate CAF Advance Request, upon
receipt of notice from the CAF Advance Agent of the contents of such CAF
Advance Request, each CAF Advance Lender may elect, in its sole discretion, to
offer irrevocably to make one or more CAF Advances at the Applicable LIBO Rate
plus (or minus) a margin determined by such CAF Advance Lender in its sole
discretion for each such CAF Advance. Any such irrevocable offer shall be made
by delivering a CAF Advance Offer to the CAF Advance Agent, before 10:30 A.M.
(New York City time) on the day that is three Business Days before the date of
the proposed Borrowing, setting forth:
(i) the maximum amount of CAF Advances for each
maturity date and the aggregate maximum amount of CAF Advances for all
maturity dates which such CAF Advance Lender would be willing to make
(which amounts may, subject to Section 2.4, exceed such CAF Advance
Lender's Commitment); and
(ii) the margin above or below the Applicable LIBO Rate
at which such CAF Advance Lender is willing to make each such CAF
Advance.
The CAF Advance Agent shall advise the Company before 11:00 A.M. (New York City
time) on the date which is three Business Days before the proposed date of the
Borrowing of the contents of each such CAF Advance Offer received by it. If
the CAF Advance Agent, in its capacity as a CAF Advance Lender, shall elect, in
its sole discretion, to make any such CAF Advance Offer, it shall advise the
Company of the contents of its CAF Advance Offer before 10:15 A.M. (New York
City time) on the date which is three Business Days before the proposed date of
the Borrowing.
(c) In the case of a Fixed Rate CAF Advance Request, upon
receipt of notice from the CAF Advance Agent of the contents of such CAF
Advance Request, each CAF Advance Lender may elect, in its sole discretion, to
offer irrevocably to make one or more CAF Advances at a rate of interest
determined by such CAF Advance Lender in its sole discretion for each such CAF
Advance. Any such irrevocable offer shall be made by delivering a CAF Advance
Offer to the CAF Advance Agent before 9:30 A.M. (New York City time) on the
proposed date of the Borrowing, setting forth:
<PAGE> 23
19
(i) the maximum amount of CAF Advances for each
maturity date, and the aggregate maximum amount for all maturity
dates, which such CAF Advance Lender would be willing to make (which
amounts may, subject to Section 2.4, exceed such CAF Advance Lender's
Commitment); and
(ii) the rate of interest at which such CAF Advance
Lender is willing to make each such CAF Advance.
The CAF Advance Agent shall advise the Company before 10:00 A.M. (New York City
time) on the proposed date of the Borrowing of the contents of each such CAF
Advance Offer received by it. If the CAF Advance Agent, in its capacity as a
CAF Advance Lender, shall elect, in its sole discretion, to make any such CAF
Advance Offer, it shall advise the Company of the contents of its CAF Advance
Offer before 9:15 A.M. (New York City time) on the proposed date of the
Borrowing.
(d) Before 11:30 A.M. (New York City time) three Business
Days before the proposed date of the Borrowing (in the case of CAF Advances
requested by a LIBO Rate CAF Advance Request) and before 10:30 A.M. (New York
City time) on the proposed date of the Borrowing (in the case of CAF Advances
requested by a Fixed Rate CAF Advance Request), the Company, in its absolute
discretion, shall:
(i) cancel such CAF Advance Request by giving the CAF
Advance Agent telephone notice to that effect, or
(ii) by giving telephone notice to the CAF Advance Agent
(immediately confirmed by delivery to the CAF Advance Agent of a CAF
Advance Confirmation in writing or by telecopy) (A) subject to the
provisions of Section 2.5(e), accept one or more of the offers made by
any CAF Advance Lender or CAF Advance Lenders pursuant to Section
2.5(b) or Section 2.5(c), as the case may be, of the amount of CAF
Advances for each relevant maturity date and (B) reject any remaining
offers made by CAF Advance Lenders pursuant to Section 2.5(b) or
Section 2.5(c), as the case may be.
(e) The Company's acceptance of CAF Advances in response to
any CAF Advance Request shall be subject to the following limitations:
(i) the amount of CAF Advances accepted for each
maturity date specified by any CAF Advance Lender in its CAF Advance
Offer shall not exceed the maximum amount for such maturity date
specified in such CAF Advance Offer;
(ii) the aggregate amount of CAF Advances accepted for
all maturity dates specified by any CAF Advance Lender in its CAF
Advance Offer shall not exceed the aggregate maximum amount specified
in such CAF Advance Offer for all such maturity dates;
<PAGE> 24
20
(iii) the Company may not accept offers for CAF Advances
for any maturity date in an aggregate principal amount in excess of
the maximum principal amount requested in the related CAF Advance
Request; and
(iv) if the Company accepts any of such offers, it must
accept offers based solely upon pricing for such relevant maturity
date and upon no other criteria whatsoever and if two or more CAF
Advance Lenders submit offers for any maturity date at identical
pricing and the Company accepts any of such offers but does not wish
to (or by reason of the limitations set forth in Section 2.4 or in
Section 2.5(e)(iii), cannot) borrow the total amount offered by such
CAF Advance Lenders with such identical pricing, the Company shall
accept offers from all of such CAF Advance Lenders in amounts
allocated among them pro rata according to the amounts offered by such
CAF Advance Lenders (or as nearly pro rata as shall be practicable
after giving effect to the requirement that CAF Advances made by a CAF
Advance Lender on a date of the Borrowing for each relevant maturity
date shall be in a principal amount of $5,000,000 or an integral
multiple of $1,000,000 in excess thereof; provided that if the number
of CAF Advance Lenders that submit offers for any maturity date at
identical pricing is such that, after the Company accepts such offers
pro rata in accordance with the foregoing, the CAF Advance to be made
by such CAF Advance Lenders would be less than $5,000,000 principal
amount, the number of such CAF Advance Lenders shall be reduced by the
CAF Advance Agent by lot until the CAF Advances to be made by such
remaining CAF Advance Lenders would be in a principal amount of
$5,000,000 or an integral multiple of $1,000,000 in excess thereof).
(f) If the Company notifies the CAF Advance Agent that a CAF
Advance Request is cancelled pursuant to Section 2.5(d)(i), the CAF Advance
Agent shall give prompt telephone notice thereof to the CAF Advance Lenders.
(g) If the Company accepts pursuant to Section 2.5(d)(ii) one
or more of the offers made by any CAF Advance Lender or CAF Advance Lenders,
the CAF Advance Agent promptly shall notify each CAF Advance Lender which has
made such a CAF Advance Offer of (i) the aggregate amount of such CAF Advances
to be made on such Borrowing Date for each maturity date and (ii) the
acceptance or rejection of any offers to make such CAF Advances made by such
CAF Advance Lender. Before 1:00 P.M. (New York City time) on the date of the
Borrowing specified in the applicable CAF Advance Request, each CAF Advance
Lender whose CAF Advance Offer has been accepted shall make available to the
Administrative Agent at its office set forth in Section 9.2 the amount of CAF
Advances to be made by such CAF Advance Lender, in same day funds. The
Administrative Agent will make such funds available to the applicable Borrower
as soon as practicable on such date at the Administrative Agent's aforesaid
address. As
<PAGE> 25
21
soon as practicable after each Borrowing Date, the CAF Advance Agent shall
notify each Lender of the aggregate amount of CAF Advances advanced on such
Borrowing Date and the respective maturity dates thereof.
(h) The failure of any CAF Advance Lender to make the CAF
Advance to be made by it as part of any Borrowing shall not relieve any other
Lender of its obligation, if any, hereunder to make its CAF Advance on the date
of such Borrowing, but no CAF Lender shall be responsible for the failure of
any other CAF Advance Lender to make the CAF Advance to be made by such CAF
Advance Lender on the date of any Borrowing.
SECTION 2.6 CAF Advance Payments. (a) The applicable
Borrower shall repay to the Administrative Agent, for the account of each CAF
Advance Lender which has made a CAF Advance to it, on the applicable CAF
Advance Maturity Date the then unpaid principal amount of such CAF Advance.
The Borrowers shall not have the right to prepay any principal amount of any
CAF Advance.
(b) The applicable Borrower shall pay interest on the unpaid
principal amount of each CAF Advance to it from the date of the Borrowing to
the applicable CAF Advance Maturity Date at the rate of interest specified in
the CAF Advance Offer accepted by the applicable Borrower in connection with
such CAF Advance (calculated on the basis of a 360-day year for actual days
elapsed), payable on each applicable CAF Advance Interest Payment Date.
(c) If all or a portion of the principal amount of any CAF
Advance shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue principal amount shall, without
limiting any rights of any Lender under this Agreement, bear interest from the
date on which such payment was due at a rate per annum which is 1% above the
rate which would otherwise be applicable pursuant to the CAF Advance Note
evidencing such CAF Advance until the stated maturity date of such CAF Advance,
and for each day thereafter at a rate per annum which is 2% above the Base
Rate, in each case until paid in full (as well after as before judgment).
Interest accruing pursuant to this paragraph (c) shall be payable from time to
time on demand.
SECTION 2.7 CAF Advance Notes. The CAF Advances made by each
CAF Advance Lender to each Borrower shall be evidenced by a promissory note of
such Borrower, substantially in the form of Exhibit C with appropriate
insertions (a "CAF Advance Note"), payable to the order of such CAF Advance
Lender and representing the obligation of such Borrower to pay the unpaid
principal amount of all CAF Advances made to it by such CAF Advance Lender,
with interest on the unpaid principal amount from time to time outstanding of
each CAF Advance evidenced thereby as prescribed in Section 2.6(b). Each CAF
Advance Lender is hereby authorized to, and prior to any transfer thereof
shall, record the date and
<PAGE> 26
22
amount of each CAF Advance made to it by such CAF Advance Lender, the maturity
date thereof, the date and amount of each payment of principal thereof and the
interest rate with respect thereto on the schedule attached to and constituting
part of its CAF Advance Note, and any such recordation shall constitute prima
facie evidence of the accuracy of the information so recorded; provided,
however, that the failure to make any such recordation shall not affect the
obligations of such Borrower hereunder or under any CAF Advance Note. Each CAF
Advance Note shall be dated (a) in the case of the Company, the Closing Date or
(b) in each other case, the date the applicable Subsidiary Borrower became a
Borrower hereunder, and each CAF Advance evidenced thereby shall bear interest
for the period from and including the Borrowing Date of such CAF Advance on the
unpaid principal amount thereof from time to time outstanding at the applicable
rate per annum determined as provided in, and such interest shall be payable as
specified in, Section 2.6(b).
SECTION 2.8 Fees. (a) The Company agrees to pay to the
Administrative Agent for the account of each Lender a facility fee for the
period from and including the date hereof to the Termination Date, computed at
a variable rate on the average daily amount of the Commitment of such Lender
during the period for which payment is made, which rate will vary according to
the S&P Bond Rating and the Moody's Bond Rating as follows:
<TABLE>
<CAPTION>
Bond Rating Facility
(S&P/Moody's) Level Fee Rate
------------- ----- --------
<S> <C> <C>
BBB+/Baa1 or better I .120%
BBB/Baa2 II .160%
BBB-/Baa3 III .200%
BB+/Ba1 or below IV .250%;
</TABLE>
provided that if the ratings of such rating agencies do not fall within the
same Level, the rate applicable to such day will be the lower facility fee rate
and provided, further, that in the event a rating is not available from either
rating agency, such rating agency will be deemed to have assigned its lowest
rating. Such facility fees shall be payable quarterly in arrears on the last
day of each March, June, September and December and on the Termination Date or
such earlier date on which the Commitments shall terminate as provided herein,
commencing on the first of such dates to occur after the date hereof.
(b) The Company agrees to pay to the Administrative Agent
and the CAF Advance Agent the fees set forth in the fee letter, dated June 28,
1994, from Chemical to the Company.
SECTION 2.9 Reduction of the Commitments. The Company shall
have the right, upon at least three Business Days' notice to the Administrative
Agent, to terminate in whole or reduce ratably in part the unused portions of
the respective Commitments of the Lenders, provided that each partial reduction
shall be in
<PAGE> 27
23
the aggregate amount of $10,000,000 or any whole multiple of $1,000,000 in
excess thereof.
SECTION 2.10 Repayment. The Borrowers shall repay to each
Lender on the Termination Date the aggregate principal amount of the Advances
then owing to such Lender.
SECTION 2.11 Interest on Revolving Credit Advances. (a)
Ordinary Interest. The Borrowers shall pay interest on the unpaid principal
amount of each Revolving Credit Advance owing to each Lender from the date of
such Advance until such principal amount is due (whether at stated maturity, by
acceleration or otherwise), at the following rates:
(i) Base Rate Advances. During such periods as such
Advance is a Base Rate Advance, a rate per annum equal at all times to
the Base Rate in effect from time to time, payable quarterly in
arrears on the last day of each March, June, September and December
during such periods and on the date such Base Rate Advance shall be
Converted or due (whether at stated maturity, by acceleration or
otherwise).
(ii) Eurodollar Rate Advances. During such periods as
such Advance is a Eurodollar Rate Advance, at a rate per annum equal
at all times during each Interest Period for such Advance to the sum
of the Eurodollar Rate for such Interest Period plus the Eurodollar
Rate Margin in effect from time to time, payable on the last day of
each such Interest Period and, if any such Interest Period has a
duration of more than three months, on each day which occurs during
such Interest Period every three months from the first day of such
Interest Period.
(b) Default Interest. The applicable Borrower shall pay
interest on the unpaid principal amount of each Revolving Credit Advance to it
that is not paid when due (whether at stated maturity, by acceleration or
otherwise) from the date on which such amount is due until such amount is paid
in full, payable on demand, at a rate per annum equal at all times (i) from
such due date to the last day of the then existing Interest Period in the case
of each Eurodollar Rate Advance, to 1% per annum above the interest rate per
annum required to be paid on such Advance immediately prior to the date on
which such amount became due, and (ii) from and after the last day of the then
existing Interest Period, and at all times in the case of any Base Rate
Advance, to 1% per annum above the Base Rate in effect from time to time.
SECTION 2.12 Additional Interest on Eurodollar Rate Advances.
If any Lender shall determine in good faith that reserves under regulations of
the Board of Governors of the Federal Reserve System are required to be
maintained by it in respect of, or a portion of its costs of maintaining
reserves under such regulations is properly attributable to, one or more
<PAGE> 28
24
of its Eurodollar Rate Advances, the applicable Borrower shall pay to such
Lender additional interest on the unpaid principal amount of each such
Eurodollar Rate Advance to it (other than any such additional interest accruing
to a particular Lender in respect of periods prior to the 30th day preceding
the date notice of such interest is given by such Lender as provided in this
Section 2.12), payable on the same day or days on which interest is payable on
such Advance, at an interest rate per annum equal at all times during each
Interest Period for such Advance to the excess of (i) the rate obtained by
dividing the Eurodollar Rate for such Interest Period by a percentage equal to
100% minus the Eurodollar Reserve Percentage, if any, for such Lender for such
Interest Period over (ii) the Eurodollar Rate for such Interest Period. The
amount of such additional interest (if any) shall be determined by each Lender,
and such Lender shall furnish written notice of the amount of such additional
interest to the Company and the Administrative Agent, which notice shall be
conclusive and binding for all purposes, absent manifest error.
SECTION 2.13 Interest Rate Determination. (a) Each
Reference Lender agrees to furnish to the Administrative Agent timely
information for the purpose of determining the Eurodollar Rate. If any one or
more of the Reference Lenders shall not furnish such timely information to the
Administrative Agent for the purpose of determining any such interest rate, the
Administrative Agent shall determine such interest rate on the basis of timely
information furnished by the remaining Reference Lenders.
(b) The Administrative Agent shall give prompt notice to the
Company and the Lenders of the applicable interest rate determined by the
Administrative Agent for purposes of Section 2.11(a)(i) or (ii), and the
applicable rate, if any, furnished by each Reference Lender for the purpose of
determining the applicable interest rate under Section 2.11(a)(ii).
(c) If fewer than two Reference Lenders furnish timely
information to the Administrative Agent for determining the Eurodollar Rate for
any Eurodollar Rate Advances,
(i) the Administrative Agent shall give the Company and
each Lender prompt notice thereof by telephone (confirmed in writing)
that the interest rate cannot be determined for such Eurodollar Rate
Advances,
(ii) each such Advance will automatically, on the last
day of the then existing Interest Period therefor, Convert into a Base
Rate Advance (or if such Advance is then a Base Rate Advance, will
continue as a Base Rate Advance), and
(iii) the obligations of the Lenders to make, or to
Convert Advances into, Eurodollar Rate Advances shall be
<PAGE> 29
25
suspended until the Administrative Agent shall notify the Company and
the Lenders that the circumstances causing such suspension no longer
exist.
(d) If, with respect to any Eurodollar Rate Advances, the
Majority Lenders determine and give notice to the Administrative Agent that, as
a result of conditions in or generally affecting the London interbank
eurodollar market, the rates of interest determined on the basis of the
Eurodollar Rate for any Interest Period for such Advances will not adequately
reflect the cost to such Majority Lenders of making, funding or maintaining
their respective Eurodollar Rate Advances for such Interest Period, the
Administrative Agent shall forthwith so notify the Company and the Lenders,
whereupon,
(i) each such Advance will automatically, on the last
day of the then existing Interest Period therefor, Convert into a Base
Rate Advance, and
(ii) the obligation of the Lenders to make, or to
Convert Advances into, Eurodollar Rate Advances shall be suspended
until the Administrative Agent shall notify the Company and the
Lenders that the circumstances causing such suspension no longer
exist.
(e) If the applicable Borrower shall fail to select the
duration of any Interest Period for any Eurodollar Rate Advances in accordance
with the provisions contained in the definition of "Interest Period" in Section
1.1, the Administrative Agent will forthwith so notify the applicable Borrower
and the Lenders and such Advances will automatically, on the last day of the
then existing Interest Period therefor, Convert into Base Rate Advances.
(f) On the date on which the aggregate unpaid principal
amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced,
by payment or prepayment or otherwise, to less than $10,000,000, such
Eurodollar Rate Advances shall automatically Convert into Base Rate Advances,
and on and after such date the right of the applicable Borrower to Convert such
Advances into Eurodollar Rate Advances shall terminate; provided, however, that
if and so long as each such Eurodollar Rate Advance shall have the same
Interest Period as Eurodollar Rate Advances comprising another Borrowing or
other Borrowings, and the aggregate unpaid principal amount of all such
Eurodollar Rate Advances shall equal or exceed $20,000,000, the applicable
Borrower shall have the right to continue all such Advances as, or to Convert
all such Advances into Eurodollar Rate Advances having the same Interest
Period.
(g) If any Reference Lender shall for any reason no longer
have a Commitment or any Revolving Credit Advances, such Reference Lender shall
thereupon cease to be a Reference Lender, and if, as a result, there shall only
be one Reference Lender
<PAGE> 30
26
remaining, the Administrative Agent (after consultation with the Company and
the Lenders) shall, by notice to the Company and the Lenders, designate another
Lender as a Reference Lender so that there shall at all times be at least two
Reference Lenders.
SECTION 2.14 Voluntary Conversion of Advances. Any Borrower
may on any Business Day, upon notice given to the Administrative Agent, not
later than 10:00 A.M. (New York City time) on the Business Day of the proposed
Conversion of Eurodollar Rate Advances to Base Rate Advances and not later than
12:00 noon (New York City time) on the third Business Day prior to the date of
the proposed Conversion in the case of a Conversion of Base Rate Advances to
Eurodollar Rate Advances, and subject to the provisions of Sections 2.13, 2.16
and 2.18, Convert all Advances of one Type comprising the same Borrowing into
Advances of another Type; provided, however, that any Conversion of any
Eurodollar Rate Advances into Base Rate Advances made on any day other than the
last day of an Interest Period for such Eurodollar Rate Advances shall be
subject to the provisions of Section 9.4(b). Each such notice of a Conversion
shall, within the restrictions specified above, specify (a) the date of such
Conversion, (b) the Advances to be Converted, and (c) if such Conversion is
into Eurodollar Rate Advances, the duration of the Interest Period for each
such Advance.
SECTION 2.15 Prepayments. Any Borrower may upon (a) in the
case of Eurodollar Rate Advances, at least two Business Days' notice and (b) in
the case of Base Rate Advances, telephonic notice not later than 12:00 noon
(New York City time) on the date of prepayment, to the Administrative Agent
which specifies the proposed date and aggregate principal amount of the
prepayment and the Type of Advances to be prepaid, and if such notice is given
such Borrower shall, prepay the outstanding principal amounts of the Advances
comprising the same Borrowing in whole or ratably in part, together with
accrued interest to the date of such prepayment on the amount prepaid;
provided, however, that (i) each partial prepayment shall be in an aggregate
principal amount not less than $10,000,000 or an integral multiple of
$1,000,000 in excess thereof and (ii) in the event of any such prepayment of
Eurodollar Rate Advances on any day other than the last day of an Interest
Period for such Eurodollar Rate Advances, such Borrower shall be obligated to
reimburse the Lenders in respect thereof pursuant to, and to the extent
required by, Section 9.4(b); provided, further, however, that such Borrower
will use its best efforts to give notice to the Administrative Agent of the
proposed prepayment of Base Rate Advances on the Business Day prior to the date
of such proposed prepayment.
SECTION 2.16 Increased Costs. (a) If, due to either (i) the
introduction after the date of this Agreement of or any change after the date
of this Agreement (including any change by way of imposition or increase of
reserve requirements or assessments other than those referred to in the
definition of
<PAGE> 31
27
"Eurodollar Reserve Percentage," "C/D Reserve Percentage" or "C/D Assessment
Rate" contained in Section 1.1) in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request issued or made
after the date of this Agreement from or by any central bank or other
governmental authority (whether or not having the force of law), in each case
above other than those referred to in Section 2.17, there shall be any increase
in the cost to any Lender of agreeing to make, fund or maintain, or of making,
funding or maintaining, Eurodollar Rate Advances funded in the interbank
Eurodollar market, then the Borrowers shall from time to time, upon demand by
such Lender (with a copy of such demand to the Administrative Agent), pay to
the Administrative Agent for the account of such Lender additional amounts
sufficient to reimburse such Lender for all such increased costs (except those
costs incurred more than 60 days prior to the date of such demand; for the
purposes hereof any cost or expense allocable to a period prior to the
publication or effective date of such an introduction, change, guideline or
request shall be deemed to be incurred on the later of such publication or
effective date). Each Lender agrees to use its best efforts promptly to notify
the Company of any event referred to in clause (i) or (ii) above, provided that
the failure to give such notice shall not affect the rights of any Lender under
this Section 2.16(a) (except as otherwise expressly provided above in this
Section 2.16(a)). A certificate as to the amount of such increased cost,
submitted to the Company and the Administrative Agent by such Lender, shall be
conclusive and binding for all purposes, absent manifest error. After one or
more Lenders have notified the Company of any increased costs pursuant to this
Section 2.16, the Company may specify by notice to the Administrative Agent and
the affected Lenders that, after the date of such notice whenever the election
of Eurodollar Rate Advances by the applicable Borrower for an Interest Period
or portion thereof would give rise to such increased costs, such election shall
not apply to the Revolving Credit Advances of such Lenders during such Interest
Period or portion thereof, and, in lieu thereof, such Revolving Credit Advances
shall during such Interest Period or portion thereof be Base Rate Advances.
Each Lender agrees to use its best efforts (including, without limitation, a
reasonable effort to change its lending office or to transfer its affected
Advances to an affiliate of such Lender) to avoid, or minimize the amount of,
any demand for payment from the Borrowers under this Section 2.16.
(b) In the event that any Lender shall change its lending
office and such change results (at the time of such change) in increased costs
to such Lender, the Borrowers shall not be liable to such Lender for such
increased costs incurred by such Lender to the extent, but only to the extent,
that such increased costs shall exceed the increased costs which such Lender
would have incurred if the lending office of such Lender had not been so
changed, but, subject to subsection (a) above and to Section 2.18, nothing
herein shall require any Lender to change its lending office for any reason.
<PAGE> 32
28
SECTION 2.17 Increased Capital. If either (a) the
introduction of or any change in or in the interpretation of any law or
regulation or (b) compliance by any Lender with any guideline or request from
any central bank or other governmental authority (whether or not having the
force of law) affects or would affect the amount of capital required or
expected to be maintained by such Lender or any corporation controlling such
Lender and such Lender determines that the amount of such capital is increased
by or based upon the existence of such Lender's commitment to lend hereunder
and other commitments of this type, then, within ten days after demand, and
delivery to the Company of the certificate referred to in the last sentence of
this Section 2.17 by such Lender (with a copy of such demand to the
Administrative Agent), the applicable Borrowers shall pay to the Administrative
Agent for the account of such Lender, from time to time as specified by such
Lender, additional amounts sufficient to compensate such Lender or such
corporation in the light of such circumstances, to the extent that such Lender
reasonably determines such increase in capital to be allocable to the existence
of such Lender's commitment to lend hereunder (except any such increase in
capital incurred more than, or compensation attributable to the period before,
90 days prior to the date of such demand; for the purposes hereof any increase
in capital allocable to, or compensation attributable to, a period prior to the
publication or effective date of such an introduction, change, guideline or
request shall be deemed to be incurred on the later of such publication or
effective date). Each Lender agrees to use its best efforts promptly to notify
the Company of any event referred to in clause (a) or (b) above, provided that
the failure to give such notice shall not affect the rights of any Lender under
this Section 2.17 (except as otherwise expressly provided above in this Section
2.17). A certificate in reasonable detail as to the basis for, and the amount
of, such compensation submitted to the Company by such Lender shall, in the
absence of manifest error, be conclusive and binding for all purposes.
SECTION 2.18 Illegality. Notwithstanding any other provision
of this Agreement, if the introduction of or any change in or in the
interpretation of any law or regulation shall make it unlawful, or any central
bank or other governmental authority shall assert that it is unlawful, for any
Lender or its lending office to perform its obligations hereunder to make
Eurodollar Rate Advances or to continue to fund or maintain such Advances
hereunder, such Lender may, by notice to the Company and the Administrative
Agent, suspend the right of the Borrowers to elect Eurodollar Rate Advances
from such Lender and, if necessary in the reasonable opinion of such Lender to
comply with such law or regulation, Convert all such Eurodollar Rate Advances
of such Lender to Base Rate Advances at the latest time permitted by the
applicable law or regulation, and such suspension and, if applicable, such
Conversion shall continue until such Lender notifies the Company and the
Administrative Agent that the circumstances making it unlawful for such Lender
to perform such
<PAGE> 33
29
obligations no longer exist (which such Lender shall promptly do when such
circumstances no longer exist). So long as the obligation of any Lender to
make Eurodollar Rate Advances has been suspended under this Section 2.18, all
Notices of Borrowing specifying Advances of such Type shall be deemed, as to
such Lender, to be requests for Base Rate Advances. Each Lender agrees to use
its best efforts (including, without limitation, a reasonable effort to change
its lending office or to transfer its affected Advances to an affiliate) to
avoid any such illegality.
SECTION 2.19 Payments and Computations. (a) The Borrowers
shall make each payment hereunder (including, without limitation, under Section
2.8, 2.10 or 2.11) and under the Notes, whether the amount so paid is owing to
any or all of the Lenders or to the Administrative Agent, not later than 12:00
noon (New York City time) without setoff, counterclaim, or any other deduction
whatsoever, on the day when due in Dollars to the Administrative Agent at its
address at 270 Park Avenue, New York, New York 10017, Reference: El Paso
Natural Gas Company, or at such other location designated by notice to the
Company from the Administrative Agent and agreed to by the Company, in same day
funds. The Administrative Agent will promptly thereafter cause to be
distributed like funds relating to the payment of principal or interest or
facility fees ratably (other than amounts payable pursuant to Section 2.12,
2.16, 2.17, 2.18 or 2.20) according to the respective amounts of such
principal, interest or facility fees then due and owing to the Lenders, and
like funds relating to the payment of any other amount payable to any Lender to
such Lender, in each case to be applied in accordance with the terms of this
Agreement. Upon its acceptance of an Assignment and Acceptance and recording
of the information contained therein in the Register pursuant to Section
9.7(d), from and after the effective date specified in such Assignment and
Acceptance, the Administrative Agent shall make all payments hereunder and
under the Notes in respect of the interest assigned thereby to the Lender
assignee thereunder, and the parties to such Assignment and Acceptance shall
make all appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.
(b) All computations of interest based on the Base Rate and
of facility fees shall be made by the Administrative Agent on the basis of a
year of 365 or 366 days, as the case may be, and all computations of interest
based on the Eurodollar Rate or the Effective Federal Funds Rate shall be made
by the Administrative Agent, and all computations of interest pursuant to
Section 2.12 shall be made by each Lender with respect to its own Advances, on
the basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period
for which such interest or fees are payable. Each determination by the
Administrative Agent (or, in the case of Section 2.12, 2.16, 2.17, 2.18 or
2.20, by each Lender with respect to its own Advances) of an interest rate or
an increased cost or increased
<PAGE> 34
30
capital or of illegality hereunder shall be conclusive and binding for all
purposes if made reasonably and in good faith.
(c) Whenever any payment hereunder or under the Notes shall
be stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest; provided,
however, if such extension would cause payment of interest on or principal of
Eurodollar Rate Advances to be made in the next following calendar month, such
payment shall be made on the next preceding Business Day.
(d) Unless the Administrative Agent shall have received
notice from the Company or any other applicable Borrower prior to the date on
which any payment is due to the Lenders hereunder that the applicable Borrower
will not make such payment in full, the Administrative Agent may assume that
the applicable Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Lender on such due date an amount
equal to the amount then due such Lender. If and to the extent the applicable
Borrower shall not have so made such payment in full to the Administrative
Agent, each Lender shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Lender together with interest thereon, for each
day from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Administrative Agent, at a rate equal to the
Effective Federal Funds Rate for such day.
SECTION 2.20 Taxes. (a) Any and all payments by the
Borrowers hereunder or under the Notes to each Indemnified Party shall be made,
in accordance with Section 2.19, free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, all taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, imposed by the jurisdiction under the laws of which such
Indemnified Party is organized, domiciled, resident or doing business, or any
political subdivision thereof or by any jurisdiction in which such Indemnified
Party holds any interest in connection with this Agreement or any Note
(including, without limitation, in the case of each Lender, the jurisdiction of
such Lender's lending office) or any political subdivision thereof, other than
by any jurisdiction with which the Indemnified Party's connection arises solely
from having executed, delivered or performed obligations or received a payment
under, or enforced, this Agreement or any Note (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If any Borrower shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder or under
any Note to any Indemnified Party, (i) the sum payable
<PAGE> 35
31
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.20) such Indemnified Party receives an amount equal to the sum
it would have received had no such deductions been made, (ii) such Borrower
shall make or cause to be made such deductions and (iii) such Borrower shall
pay or cause to be paid the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law, provided that
the Borrowers shall not be required to pay any additional amount (and shall be
relieved of any liability with respect thereto) pursuant to this subsection (a)
to any Indemnified Party that either (A) on the date such Lender became an
Indemnified Party hereunder, (y) was not entitled to submit a U.S. Internal
Revenue Service form 1001 (relating to such Indemnified Party, and entitling it
to a complete exemption from United States withholding taxes on all amounts to
be received by such Indemnified Party pursuant to this Agreement) and a U.S.
Internal Revenue Service form 4224 (relating to all amounts to be received by
such Indemnified Party pursuant to this Agreement) and (z) was not a United
States person (as such term is defined in Section 7701(a)(30) of the Internal
Revenue Code) or (B) has failed to submit any form or certificate that it was
required to file or provide pursuant to subsection (d) of this Section 2.20 and
is entitled to file or give, as applicable, under applicable law, provided,
further, that should an Indemnified Party become subject to Taxes because of
its failure to deliver a form required hereunder, the Borrowers shall take such
steps as such Indemnified Party shall reasonably request to assist such
Indemnified Party to recover such Taxes, and provided further that each
Indemnified Party, with respect to itself, agrees to indemnify and hold
harmless the Borrowers from any taxes, penalties, interest and other expenses,
costs and losses incurred or payable by the Borrowers as a result of the
failure of any of the Borrowers to comply with its obligations under clause
(ii) or (iii) above in reliance on any form or certificate provided to it by
such Indemnified Party pursuant to this Section 2.20. If any Indemnified Party
receives a net credit or refund in respect of such Taxes or amounts so paid by
the Borrowers, it shall promptly notify the Company of such net credit or
refund and shall promptly pay such net credit or refund to the applicable
Borrower, provided that the applicable Borrower agrees to return such net
credit or refund if the Indemnified Party to which such net credit or refund is
applicable is required to repay it.
(b) In addition, each Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made by such Borrower
hereunder or under the Notes or from the execution, delivery or performance of,
or otherwise with respect to, this Agreement or the Notes (hereinafter referred
to as "Other Taxes").
<PAGE> 36
32
(c) Each Borrower will indemnify each Indemnified Party and
the Administrative Agent for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 2.20) paid by such
Indemnified Party and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto except as a result of the
gross negligence (which shall in any event include the failure of such
Indemnified Party to provide to the Borrowers any form or certificate that it
was required to provide pursuant to subsection (d) below) or willful misconduct
of such Indemnified Party, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made within 30
days from the date such Indemnified Party makes written demand therefor.
(d) On or prior to the date on which each Indemnified
Party organized under the laws of a jurisdiction outside the United States
becomes an Indemnified Party hereunder, such Indemnified Party shall provide
the Company with U.S. Internal Revenue Service form 1001 or 4224, as
appropriate, or any successor form prescribed by the U.S. Internal Revenue
Service, certifying that such Indemnified Party is fully exempt from United
States withholding taxes with respect to all payments to be made to such
Indemnified Party hereunder, or other documents satisfactory to the Company
indicating that all payments to be made to such Indemnified Party hereunder are
fully exempt from such taxes. Thereafter and from time to time (but only so
long as such Indemnified Party remains lawfully able to do so), each such
Indemnified Party shall submit to the Company such additional duly completed
and signed copies of one or the other of such Forms (or such successor Forms as
shall be adopted from time to time by the relevant United States taxing
authorities) as may be (i) notified by any Borrower to such Indemnified Party
and (ii) required under then-current United States law or regulations to avoid
United States withholding taxes on payments in respect of all amounts to be
received by such Indemnified Party pursuant to this Agreement or the Notes.
Upon the request of any Borrower from time to time, each Indemnified Party that
is a United States person (as such term is defined in Section 7701(a)(30) of
the Internal Revenue Code) shall submit to the Company a certificate to the
effect that it is such a United States person. If any Indemnified Party
determines, as a result of any change in applicable law, regulation or treaty,
or in any official application or interpretation thereof, that it is unable to
submit to the Company any form or certificate that such Indemnified Party is
obligated to submit pursuant to this subsection (d), or that such Indemnified
Party is required to withdraw or cancel any such form or certificate previously
submitted, such Indemnified Party shall promptly notify the Company of such
fact.
(e) Any Indemnified Party claiming any additional amounts
payable pursuant to this Section 2.20 shall use its best efforts (consistent
with its internal policy and legal and
<PAGE> 37
33
regulatory restrictions) to change the jurisdiction of its lending office if
the making of such a change would avoid the need for, or reduce the amount of,
any such additional amounts which may thereafter accrue and would not, in the
reasonable judgment of such Indemnified Party, be otherwise disadvantageous to
such Indemnified Party.
(f) Without prejudice to the survival of any other
agreement of the Borrowers hereunder, the agreements and obligations of the
Borrowers and each Indemnified Party contained in this Section 2.20 shall
survive the payment in full of principal and interest hereunder and under the
Notes.
(g) Any other provision of this Agreement to the contrary
notwithstanding, any amounts which are payable by any Borrower under this
Section 2.20 shall not be payable under Section 2.16.
SECTION 2.21 Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the Advances made by it (other
than pursuant to Section 2.12, 2.16, 2.17, 2.18 or 2.20) in excess of its
ratable share of payments on account of the Advances obtained by all the
Lenders, such Lender shall forthwith purchase from the other Lenders such
participations in the Advances made by them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them,
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each
Lender shall be rescinded and each Lender shall repay to the purchasing Lender
the purchase price to the extent of such recovery together with an amount equal
to such Lender's ratable share (according to the proportion of (a) the amount
of such Lender's required repayment to (b) the total amount so recovered from
the purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. Each Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section may, to the fullest extent permitted by law, exercise
all its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of such
Borrower in the amount of such participation.
SECTION 2.22 Use of Proceeds. Proceeds of the Advances may
be used for general corporate purposes of the Company and its Subsidiaries,
including, without limitation, for acquisitions and for payment of commercial
paper issued by the Company and to refinance the loans under the Company's
Revolving Credit Agreement, dated as of February 11, 1992.
<PAGE> 38
34
ARTICLE III
CONDITIONS OF EFFECTIVENESS AND LENDING
SECTION 3.1 Conditions Precedent to Effectiveness of this
Agreement. This Agreement shall become effective when (i) it shall have been
executed by the Company, the Administrative Agent and the CAF Advance Agent,
(ii) the Administrative Agent and the Company either shall have been notified
by each Lender that such Lender has executed it or shall have received a
counterpart of this Agreement executed by such Lender, and (iii) the
Administrative Agent shall, on or before September 30, 1994, have received the
following, each (except in the case of the letter referred to in Section
3.1(f)) dated the Closing Date, in form and substance satisfactory to the
Administrative Agent and (except for the Notes) in sufficient copies for each
Lender:
(a) The Notes made by the Company, to the order of the
Lenders, respectively.
(b) Certified copies of the resolutions of the Board of
Directors of the Company approving the borrowings contemplated hereby
and authorizing the execution of this Agreement and the Notes, and of
all documents evidencing other necessary corporate action of the
Company and governmental approvals to the Company, if any, with
respect to this Agreement and the Notes.
(c) A certificate of the Secretary or an Assistant Secretary
of the Company certifying the names and true signatures of the
officers of the Company authorized to sign this Agreement and the
other documents to be delivered by it hereunder.
(d) A favorable opinion of Britton White, Jr., Esq., the
General Counsel of the Company, or Eldon J. Mitrisin, Esq., the
Associate General Counsel of the Company, in substantially the form of
Exhibit H hereto, and as to such other matters as any Lender through
the Administrative Agent may reasonably request.
(e) A favorable opinion of Fried, Frank, Harris, Shriver
& Jacobson, New York counsel to the Company, in substantially the form
of Exhibit I hereto, and as to such other matters as any Lender
through the Administrative Agent may reasonably request.
(f) A letter from the Process Agent, in substantially the
form of Exhibit J hereto, agreeing to act as Process Agent for the
Company and to forward forthwith all process received by it to the
Company.
<PAGE> 39
35
(g) Evidence satisfactory to the Administrative Agent that
all advances, accrued interest and other fees and any other amounts
owing to the Lenders and the Agent under the Revolving Credit
Agreement, dated as of February 11, 1992, among the Company, the
several financial institutions from time to time parties thereto, and
Citibank, N.A., as Agent, shall have been paid in full, and the
commitments to make advances thereunder shall have been cancelled.
Anything in this Agreement to the contrary notwithstanding, if all of the
conditions to effectiveness of this Agreement specified in this Section 3.1
shall not have been fulfilled on or before September 30, 1994, this Agreement,
and all of the obligations of the Company, the Lenders, the Administrative
Agent and the CAF Advance Agent hereunder, shall be terminated on and as of
5:00 P.M. (New York City time) on September 30, 1994; provided, however, that
as soon as the Administrative Agent determines that all of the conditions to
effectiveness of this Agreement specified in this Section 3.1 shall have been
fulfilled on or before September 30, 1994, the Administrative Agent shall
furnish written notice to the Company and the Lenders to the effect that it has
so determined, and such notice by the Administrative Agent shall constitute
conclusive evidence that this Agreement shall have become effective for all
purposes.
SECTION 3.2 Conditions Precedent to Initial Advances to Any
Borrowing Subsidiary. The agreement of each Lender to make the initial
Advances to be made by it to any Borrowing Subsidiary is subject to the
Administrative Agent receiving the following, in form and substance
satisfactory to the Administrative Agent and (except for the Notes) in
sufficient copies for each Lender:
(a) A Joinder Agreement, conforming to the requirements
hereof.
(b) The Notes, dated the date such Borrowing Subsidiary
executes and delivers its Joinder Agreement, made by such Borrowing
Subsidiary, to the order of the Lenders, respectively.
(c) A certificate of the Secretary or an Assistant
Secretary of such Borrowing Subsidiary certifying the names and true
signature of the officers of such Borrowing Subsidiary authorized to
sign the Joinder Agreement and the other documents to be delivered by
it hereunder.
(d) A favorable opinion of the General Counsel or
Associate General Counsel of the Company, given upon the express
instructions of the Company, in substantially the form of Exhibit L
hereto, and as to such other matters as any Lender through the
Administrative Agent may reasonably request, with such assumptions,
qualifications and exceptions as the Administrative Agent may approve.
<PAGE> 40
36
(e) A favorable opinion of Fried, Frank, Harris, Shriver
& Jacobson or other New York counsel to the Company reasonably
satisfactory to the Administrative Agent, in substantially the form of
Exhibit M hereto, and as to such other matters as any Lender through
the Administrative Agent may reasonably request, with such
assumptions, qualifications and exceptions as the Administrative Agent
may approve.
(f) A letter from the Process Agent, in substantially
the form of Exhibit J hereto, agreeing to act as Process Agent for
such Borrowing Subsidiary and to forward forthwith all process
received by it to such Borrowing Subsidiary.
SECTION 3.3 Conditions Precedent to Each Borrowing. The
obligation of each Lender to make an Advance (including the initial Advance) on
the occasion of any Borrowing shall be subject to the conditions precedent that
on the date of such Borrowing this Agreement shall have become effective
pursuant to Section 3.1 and, before and immediately after giving effect to such
Borrowing and to the application of the proceeds therefrom, the following
statements shall be true and correct, and the giving by the Company of the
applicable Notice of Borrowing and the acceptance by the applicable Borrower of
the proceeds of such Borrowing shall constitute its representation and warranty
that on and as of the date of such Borrowing, before and immediately after
giving effect thereto and to the application of the proceeds therefrom, the
following statements are true and correct:
(a) Each representation and warranty contained in Section
4.1 is correct in all material respects as though made on and as of
such date; and
(b) No event has occurred and is continuing, or would
result from such Borrowing, which constitutes an Event of Default or
would constitute an Event of Default but for the requirement that
notice be given or time elapse or both.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Representations and Warranties of the Borrowers.
Each Borrower represents and warrants as follows:
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware. Each Principal Subsidiary is duly incorporated, validly
existing and in good standing in the jurisdiction of its
incorporation. The Company and each Principal Subsidiary possess all
corporate powers and all other authorizations and licenses necessary
to engage in its
<PAGE> 41
37
business and operations as now conducted, the failure to obtain or
maintain which would have a Material Adverse Effect.
(b) The execution, delivery and performance by each Borrower
of this Agreement, each Joinder Agreement, if any, to which it is a
party and its Notes (as applicable) are within such Borrower's
corporate powers, have been duly authorized by all necessary corporate
action, and do not contravene (i) such Borrower's charter or by-laws
or (ii) law or any contractual restriction binding on or affecting
such Borrower.
(c) No authorization or approval or other action by, and
no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by
such Borrower of this Agreement, each Joinder Agreement, if any, to
which it is a party or its Notes (as applicable), except filings
necessary to comply with laws, rules, regulations and orders required
in the ordinary course to comply with ongoing obligations of such
Borrower under Section 5.1(a) and (b).
(d) This Agreement constitutes, and its Notes and each
Joinder Agreement, if any, to which it is a party (as applicable) when
delivered hereunder shall constitute, the legal, valid and binding
obligations of each Borrower enforceable against such Borrower in
accordance with their respective terms, except as may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally or by general
principles of equity.
(e) The consolidated balance sheet of the Company and its
consolidated Subsidiaries as at December 31, 1993, and the related
consolidated statements of income and cash flows of the Company and
its consolidated Subsidiaries for the fiscal year then ended, reported
on by Coopers & Lybrand, independent public accountants, copies of
which have been furnished to the Administrative Agent and the Lenders
prior to the date hereof, fairly present the consolidated financial
condition of the Company and its consolidated Subsidiaries as at such
date and the consolidated results of the operations of the Company and
its consolidated Subsidiaries for the period ended on such date, all
in accordance with generally accepted accounting principles
consistently applied, and since December 31, 1993, there has been no
material adverse change in such condition or operations. The
unaudited consolidated balance sheet of the Company and its
consolidated Subsidiaries as of March 31, 1994, and the related
consolidated statements of income and cash flows of the Company and
its consolidated Subsidiaries for the three months then ended,
certified by the chief financial officer of the Company, copies of
which have been
<PAGE> 42
38
furnished to the Administrative Agent and the Lenders prior to the
date hereof, fairly present the consolidated results of operations of
the Company and its consolidated Subsidiaries for the three months
then ended, all in accordance with generally accepted accounting
principles consistently applied and subject to normal year-end audit
adjustments.
(f) There is no action, suit or proceeding pending, or to
the knowledge of any Borrower threatened, against or involving the
Company or any Principal Subsidiary in any court, or before any
arbitrator of any kind, or before or by any governmental body, which
in the reasonable judgment of the Company (taking into account the
exhaustion of all appeals) would have a Material Adverse Effect, or
which purports to affect the legality, validity, binding effect or
enforcement of this Agreement or the Notes.
(g) The Company and each Principal Subsidiary have duly
filed all tax returns required to be filed, and have duly paid and
discharged all taxes, assessments and governmental charges upon it or
against its properties now due and payable, the failure to pay which
would have a Material Adverse Effect, unless and to the extent only
that the same are being contested in good faith and by appropriate
proceedings by the Company or the appropriate Subsidiary.
(h) The Company and each Principal Subsidiary have good
title to their respective properties and assets, free and clear of all
mortgages, liens and encumbrances, except for mortgages, liens and
encumbrances (including covenants, restrictions, rights, easements and
minor irregularities in title) which do not materially interfere with
the business or operations of the Company or such Subsidiary as
presently conducted or which are permitted by Section 5.2(a), and
except that no representation or warranty is being made with respect
to Margin Stock.
(i) No Termination Event has occurred or is reasonably
expected to occur with respect to any Plan which, with the giving of
notice or lapse of time, or both, would constitute an Event of Default
under Section 7.1(g).
(j) Each Plan has complied with the applicable provisions
of ERISA and the Code where the failure to so comply would reasonably
be expected to result in an aggregate liability that would exceed 10%
of the Net Worth of the Company.
(k) The statement of assets and liabilities of each Plan
and the statements of changes in fund balance and in financial
position, or the statement of changes in net assets available for plan
benefits, for the most recent plan
<PAGE> 43
39
year for which an accountant's report with respect to such Plan has
been prepared, copies of which report have been furnished to the
Administrative Agent, fairly present the financial condition of such
Plan as at such date and the results of operations of such Plan for
the plan year ended on such date.
(l) Neither the Company nor any ERISA Affiliate has
incurred, or is reasonably expected to incur, any Withdrawal Liability
to any Multiemployer Plan which, when aggregated with all other
amounts required to be paid to Multiemployer Plans in connection with
Withdrawal Liability (as of the date of determination), would exceed
10% of the Net Worth of the Company.
(m) Neither the Company nor any ERISA Affiliate has
received any notification that any Multiemployer Plan is in
reorganization, insolvent or has been terminated, within the meaning
of Title IV of ERISA, and no Multiemployer Plan is reasonably expected
to be in reorganization, insolvent or to be terminated within the
meaning of Title IV of ERISA the effect of which reorganization,
insolvency or termination would be the occurrence of an Event of
Default under Section 7.1(i).
(n) The Borrowers are not engaged in the business of
extending credit for the purpose of purchasing or carrying Margin
Stock, and no proceeds of any Advance will be used to extend credit to
others (other than to any Subsidiary of the Company) for the purpose
of purchasing or carrying Margin Stock.
(o) No Borrower is an "investment company" or a "company"
controlled by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(p) No Borrower is a "holding company" or a "subsidiary
company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
All representations and warranties made by the Borrowers herein or made in any
certificate delivered pursuant hereto shall survive the making of the Advances
and the execution and delivery to the Lenders of this Agreement and the Notes.
ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.1 Affirmative Covenants. So long as any of the
Notes or other amount payable by any Borrower hereunder shall remain unpaid or
any Lender shall have any Commitment hereunder,
<PAGE> 44
40
each Borrower will, unless the Majority Lenders shall otherwise consent in
writing:
(a) Preservation of Corporate Existence, Etc. Preserve
and maintain, and, in the case of the Company, cause each Principal
Subsidiary to preserve and maintain, its corporate existence, rights
(charter and statutory) and material franchises, except as otherwise
permitted by Section 5.2(d) or 5.2(e).
(b) Compliance with Laws, Etc. Comply, and, in the case
of the Company, cause each Principal Subsidiary to comply, in all
material respects with all applicable laws, rules, regulations and
orders (including, without limitation, all environmental laws and laws
requiring payment of all taxes, assessments and governmental charges
imposed upon it or upon its property except to the extent contested in
good faith by appropriate proceedings) the failure to comply with
which would have a Material Adverse Effect.
(c) Visitation Rights. At any reasonable time and from
time to time, permit the Administrative Agent or any of the Lenders or
any agents or representatives thereof, to examine and make copies of
and abstracts from the records and books of account of, and visit the
properties of, the Company and any of its Subsidiaries, and to discuss
the affairs, finances and accounts of the Company and any of its
Subsidiaries with any of their officers and with their independent
certified public accountants.
(d) Books and Records. Keep, and, in the case of the
Company, cause each of its Subsidiaries to keep, proper books of
record and account, in which full and correct entries shall be made of
all its respective financial transactions and the assets and business
of the Company and each of its Subsidiaries, as applicable, in
accordance with generally accepted accounting principles either (i)
consistently applied or (ii) applied in a changed manner provided such
change shall have been disclosed to the Administrative Agent and shall
have been consented to by the accountants which (as required by
Section 5.3(b)) report on the financial statements of the Company and
its consolidated Subsidiaries for the fiscal year in which such change
shall have occurred.
(e) Maintenance of Properties, Etc. Maintain and
preserve, and, in the case of the Company, cause each Principal
Subsidiary to maintain and preserve, all of its properties which are
used in the conduct of its business in good working order and
condition, ordinary wear and tear excepted, to the extent that any
failure to do so would have a Material Adverse Effect.
<PAGE> 45
41
(f) Maintenance of Insurance. Maintain, and, in the case
of the Company, cause each Principal Subsidiary to maintain, insurance
with responsible and reputable insurance companies or associations in
such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties
in the same general areas in which the Company or such Subsidiary
operates.
SECTION 5.2 Negative Covenants. So long as any of the Notes
or other amount payable by the Borrowers hereunder shall remain unpaid or any
Lender shall have any Commitment hereunder, each Borrower will not, unless the
Majority Lenders shall otherwise consent in writing:
(a) Liens, Etc. (i) Create, assume or suffer to exist,
or, in the case of the Company, permit any Principal Subsidiary to
create, assume or suffer to exist, any Liens upon or with respect to
any of the capital stock of any Principal Subsidiary, whether now
owned or hereafter acquired, or (ii) create or assume, or, in the case
of the Company, permit any Principal Subsidiary to create or assume,
any Liens upon or with respect to any other assets material to the
consolidated operations of the Company and its consolidated
Subsidiaries taken as a whole securing the payment of Indebtedness and
Guaranties in an aggregate amount (determined without duplication of
amount (so that the amount of a Guarantee will be excluded to the
extent the Indebtedness Guaranteed thereby is included in computing
such aggregate amount)) exceeding $100,000,000; provided, however,
that this subsection (a) shall not apply to:
(A) Liens on the stock or assets of any Project
Financing Subsidiary (or any partnership interest in or assets
of any partnership of which the Project Financing Subsidiary
is a partner) securing the payment of a Project Financing and
related obligations;
(B) Liens on assets acquired by the Company or
any of its Subsidiaries after February 11, 1992 to the extent
that such Liens existed at the time of such acquisition and
were not placed thereon by or with the consent of the Company
in contemplation of such acquisition;
(C) Liens created by the Receivables Purchase and
Sale Agreement, any Alternate Program or any document executed
by any Borrower in connection therewith;
(D) Liens on Margin Stock;
(E) Liens for taxes, assessments or governmental
charges or levies not yet overdue; and
<PAGE> 46
42
(F) Liens on the stock or assets of Mojave
created in connection with the Mojave Northward Expansion
Project.
(b) Consolidated Debt and Guaranties to Capitalization.
Permit the ratio of (i) the sum of (A) the aggregate amount of
consolidated Debt of the Company and its consolidated Subsidiaries
plus (B) the aggregate amount of consolidated Guaranties of the
Company and its consolidated Subsidiaries to (ii) Capitalization to
exceed .7 to 1.
(c) Debt, Etc. In the case of the Company, permit any of
its consolidated Subsidiaries to create or suffer to exist any Debt,
any Guaranty or any reimbursement obligation with respect to any
letter of credit (other than any Project Financing), if, immediately
after giving effect to such Debt, Guaranty or reimbursement obligation
and the receipt and application of any proceeds thereof or value
received in connection therewith, the aggregate amount (determined
without duplication of amount) of Debt, Guaranties and letter of
credit reimbursement obligations of the Company's consolidated
Subsidiaries (other than any Project Financing) determined on a
consolidated basis would exceed $75,000,000; provided, however, that
the following Debt, Guaranties or reimbursement obligations shall be
excluded from the application of, and calculation set forth in, this
clause (c): (A) Debt, Guaranties or reimbursement obligations incurred
by (x) Mojave or (y) any other Subsidiary of the Company in connection
with the Mojave Northward Expansion Project, (B) Debt, Guaranties or
reimbursement obligations arising under this Agreement, (C) Debt,
Guaranties or reimbursement obligations incurred by El Paso Field
Services Company up to an amount not to exceed at any time outstanding
the tangible net worth of El Paso Field Services Company, provided
that such Debt may be guaranteed by the Company, (D) Excluded
Acquisition Debt and (E) successive extensions, refinancings or
replacements of Debt, Guaranties or reimbursement obligations referred
to in clauses (A) and (D) above and in an amount not in excess of the
amounts so extended, refinanced or replaced.
(d) Sale, Etc. of Assets. Sell, lease or otherwise
transfer, or, in the case of the Company, permit any Principal
Subsidiary to sell, lease or otherwise transfer, (in either case,
whether in one transaction or in a series of transactions) assets
constituting a material portion of the consolidated assets of the
Company and its Principal Subsidiaries taken as a whole, provided that
provisions of this subsection (d) shall not apply to:
(i) any sale of the San Juan Basin Gathering
System and related facilities in accordance with the
procedures set forth in the Master Separation Agreement dated
as of January 15, 1992 between the Company,
<PAGE> 47
43
Meridian Oil Holding Inc., a Delaware corporation, and
Burlington;
(ii) any sale of receivables and related rights
pursuant to the Receivables Purchase and Sale Agreement or any
Alternate Program;
(iii) any Project Financing Subsidiary and the
assets thereof;
(iv) sales, leases or other transfers of assets
or capital stock of any Subsidiary of the Company other than
any Principal Subsidiary;
(v) any sale of Margin Stock;
(vi) any sale of up to 20% of the equity of El
Paso Field Services Company in an initial public offering of
such corporation's equity securities;
(vii) any sale, lease or other transfer to the
Company or any Principal Subsidiary, or to any corporation
which after giving effect to such transfer will become and be
either (A) a Principal Subsidiary in which the Company's
direct or indirect equity interest will be at least as great
as its direct or indirect equity interest in the transferor
immediately prior thereto or (B) a directly or indirectly
wholly-owned Principal Subsidiary; and
(viii) any transfer permitted by Section 5.2(e).
(e) Mergers, Etc. Merge or consolidate with any person,
or permit any of its Principal Subsidiaries to merge or consolidate
with any Person, except that (i) any Principal Subsidiary may merge or
consolidate with (or liquidate into) any other Subsidiary (other than
a Project Financing Subsidiary, unless the successor corporation is
not treated as a Project Financing Subsidiary under this Agreement) or
may merge or consolidate with (or liquidate into) the Company,
provided that (A) if such Principal Subsidiary merges or consolidates
with (or liquidates into) the Company, the Company shall be the
continuing or surviving corporation and (B) if any such Principal
Subsidiary merges or consolidates with (or liquidates into) any other
Subsidiary of the Company, one of such Subsidiaries is the surviving
corporation and, if either such Subsidiary is not wholly-owned by the
Company, such merger or consolidation is on an arm's length basis, and
(ii) the Company or any Principal Subsidiary may merge or consolidate
with any other corporation (that is, in addition to the Company or any
Principal Subsidiary of the Company), provided that (A) if the Company
merges or consolidates with any such other corporation, the Company is
the surviving
<PAGE> 48
44
corporation, (B) if any Principal Subsidiary merges or consolidates
with any such other corporation, the surviving corporation is a
wholly-owned Principal Subsidiary of the Company, and (C) if either
the Company or any Principal Subsidiary merges or consolidates with
any such other corporation, after giving effect to such merger or
consolidation no Event of Default, and no event which with lapse of
time or the giving of notice, or both, would constitute an Event of
Default, shall have occurred and be continuing.
SECTION 5.3 Reporting Requirements. So long as any Note
shall remain unpaid or any Lender shall have any Commitment hereunder, the
Company will furnish to each Lender in such reasonable quantities as shall from
time to time be requested by such Lender:
(a) as soon as publicly available and in any event within
60 days after the end of each of the first three fiscal quarters of
each fiscal year of the Company, a consolidated balance sheet of the
Company and its consolidated subsidiaries as of the end of such
quarter, and consolidated statements of income and cash flows of the
Company and its consolidated subsidiaries each for the period
commencing at the end of the previous fiscal year and ending with the
end of such quarter, certified (subject to normal year-end
adjustments) as to fairness, generally accepted accounting principles
and consistency by the chief financial officer, controller or
treasurer of the Company and accompanied by a certificate of such
officer stating (i) whether or not such officer has knowledge of the
occurrence of any Event of Default which is continuing hereunder or of
any event not theretofore remedied which with notice or lapse of time
or both would constitute such an Event of Default and, if so, stating
in reasonable detail the facts with respect thereto, (ii) all relevant
facts in reasonable detail to evidence, and the computations as to,
whether or not the Company is in compliance with the requirements set
forth in subsections (b) and (c) of Section 5.2, and (iii) a listing
of all Principal Subsidiaries and consolidated Subsidiaries of the
Company showing the extent of its direct and indirect holdings of
their stocks;
(b) as soon as publicly available and in any event within
120 days after the end of each fiscal year of the Company, a copy of
the annual report for such year for the Company and its consolidated
Subsidiaries containing financial statements for such year reported by
nationally recognized independent public accountants acceptable to the
Lenders, accompanied by (i) a report signed by said accountants
stating that such financial statements have been prepared in
accordance with generally accepted accounting principles and (ii) a
letter from such accountants stating that in making the investigations
necessary for such report
<PAGE> 49
45
they obtained no knowledge, except as specifically stated therein, of
any Event of Default which is continuing hereunder or of any event not
theretofore remedied which with notice or lapse of time or both would
constitute such an Event of Default;
(c) within 120 days after the close of each of the
Company's fiscal years, a certificate of the chief financial officer,
controller or treasurer of the Company stating (i) whether or not he
has knowledge of the occurrence of any Event of Default which is
continuing hereunder or of any event not theretofore remedied which
with notice or lapse of time or both would constitute such an Event of
Default and, if so, stating in reasonable detail the facts with
respect thereto, (ii) all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Company is in
compliance with the requirements set forth in subsections (b) and (c)
of Section 5.2 and (iii) a listing of all Principal Subsidiaries and
consolidated Subsidiaries of the Company showing the extent of its
direct and indirect holdings of their stocks;
(d) promptly after the sending or filing thereof, copies
of all publicly available reports which the Company or any Principal
Subsidiary sends to any of its security holders and copies of all
publicly available reports and registration statements which the
Company or any Principal Subsidiary files with the Securities and
Exchange Commission or any national securities exchange other than
registration statements relating to employee benefit plans and to
registrations of securities for selling security holders;
(e) within 10 days after sending or filing thereof, a
copy of FERC Form No. 2: Annual Report of Major Natural Gas
Companies, sent or filed by the Company to or with the FERC with
respect to each fiscal year of the Company;
(f) promptly in writing, notice of all litigation and of
all proceedings before any governmental or regulatory agencies against
or involving the Company or any Principal Subsidiary, except any
litigation or proceeding which in the reasonable judgment of the
Company (taking into account the exhaustion of all appeals) is not
likely to have a material adverse effect on the consolidated financial
condition of the Company and its consolidated Subsidiaries taken as a
whole;
(g) within three Business Days after an executive officer
of the Company obtains knowledge of the occurrence of any Event of
Default which is continuing or of any event not theretofore remedied
which with notice or lapse of time, or both, would constitute an Event
of Default, notice of such occurrence together with a detailed
statement by a responsible officer of the Company of the steps being
taken
<PAGE> 50
46
by the Company or the appropriate Subsidiary to cure the effect of
such event;
(h) as soon as practicable and in any event (i) within 30
days after the Company or any ERISA Affiliate knows or has reason to
know that any Termination Event described in clause (a) of the
definition of Termination Event with respect to any Plan has occurred
and (ii) within 10 days after the Company or any ERISA Affiliate knows
or has reason to know that any other Termination Event has occurred, a
statement of the chief financial officer or treasurer of the Company
describing such Termination Event and the action, if any, which the
Company or such ERISA Affiliate proposes to take with respect thereto;
(i) promptly and in any event within two Business Days
after receipt thereof by the Company or any ERISA Affiliate, copies of
each notice received by the Company or any ERISA Affiliate from the
PBGC stating its intention to terminate any Plan or to have a trustee
appointed to administer any Plan;
(j) promptly and in any event within 30 days after the
filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (Form 5500
Series) with respect to each Single Employer Plan;
(k) promptly and in any event within five Business Days
after receipt thereof by the Company or any ERISA Affiliate from the
sponsor of a Multiemployer Plan, a copy of each notice received by the
Company or any ERISA Affiliate concerning (i) the imposition of
Withdrawal Liability by a Multiemployer Plan, (ii) the determination
that a Multiemployer Plan is, or is expected to be, in reorganization
or insolvent within the meaning of Title IV of ERISA, (iii) the
termination of a Multiemployer Plan within the meaning of Title IV of
ERISA, or (iv) the amount of liability incurred, or expected to be
incurred, by the Company or any ERISA Affiliate in connection with any
event described in clause (i), (ii) or (iii) above; and
(l) as soon as practicable but in any event within 60
days of any notice of request therefor, such other information
respecting the financial condition and results of operations of the
Company or any Subsidiary of the Company as any Lender through the
Administrative Agent may from time to time reasonably request.
Each balance sheet and other financial statement furnished
pursuant to subsections (a) and (b) of this Section 5.3 shall contain
comparative financial information which conforms to the presentation required
in Form 10-Q and 10-K, as appropriate, under the Securities Exchange Act of
1934, as amended.
<PAGE> 51
47
ARTICLE VI
GUARANTEES
SECTION 6.1 Guarantees. (a) The Company hereby
unconditionally and irrevocably guarantees to the Administrative Agent, for the
ratable benefit of the Lenders and their respective successors, indorsees,
transferees and assigns, the prompt and complete payment by each Borrowing
Subsidiary when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations owing by each Borrowing Subsidiary.
(b) Subject to the provisions of Section 6.1(c), each
Borrowing Subsidiary hereby, jointly and severally, unconditionally and
irrevocably guarantees to the Administrative Agent, for the ratable benefit of
the Lenders and their respective successors, indorsees, transferees and
assigns, the prompt and complete payment by the Company when due (whether at
the stated maturity, by acceleration or otherwise) of the Obligations owing by
the Company.
(c) Anything in this Article VI to the contrary
notwithstanding, the maximum liability of each Borrowing Subsidiary under this
Article VI shall in no event exceed the amount which can be guaranteed by such
Borrowing Subsidiary under applicable federal and state laws relating to the
insolvency of debtors.
(d) Each Borrowing Subsidiary agrees that the Obligations
owing by the Company may at any time and from time to time exceed the amount of
the liability of such Borrowing Subsidiary under this Article VI without
impairing the guarantee of such Borrowing Subsidiary under this Article VI or
affecting the rights and remedies of the Administrative Agent or any Lender
under this Article VI.
(e) No payment or payments made by any Borrower or any
other Person or received or collected by the Administrative Agent or any Lender
from any Borrower or any other Person by virtue of any action or proceeding or
any set-off or appropriation or application, at any time or from time to time,
in reduction of or in payment of the Obligations shall be deemed to modify,
reduce, release or otherwise affect the liability of the Borrowers under this
Article VI which shall, notwithstanding any such payment or payments, continue
until the Obligations are paid in full and the Commitments are terminated.
(f) Each Borrower agrees that whenever, at any time, or
from time to time, it shall make any payment to the Administrative Agent or any
Lender on account of its liability under this Article VI, it will notify the
Administrative Agent in writing that such payment is made under this Article VI
for such purpose.
<PAGE> 52
48
SECTION 6.2 No Subrogation. (a) Notwithstanding anything to
the contrary contained herein, the Company hereby irrevocably waives all rights
which may have arisen in connection with this Agreement to be subrogated to any
of the rights (whether contractual, under the Bankruptcy Code, including
Section 509 thereof, under common law or otherwise) of any Lender against any
Borrowing Subsidiary or against any collateral security or guarantee or right
of offset held by such Lender for the payment of the Obligations. The Company
hereby further irrevocably waives all contractual, common law, statutory or
other rights of reimbursement, contribution, exoneration or indemnity (or any
similar right) from or against each Borrowing Subsidiary or any other Person
which may have arisen in connection with this Agreement. So long as the
Obligations remain outstanding, if any amount shall be paid by or on behalf of
any Borrowing Subsidiary to the Company on account of any of the rights waived
in this Section, such amount shall be held by the Company in trust, segregated
from other funds of the Company, and shall, forthwith upon receipt by the
Company, be turned over to the Administrative Agent in the exact form received
by the Company (duly indorsed by the Company to the Administrative Agent, if
required), to be applied against the Obligations, whether matured or unmatured,
in such order as the Administrative Agent may determine. The provisions of
this Section shall survive the termination of this Agreement and the payment in
full of the Obligations and the termination of the Commitments.
(b) Notwithstanding any payment or payments made by any
Borrowing Subsidiary under this Article VI or any set- off or application of
funds of such Borrowing Subsidiary by the Administrative Agent or any Lender,
such Borrowing Subsidiary shall not be entitled to be subrogated to any of the
rights of the Administrative Agent or any Lender against the Company or against
any collateral security or guarantee or right of offset held by the
Administrative Agent or any Lender for the payment of the Obligations, nor
shall such Borrowing Subsidiary seek or be entitled to seek any contribution or
reimbursement from the Company in respect of payments made by such Borrowing
Subsidiary hereunder, until all amounts owing to the Administrative Agent and
the Lenders by the Company on account of the Obligations are paid in full and
the Commitments are terminated. If any amount shall be paid to any Borrowing
Subsidiary on account of such subrogation rights at any time when all of the
Obligations shall not have been paid in full, such amount shall be held by such
Borrowing Subsidiary in trust for the Administrative Agent and the Lenders,
segregated from other funds of such Borrowing Subsidiary, and shall, forthwith
upon receipt by such Borrowing Subsidiary, be turned over to the Administrative
Agent in the exact form received by such Borrowing Subsidiary (duly indorsed by
such Borrowing Subsidiary to the Administrative Agent, if required), to be
applied against the Obligations, whether matured or unmatured, in such order as
the Administrative Agent may determine.
<PAGE> 53
49
SECTION 6.3 Amendments, etc. with respect to the Obligations;
Waiver of Rights. Each Borrower shall remain obligated under this Article VI
notwithstanding that, without any reservation of rights against such Borrower,
and without notice to or further assent by such Borrower, any demand for
payment of any of the Obligations made by the Administrative Agent or any
Lender may be rescinded by the Administrative Agent or such Lender, and any of
the Obligations continued, and the Obligations, or the liability of any other
party upon or for any part thereof, or any collateral security or guarantee
therefor or right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by the Administrative Agent or any
Lender, and this Agreement, any Notes and any other documents executed and
delivered in connection herewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Administrative Agent (or the Majority
Lenders, as the case may be) may deem advisable from time to time, and any
collateral security, guarantee or right of offset at any time held by the
Administrative Agent or any Lender for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. Neither the Administrative
Agent nor any Lender shall have any obligation to protect, secure, perfect or
insure any Lien at any time held by it as security for the Obligations or for
this Agreement or any property subject thereto. When making any demand
hereunder against any Borrower, the Administrative Agent or any Lender may, but
shall be under no obligation to, make a similar demand on the applicable
Borrowing Subsidiaries or any other guarantor, and any failure by the
Administrative Agent or any Lender to make any such demand or to collect any
payments from the other Borrowers or any such other guarantor or any release of
the other Borrowers or such other guarantor shall not relieve such Borrower of
its obligations or liabilities hereunder, and shall not impair or affect the
rights and remedies, express or implied, or as a matter of law, of the
Administrative Agent or any Lender against such Borrower For the purposes
hereof "demand" shall include the commencement and continuance of any legal
proceedings.
SECTION 6.4 Guarantee Absolute and Unconditional. Each
Borrower waives any and all notice of the creation, renewal, extension or
accrual of any of the Obligations and notice of or proof of reliance by the
Administrative Agent or any Lender upon this Agreement or acceptance of this
Agreement; the Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred, or renewed, extended, amended or
waived, in reliance upon this Agreement; and all dealings between any Borrowing
Subsidiary or the Company, on the one hand, and the Administrative Agent and
the Lenders, on the other, shall likewise be conclusively presumed to have been
had or consummated in reliance upon this Agreement. Each Borrower waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Borrowing Subsidiaries or the Company (as applicable)
with respect to the Obligations. The guarantee
<PAGE> 54
50
contained in this Article VI shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity,
regularity or enforceability of this Agreement, any Note, any of the
Obligations or any other collateral security therefor or guarantee or right of
offset with respect thereto at any time or from time to time held by the
Administrative Agent or any Lender, (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may at any time be
available to or be asserted by any Borrower against the Administrative Agent or
any Lender, or (c) any other circumstance whatsoever (with or without notice to
or knowledge of any Borrower) which constitutes, or might be construed to
constitute, an equitable or legal discharge of any Borrower for the
Obligations, or of the Borrowers under this Agreement, in bankruptcy or in any
other instance. When pursuing its rights and remedies hereunder against any
Borrower, the Administrative Agent and any Lender may, but shall be under no
obligation to, pursue such rights and remedies as it may have against any other
Borrower or any other Person or against any collateral security or guarantee
for the Obligations or any right of offset with respect thereto, and any
failure by the Administrative Agent or any Lender to pursue such other rights
or remedies or to collect any payments from other Borrowers or any such other
Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of any other Borrower or any
such other Person or of any such collateral security, guarantee or right of
offset, shall not relieve any Borrower of any liability hereunder, and shall
not impair or affect the rights and remedies, whether express, implied or
available as a matter of law, of the Administrative Agent or any Lender against
such Borrower. The guarantees contained in this Article VI shall remain in
full force and effect and be binding in accordance with and to the extent of
its terms upon each Borrower and its successors and assigns thereof, and shall
inure to the benefit of the Administrative Agent and the Lenders, and their
respective successors, indorsees, transferees and assigns, until all the
Obligations and the obligations of the Borrower under this Agreement shall have
been satisfied by payment in full and the Commitments shall be terminated,
notwithstanding that from time to time during the term of this Agreement the
Borrowers may be free from any Obligations.
SECTION 6.5 Reinstatement. The provisions of this Article VI
shall continue to be effective, or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any of the Obligations is rescinded or
must otherwise be restored or returned by the Administrative Agent or any
Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Borrower or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, any
Borrower or any substantial part of its property, or otherwise, all as though
such payments had not been made.
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ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.1 Event of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) Any Borrower shall fail to pay any installment of
principal of any of its Notes when due, or any interest on any of its
Notes or any other amount payable by it hereunder within five Business
Days after the same shall be due; or
(b) Any representation or warranty made or deemed made by
any Borrower herein or by any Borrower (or any of its officers) in
connection with this Agreement shall prove to have been incorrect in
any material respect when made or deemed made; or
(c) Any Borrower shall fail to perform or observe any
other term, covenant or agreement contained in this Agreement on its
part to be performed or observed and any such failure shall remain
unremedied for 30 days after written notice thereof shall have been
given to such Borrower by the Administrative Agent or by any Lender
with a copy to the Administrative Agent; or
(d) The Company or any Principal Subsidiary shall fail to
pay any Debt or Guaranty (excluding Debt incurred pursuant hereto) of
the Company or such Subsidiary (as the case may be) in an aggregate
principal amount of $25,000,000 or more, or any installment of
principal thereof or interest or premium thereon, when due (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to
such Debt or Guaranty; or any other default under any agreement or
instrument relating to any such Debt, or any other event, shall occur
and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such
default or event is to accelerate, or to permit the acceleration of,
the maturity of such Debt; or any such Debt shall be required to be
prepaid (other than by a regularly scheduled required prepayment),
prior to the stated maturity thereof, as a result of either (i) any
default under any agreement or instrument relating to any such Debt or
(ii) the occurrence of any other event the effect of which would
otherwise accelerate or to permit the acceleration of the maturity of
such Debt; provided that, notwithstanding any provision contained in
this subsection (d) to the contrary, to the extent that pursuant to
the terms of any agreement or instrument relating to any Debt or
Guaranty referred to in this subsection (d) (or in the case of any
such Guaranty, relating to any obligations Guaranteed thereby), any
sale,
<PAGE> 56
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pledge or disposal of Margin Stock, or utilization of the proceeds of
such sale, pledge or disposal, would result in a breach of any
covenant contained therein or otherwise give rise to a default or
event of default thereunder and/or acceleration of the maturity of the
Debt or obligations extended pursuant thereto, or payment pursuant to
any Guaranty, and as a result of such terms or of such sale, pledge,
disposal, utilization, breach, default, event of default or
acceleration or nonpayment under such Guaranty, or the provisions
thereof relating thereto, this Agreement or any Advance hereunder
would otherwise be subject to the margin requirements or any other
restriction under Regulation U issued by the Board of Governors of the
Federal Reserve System, then such breach, default, event of default or
acceleration, or nonpayment under any Guaranty, shall not constitute a
default or Event of Default under this subsection (d); or
(e)(i) The Company or any Principal Subsidiary shall (A)
generally not pay its debts as such debts become due; or (B) admit in
writing its inability to pay its debts generally; or (C) make a
general assignment for the benefit of creditors; or (ii) any
proceeding shall be instituted or consented to by the Company or any
such Subsidiary seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it
or for any substantial part of its property; or (iii) any such
proceeding shall have been instituted against the Company or any such
Subsidiary and either such proceeding shall not be stayed or dismissed
for 60 consecutive days or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for
relief against it or the appointment of a receiver, trustee, custodian
or other similar official for it or any substantial part of its
property) shall occur; or (iv) the Company or any such Subsidiary
shall take any corporate action to authorize any of the actions set
forth above in this subsection (e); or
(f) Any judgment or order of any court for the payment of
money in excess of $25,000,000 shall be rendered against the Company
or any Principal Subsidiary and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order
(other than any enforcement proceedings consisting of the mere
obtaining and filing of a judgment lien or obtaining of a garnishment
or similar order so long as no foreclosure, levy or similar process in
respect of such lien, or payment over in respect of such garnishment
or similar order, has commenced) or (ii) there shall be any period of
30 consecutive days during
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which a stay of execution or of enforcement proceedings (other than
those referred to in the parenthesis in clause (i) above) in respect
of such judgment or order, by reason of a pending appeal, bonding or
otherwise, shall not be in effect; or
(g) (i) Any Termination Event with respect to a Plan
shall have occurred and, 30 days after notice thereof shall have been
given to the Company by the Administrative Agent, such Termination
Event shall still exist; or (ii) the Company or any ERISA Affiliate
shall have been notified by the sponsor of a Multiemployer Plan that
it has incurred Withdrawal Liability to such Multiemployer Plan; or
(iii) the Company or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization, or is insolvent or is being terminated, within the
meaning of Title IV of ERISA; or (iv) any Person shall engage in a
"prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) involving any Plan; and in each case in
clauses (i) through (iv) above, such event or condition, together with
all other such events or conditions, if any, would result in an
aggregate liability of the Company or any ERISA Affiliate that would
exceed 10% of the Net Worth of the Company.
(h) Upon completion of, and pursuant to, a transaction,
or a series of transactions (which may include prior acquisitions of
capital stock of the Company in the open market or otherwise),
involving a tender offer (i) a "person" (within the meaning of Section
13(d) of the Securities Exchange Act of 1934) other than Burlington,
the Company, a Subsidiary of the Company or any employee benefit plan
maintained for employees of the Company and/or any of its Subsidiaries
or the trustee therefor, shall have acquired direct or indirect
ownership of and paid for in excess of 50% of the outstanding capital
stock of the Company entitled to vote in elections for directors of
the Company and (ii) at any time before the later of (A) six months
after the completion of such tender offer and (B) the next annual
meeting of the shareholders of the Company following the completion of
such tender offer more than half of the directors of the Company
consists of individuals who (y) were not directors before the
completion of such tender offer and (z) were not appointed, elected or
nominated by the Board of Directors in office prior to the completion
of such tender offer (other than any such appointment, election or
nomination required or agreed to in connection with, or as a result
of, the completion of such tender offer); or
(i) Any event of default shall occur under any agreement
or instrument relating to or evidencing any Debt now or hereafter
existing of the Company or any Principal
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54
Subsidiary as the result of any change of control of the Company; or
(j) The guarantees contained in Article VI shall cease,
for any reason, to be in full force and effect or any Borrower shall
so assert;
then, and in any such event, the Administrative Agent shall at the request, or
may with the consent, of the Majority Lenders, by notice to the Company, (i)
declare the obligation of each Lender to make Advances to be terminated,
whereupon the same shall forthwith terminate, and (ii) declare the Notes, all
interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby
expressly waived by the Borrowers; provided, however, that if an Event of
Default under subsection (e) of this Section 7.1 (except under clause (i)(A)
thereof) shall occur, (A) the obligation of each Lender to make Advances shall
automatically be terminated and (B) the Notes, all interest thereon and all
other amounts payable under this Agreement shall automatically become and be
forthwith due and payable, without presentment, demand, protest or any notice
of any kind, all of which are hereby expressly waived by the Borrowers.
ARTICLE VIII
THE ADMINISTRATIVE AGENT AND THE CAF ADVANCE AGENT
SECTION 8.1 Authorization and Action. Each Lender hereby
appoints and authorizes the Administrative Agent and the CAF Advance Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Administrative Agent and the CAF Advance
Agent by the terms hereof, together with such powers as are reasonably
incidental thereto. As to any matters not expressly provided for by this
Agreement (including, without limitation, enforcement of this Agreement or
collection of the Notes), the Administrative Agent and the CAF Advance Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in
so acting or refraining from acting) upon the instructions of the Majority
Lenders, and such instructions shall be binding upon all Lenders and all
holders of Notes; provided, however, that the Administrative Agent and the CAF
Advance Agent shall not be required to take any action which exposes the
Administrative Agent or the CAF Advance Agent to personal liability or which is
contrary to this Agreement or applicable law. The Administrative Agent and the
CAF Advance Agent agree to give to each Lender prompt notice of each notice
given to it by any Borrower pursuant to the terms of this Agreement.
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SECTION 8.2 Administrative Agent's and CAF Advance Agent's
Reliance, Etc. None of the Administrative Agent, the CAF Advance Agent or any
of its respective directors, officers, agents or employees shall be liable for
any action taken or omitted to be taken by it or them under or in connection
with this Agreement, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the
Administrative Agent and the CAF Advance Agent: (i) may treat the payee of any
Note as the holder thereof until the Administrative Agent receives and accepts
an Assignment and Acceptance entered into by the Lender which is the payee of
such Note, as assignor, and an Eligible Assignee, as assignee, as provided in
Section 9.7; (ii) may consult with legal counsel (including counsel for the
Company), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith
by it in accordance with the advice of such counsel, accountants or experts;
(iii) makes no warranty or representation to any Lender and shall not be
responsible to any Lender for any statements, warranties or representations
(whether written or oral) made in or in connection with this Agreement; (iv)
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement on
the part of the Borrowers or to inspect the property (including the books and
records) of the Borrowers; (v) shall not be responsible to any Lender for the
due execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; and (vi) shall incur no liability under or in respect of this Agreement
by acting upon any notice, consent, certificate or other instrument or writing
(which may be by telegram, telecopier, cable or telex) believed by it to be
genuine and signed or sent by the proper party or parties.
SECTION 8.3 Chemical and Affiliates. With respect to its
Commitment, the Advances made by it and the Note issued to it, Chemical shall
have the same rights and powers under this Agreement as any other Lender and
may exercise the same as though it were not the Administrative Agent or the CAF
Advance Agent; and the term "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include Chemical in its individual capacity. Chemical and
its affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, the Company,
any of its Subsidiaries and any Person who may do business with or own
securities of the Company or any of its Subsidiaries, all as if Chemical were
not the Administrative Agent or the CAF Advance Agent and without any duty to
account therefor to the other Lenders.
SECTION 8.4 Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Administrative Agent,
the CAF Advance Agent or any other Lender and based on the financial statements
referred to in
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Section 4.1 and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Agent, the CAF Advance Agent or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 8.5 Indemnification. The Lenders agree to indemnify
the Administrative Agent and the CAF Advance Agent (to the extent not
reimbursed by the Borrowers), ratably according to the respective principal
amounts of the Notes then held by each of them (or if no Notes are at the time
outstanding or if any Notes are held by Persons which are not Lenders, ratably
according to the respective amounts of their aggregate Commitments), from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Administrative Agent or the CAF Advance Agent in any way relating to or arising
out of this Agreement or any action taken or omitted by the Administrative
Agent or the CAF Advance Agent under this Agreement, provided that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Administrative Agent's or the CAF Advance Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Lender agrees to reimburse the Administrative Agent and the CAF Advance Agent
promptly upon demand for its ratable share of any out-of-pocket expenses
(including reasonable counsel fees) incurred by the Administrative Agent or the
CAF Advance Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings, in bankruptcy or insolvency proceedings, or
otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement, to the extent that the Administrative Agent or the CAF Advance
Agent is not reimbursed for such expenses by the Borrowers.
SECTION 8.6 Successor Administrative Agent and CAF Advance
Agent. The Administrative Agent and the CAF Advance Agent may resign at any
time by giving written notice thereof to the Lenders and the Company and may be
removed at any time with or without cause by the Majority Lenders. Upon any
such resignation or removal, the Majority Lenders shall have the right to
appoint a successor Administrative Agent or the CAF Advance Agent. If no
successor Administrative Agent or CAF Advance Agent shall have been so
appointed by the Majority Lenders, and shall have accepted such appointment,
within 30 days after the retiring Administrative Agent's or the CAF Advance
Agent giving of notice of resignation or the Majority Lenders' removal of the
retiring Administrative Agent or CAF Advance Agent, then such retiring
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Administrative Agent or CAF Advance Agent may, on behalf of the Lenders,
appoint a successor Administrative Agent or CAF Advance Agent, which shall be a
Lender and a commercial bank organized, or authorized to conduct a banking
business, under the laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $500,000,000.
Upon the acceptance of any appointment as Administrative Agent or CAF Advance
Agent hereunder by a successor Administrative Agent or CAF Advance Agent, such
successor Administrative Agent or CAF Advance Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent or CAF Advance Agent, and the retiring
Administrative Agent or CAF Advance Agent shall be discharged from its duties
and obligations under this Agreement. After any retiring Administrative
Agent's or CAF Advance Agent's resignation or removal hereunder as
Administrative Agent or CAF Advance Agent, the provisions of this Article VII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent or CAF Advance Agent under this Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Amendments, Etc. An amendment or waiver of any
provision of this Agreement or the Notes, or a consent to any departure by any
Borrower therefrom, shall be effective against the Lenders and all holders of
the Notes if, but only if, it shall be in writing and signed by the Majority
Lenders, and then such a waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no such amendment, waiver or consent shall, unless in writing and
signed by all the Lenders, be effective to: (a) waive any of the conditions
specified in Article III, (b) increase the Commitments of the Lenders or
subject the Lenders to any additional obligations, (c) reduce the principal of,
or interest on, the Notes or any facility fees hereunder, (d) postpone any date
fixed for any payment of principal of, or interest on, the Notes or any
facility fees hereunder, (e) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes, or the number of Lenders, which
shall be required for the Lenders or any of them to take any action under this
Agreement, (f) amend this Section 9.1 or (g) amend, waive or consent to any
departure of any provision in Article VI; provided, further, that no amendment,
waiver or consent shall, unless in writing and signed by the Administrative
Agent and the CAF Advance Agent in addition to the Lenders required hereinabove
to take such action, affect the rights or duties of the Administrative Agent or
the CAF Advance Agent under this Agreement or any Note.
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SECTION 9.2 Notices, Etc. Except as otherwise provided in
Section 2.3(a), 2.5(d) or 2.15(b), all notices and other communications
provided for hereunder shall be in writing (including telecopier and other
readable communication) and mailed by certified mail, return receipt requested,
telecopied or otherwise transmitted or delivered, if to the Company, at 1 Paul
Kayser Center, 100 North Stanton Street, El Paso, Texas 79901, Attention:
Senior Vice President and Chief Financial Officer, Telecopier: (915) 541-5008;
if to any Lender, at its address set forth under its name on Schedule I hereto;
if to the Administrative Agent, at 270 Park Avenue, New York, New York 10017,
Attention: John Gehebe, Telecopier: (212) 270-4892; and if to the CAF Advance
Agent, at 140 East 45th Street, New York, New York 10017, Attention: Terri
Reilly, Telecopier: (212) 622-0003, Telephone: (212) 622- 8779; or, as to
each party and each Borrowing Subsidiary, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall, if so mailed, telecopied or otherwise
transmitted, be effective when received, if mailed, or when the appropriate
answerback or other evidence of receipt is given, if telecopied or otherwise
transmitted, respectively. A notice received by the Administrative Agent, the
CAF Advance Agent or a Lender by telephone pursuant to Section 2.3(a), 2.5(d)
or 2.15(b) shall be effective if the Administrative Agent or Lender believes in
good faith that it was given by an authorized representative of the applicable
Borrower and acts pursuant thereto, notwithstanding the absence of written
confirmation or any contradictory provision thereof.
SECTION 9.3 No Waiver; Remedies. No failure on the part of
any Lender, the Administrative Agent or the CAF Advance Agent to exercise, and
no delay in exercising, any right hereunder or under any Note shall operate as
a waiver thereof; nor shall any single or partial exercise of any right
hereunder or under any Note preclude any other or further exercise thereof or
the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
SECTION 9.4 Costs and Expenses; Indemnity. (a) Each
Borrower agrees to pay on demand (to the extent not reimbursed by any other
Borrower) (i) all reasonable fees and out-of-pocket expenses of counsel for the
Administrative Agent in connection with the preparation, execution and delivery
of this Agreement, the Notes and the other documents to be delivered hereunder
and the fulfillment or attempted fulfillment of conditions precedent hereunder,
(ii) all reasonable costs and expenses incurred by the Administrative Agent and
its Affiliates in initially syndicating all or any portion of the Commitments
hereunder, including, without limitation, the related reasonable fees and
out-of-pocket expenses of counsel for the Administrative Agent or its
Affiliates, travel expenses, duplication and printing costs and courier and
postage fees, and excluding any syndication fees paid to other parties joining
the syndicate and (iii) all
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out-of-pocket costs and expenses, if any, incurred by the Administrative Agent,
the CAF Advance Agent and the Lenders in connection with the enforcement
(whether through negotiations, legal proceedings in bankruptcy or insolvency
proceedings, or otherwise) of this Agreement, the Notes and the other documents
to be delivered hereunder and thereunder, including the reasonable fees and
out-of-pocket expenses of counsel.
(b) If any payment of principal of, or Conversion of, any
Eurodollar Rate Advance or CAF Advance is made by any Borrower to or for the
account of a Lender on any day other than the last day of the Interest Period
for such Advance, as a result of a prepayment pursuant to Section 2.15 or a
Conversion pursuant to Section 2.13(f) or Section 2.14 or due to acceleration
of the maturity of the Notes pursuant to Section 7.1 or due to any other reason
attributable to such Borrower, such Borrower shall, upon demand by such Lender
(with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or expenses which it
may reasonably incur as a result of such payment or Conversion, including,
without limitation, any loss (excluding loss of anticipated profits), cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by any Lender to fund or maintain such Advance.
(c) Each Borrower agrees to indemnify and hold harmless
the Administrative Agent, the CAF Advance Agent and each Lender (to the extent
not reimbursed by any other Borrower) from and against any and all claims,
damages, liabilities and expenses (including, without limitation, fees and
disbursements of counsel) which may be incurred by or asserted against the
Administrative Agent, the CAF Advance Agent or such Lender in connection with
or arising out of any investigation, litigation, or proceeding (whether or not
the Administrative Agent, the CAF Advance Agent or such Lender is party
thereto) related to any acquisition or proposed acquisition by the Company, or
by any Subsidiary of the Company, of all or any portion of the stock or
substantially all the assets of any Person or any use or proposed use of the
Advances by any Borrower (excluding any claims, damages, liabilities or
expenses incurred by reason of the gross negligence or willful misconduct of
the party to be indemnified or its employees or agents, or by reason of any use
or disclosure of information relating to any such acquisition or use or
proposed use of the proceeds by the party to be indemnified or its employees or
agents).
SECTION 9.5 Right of Set-Off. Upon the declaration of the
Notes as due and payable pursuant to the provisions of Section 7.1, each Lender
is hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the
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credit or the account of the applicable Borrower against any and all of the
obligations of such Borrower now or hereafter existing under this Agreement and
the Notes of such Borrower held by such Lender, irrespective of whether or not
such Lender shall have made any demand under this Agreement or such Notes and
although such obligations may be unmatured. Each Lender agrees promptly to
notify the Company after any such set-off and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of each Lender under this Section 9.5
are in addition to other rights and remedies (including, without limitation,
other rights of set-off) which such Lender may have.
SECTION 9.6 Binding Effect. This Agreement shall become
effective in accordance with the provisions of Section 3.1, and thereafter
shall be binding upon and inure to the benefit of the Borrowers, the
Administrative Agent, the CAF Advance Agent and each Lender and their
respective successors and assigns, except that no Borrower shall have the right
to assign its rights hereunder or any interest herein without the prior written
consent of all of the Lenders.
SECTION 9.7 Assignments and Participations. (a) Each Lender
may assign to one or more banks or other financial institutions all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Advances owing to it and
the Notes held by it); provided, however, that (i) each such assignment shall
be of a constant, and not a varying, percentage of all rights and obligations
under this Agreement, (ii) the amount of the Commitment of the assigning Lender
being assigned pursuant to each such assignment (determined as of the date of
the Assignment and Acceptance with respect to such assignment) shall in no
event be less than $15,000,000 (or, if less, the entire Commitment of the
assigning Lender) and shall be an integral multiple of $1,000,000, (iii) each
such assignment shall be to an Eligible Assignee, and (iv) the parties to each
such assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance,
together with any Notes subject to such assignment and a processing and
recordation fee of $2,500, and shall send to the Company an executed
counterpart of such Assignment and Acceptance. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Assignment and Acceptance, (A) the assignee thereunder shall be a party hereto
and, to the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Acceptance, have the rights and obligations
of a Lender hereunder and (B) the assigning Lender thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's
rights and
<PAGE> 65
61
obligations under this Agreement, such Lender shall cease to be a party
hereto).
(b) By executing and delivering an Assignment and
Acceptance, each Lender assignor thereunder and the assignee thereunder confirm
to and agree with each other and the other parties hereto as follows: (i)
other than as provided in such Assignment and Acceptance, such assigning Lender
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
this Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other instrument or
document furnished pursuant hereto; (ii) such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of each Borrower or the performance or observance by each
Borrower of any of its obligations under this Agreement or any other instrument
or document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in Section 4.1 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Administrative Agent, the CAF
Advance Agent, such assigning Lender or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi)
such assignee appoints and authorizes the Administrative Agent and the CAF
Advance Agent to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to the Administrative Agent and
the CAF Advance Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of this Agreement are required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its
address referred to in Section 9.2 a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Lenders and the Commitment of, and principal amount of the
Advances owing to, each Lender from time to time (the "Register"). The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and each Borrower, the Administrative Agent, the CAF Advance
Agent and the Lenders may treat each Person whose name is recorded in the
Register as a Lender hereunder for all purposes of this Agreement. The
Register shall be available for inspection by any Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice. Upon the
acceptance of any Assignment and Acceptance for
<PAGE> 66
62
recordation in the Register, Schedule I hereto shall be deemed to be amended to
reflect the revised Commitments of the Lenders parties to such Assignment and
Acceptance as well as administrative information with respect to any new Lender
as such information is recorded in the Register.
(d) Upon its receipt of an Assignment and Acceptance
executed by an assigning Lender and as assignee representing that it is an
Eligible Assignee, together with any Notes subject to such assignment, the
Administrative Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit G hereto, (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Company; within five
Business Days after its receipt of such notice and its receipt of an executed
counterpart of such Assignment and Acceptance, the Borrowers, at their own
expense, shall execute and deliver to the Administrative Agent in exchange for
the surrendered Notes new Notes to the order of such Eligible Assignee in an
amount equal to the Commitment assumed by it pursuant to such Assignment and
Acceptance and, if the assigning Lender has retained a Commitment hereunder,
new Notes to the order of the assigning Lender in an amount equal to the
Commitment retained by it hereunder. Such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Notes, shall be dated (A) in the case of Notes made by the Company, the Closing
Date and (B) in the case of Notes made by a Borrowing Subsidiary, the date such
Borrowing Subsidiary executes and delivers its Joinder Agreement, and shall
otherwise be in substantially the form of Exhibits A and C hereto.
(e) Each Lender may sell participations to one or more
banks or other entities in or to all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Commitment, and the Advances owing to it and the Notes held by it); provided,
however, that (i) such Lender's obligations under this Agreement (including,
without limitation, its Commitment to the Borrowers hereunder) shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) such Lender shall
remain the holder of any such Notes for all purposes of this Agreement, (iv)
the Borrowers, the Administrative Agent, the CAF Advance Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement, (v)
such Lender shall continue to be able to agree to any modification or amendment
of this Agreement or any waiver hereunder without the consent, approval or vote
of any such participant or group of participants, other than modifications,
amendments and waivers which (A) postpone any date fixed for any payment of, or
reduce any payment of, principal of or interest on such Lender's Notes or any
facility fees payable under this Agreement, or (B) increase the amount of
<PAGE> 67
63
such Lender's Commitment in a manner which would have the effect of increasing
the amount of a participant's participation, or (C) reduce the interest rate
payable under this Agreement and such Lender's Notes, or (D) consent to the
assignment or the transfer by any Borrower of any of its rights and obligations
under the Agreement, and (vi) except as contemplated by the immediately
preceding clause (v), no participant shall be deemed to be or to have any of
the rights or obligations of a "Lender" hereunder.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
9.7, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrowers furnished to such Lender
by or on behalf of the Borrowers; provided that, prior to any such disclosure,
the assignee or participant or proposed assignee or participant shall agree in
writing for the benefit of the Borrowers to preserve the confidentiality of any
confidential information relating to the Borrowers received by it from such
Lender in a manner consistent with Section 9.8.
(g) Anything in this Agreement to the contrary
notwithstanding, any Lender may at any time create a security interest in all
or any portion of its rights under this Agreement (including, without
limitation, the Advances owing to it) and the Notes issued to it hereunder in
favor of any Federal Reserve Bank in accordance with Regulation A of the Board
of Governors of the Federal Reserve System (or any successor regulation) and
the applicable operating circular of such Federal Reserve Bank.
SECTION 9.8 Confidentiality. Each Lender, the Administrative
Agent and the CAF Advance Agent (each, a "Party") agrees that it will use its
best efforts not to disclose, without the prior consent of the Company (other
than to its, or its Affiliate's, employees, auditors, accountants, counsel or
other representatives, whether existing at the date of this Agreement or any
subsequent time), any information with respect to the Borrowers which is
furnished pursuant to this Agreement, provided that any Party may disclose any
such information (i) as has become generally available to the public, (ii) as
may be required or appropriate in any report, statement or testimony submitted
to any municipal, state or Federal regulatory body having or claiming to have
jurisdiction over such party or to the Board of Governors of the Federal
Reserve System or the Federal Deposit Insurance Corporation or similar
organizations (whether in the United States or elsewhere) or their successors,
(iii) as may be required or appropriate in response to any summons or subpoena
or in connection with any litigation or regulatory proceeding, (iv) in order to
comply with any law, order, regulation or ruling applicable to such party, or
(v) to any prospective assignee or participant in connection with any
contemplated assignment of any rights or obligations hereunder, or any sale of
any participation therein, by such Party pursuant to Section 9.7, if such
prospective assignee or participant, as the case may be, executes
<PAGE> 68
64
an agreement with the Company containing provisions substantially similar to
those contained in this Section 9.8; provided, however, that the Company
acknowledges that the Administrative Agent has disclosed and may continue to
disclose such information as the Administrative Agent in its sole discretion
determines is appropriate to the Lenders from time to time.
SECTION 9.9 Consent to Jurisdiction. (a) Each Borrower
hereby irrevocably submits to the jurisdiction of any New York State or Federal
court sitting in New York City and any appellate court from any thereof in any
action or proceeding by the Administrative Agent, the CAF Advance Agent, any
Lender or the holder of any Note in respect of, but only in respect of, any
claims or causes of action arising out of or relating to this Agreement or the
Notes (such claims and causes of action, collectively, being "Permitted
Claims"), and each Borrower hereby irrevocably agrees that all Permitted Claims
may be heard and determined in such New York State court or in such Federal
court. Each Borrower hereby irrevocably waives, to the fullest extent it may
effectively do so, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any aforementioned court in respect of Permitted
Claims. Each Borrower hereby irrevocably appoints CT Corporation System (the
"Process Agent"), with an office on the date hereof at 1633 Broadway, New York,
New York 10019, as its agent to receive on behalf of such Borrower and its
property service of copies of the summons and complaint and any other process
which may be served by the Administrative Agent, any Lender or the holder of
any Note in any such action or proceeding in any aforementioned court in
respect of Permitted Claims. Such service may be made by delivering a copy of
such process to the Company by courier and by certified mail (return receipt
requested), fees and postage prepaid, both (i) in care of the Process Agent at
the Process Agent's above address and (ii) at the Company's address specified
pursuant to Section 9.2, and each Borrower hereby irrevocably authorizes and
directs the Process Agent to accept such service on its behalf. Each Borrower
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.
(b) Nothing in this Section 9.9 (i) shall affect the
right of any Lender, the holder of any Note or the Administrative Agent or the
CAF Advance Agent to serve legal process in any other manner permitted by law
or affect any right otherwise existing of any Lender, the holder of any Note or
the Administrative Agent or the CAF Advance Agent to bring any action or
proceeding against any Borrower or its property in the courts of other
jurisdictions or (ii) shall be deemed to be a general consent to jurisdiction
in any particular court or a general waiver of any defense or a consent to
jurisdiction of the courts expressly referred to in subsection (a) above in any
action or proceeding in respect of any claim or cause of action other than
Permitted Claims.
<PAGE> 69
65
SECTION 9.10 GOVERNING LAW. THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK.
SECTION 9.11 Rate of Interest. It is the intention of the
parties hereto that each Lender shall each conform strictly to usury laws
applicable to it. Accordingly, if the transactions contemplated hereby would
be usurious as to any Lender under laws applicable to it, then, in that event,
notwithstanding anything to the contrary in this Agreement or in the Notes to
the order of such Lender, it is agreed as follows: (a) the aggregate of all
consideration which constitutes interest under law applicable to such Lender
that is contracted for, taken, reserved, charged or received by such Lender
hereunder, or under such Notes or otherwise, shall under no circumstances
exceed the maximum amount allowed by such applicable law, and any excess shall
be credited by such Lender on the principal amount of the sums owed to such
Lender (or, if all amounts owing to such Lender shall have been paid in full,
refunded by such Lender to the applicable Borrower); or (b) in the event that a
prepayment of any Advances owed to any Lender is required, then such
consideration that constitutes interest under law applicable to such Lender may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for shall be cancelled automatically by such
Lender as of the date of such prepayment and, if theretofore paid, shall be
credited by such Lender on the principal amount of such prepayment obligation
(or, if the principal amount of such prepayment obligation shall have been paid
in full, refunded by such Lender to the applicable Borrower). To the extent
that Article 5069-1.04 of the Texas Revised Civil Statutes is relevant to any
Lender for the purpose of determining the maximum amount of interest allowed by
applicable law, such Lender hereby elects to determine the applicable rate
ceiling under such Article by the indicated (weekly) rate ceiling from time to
time in effect, subject to such Lender's right subsequently to change such
method in accordance with applicable law. In no event, however, shall Article
5069, Chapter 15, of the Texas Revised Civil Statutes apply to this Agreement
or the Notes or the transactions contemplated hereby.
<PAGE> 70
66
SECTION 9.12 Execution in Counterparts. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery to the Administrative Agent of a counterpart executed by a
Lender shall constitute delivery of such counterpart to all of the Lenders.
This Agreement may be delivered by facsimile transmission of the relevant
signature pages hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
EL PASO NATURAL GAS COMPANY
By /s/ H. BRENT AUSTIN
Title: Senior Vice President
CHEMICAL BANK, as Administrative
Agent, CAF Advance Agent and a
Lender
By /s/ W. KING GRANT
Title: Vice President
THE BANK OF NEW YORK
By /s/ Raymond J. Palmer
Title: Vice President
CITIBANK, N.A.
By /s/ BARBARA A. COHEN
Title: Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By /s/ XAVIER RATOUIS
Title: Senior Vice President
<PAGE> 71
67
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By /s/ PHILIP W. MCNEAL
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By /s/ DENISE ASHFORD SMITH
Title: Senior Vice President
UNION BANK OF SWITZERLAND
HOUSTON AGENCY
By /s/ EVANS SWANN
Title: Vice President
By /s/ JEAN CLAUDE DE ROCHE
Title: Assistant Vice President
MELLON BANK, N.A.
By /s/ MARY ELLEN USHER
Title: Vice President
ROYAL BANK OF CANADA
By /s/ EVERETT M. HARNER
Title: Manager - Corporate Banking
THE SUMITOMO BANK, LIMITED HOUSTON
AGENCY
By /s/ TOSHIRO KUBOTA
Title: Joint General Manager
<PAGE> 72
68
SWISS BANK CORPORATION NEW YORK
BRANCH
By /s/ H. CLARK WORTHLEY
Title: Associate Director Merchant Banking
By /s/ NANCY A. HANRAHAN
Title: Director Merchant Banking
TORONTO DOMINION (TEXAS), INC.
By /s/ WARREN FINLAY
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED NEW YORK BRANCH
By /s/ ROBERT W. RAMAGE, JR.
Title: Senior Vice President
KREDIETBANK N.V.
By /s/ DIANE GRIMMIG
Title: Vice President
By /s/ ROBERT SNAUFFER
Title: Vice President
SOCIETE GENERALE, SOUTHWEST
AGENCY
By /s/ MARK A. COX
Title: Vice President
<PAGE> 73
SCHEDULE I
COMMITMENTS, ADDRESSES, ETC.
<TABLE>
<CAPTION>
Name and Address of Lender Amount of Commitment
- ------------------------- --------------------
<S> <C>
CHEMICAL BANK $38,000,000
270 Park Avenue
New York, New York 10017
Attention: John Gehebe
Telecopier: (212) 270-4892
THE BANK of NEW YORK $32,000,000
One Wall Street, 19th Floor
New York, New York 10286
Attention: Raymond J. Palmer
Telecopier: (212) 635-7923
CITIBANK, N.A. $32,000,000
c/o Citicorp North America, Inc.
1200 Smith Street, Suite 2000
Houston, Texas 77002
Attention: Carol Rooney
Telecopier: (713) 654-2849
CREDIT LYONNAIS CAYMAN ISLAND $32,000,000
BRANCH
c/o Credit Lyonnais Houston
Representative Office
1000 Louisiana, Suite 5360
Houston, Texas 77002
Attention: Richard S. Kaufman
Telecopier: (713) 751-0307
MORGAN GUARANTY TRUST COMPANY $32,000,000
OF NEW YORK
60 Wall Street
New York, New York 10260
Attention: Philip W. McNeal
Telecopier: (212) 648-5023
NATIONSBANK OF TEXAS, N.A. $32,000,000
901 Main Street, 49th Floor
Dallas, Texas 75283-0104
Attention: Denise Smith
Telecopier: (214) 508-1285
</TABLE>
<PAGE> 74
2
<TABLE>
<CAPTION>
Name and Address of Lender Amount of Commitment
- -------------------------- --------------------
<S> <C>
UNION BANK OF SWITZERLAND $32,000,000
HOUSTON AGENCY
1100 Louisiana
Houston, Texas 77002
Attention: Jean Claude de Rouche
Telecopier: (713) 655-6555
MELLON BANK, N.A. $25,000,000
c/o Mellon Financial Services
1100 Louisiana, Suite 3600
Houston, Texas 77002
Attention: Janet O'N. Jenkins
Telecopier: (713) 650-3409
ROYAL BANK OF CANADA $25,000,000
600 Wilshire Boulevard, Suite 800
Los Angeles, California 90017
Attention: Everett M. Harner
Telecopier: (213) 955-5350
THE SUMITOMO BANK, LIMITED $25,000,000
HOUSTON AGENCY
700 Louisiana, Suite 1750
Houston, Texas 77002
Attention: William R. McKown, III
Telecopier: (713) 759-0020
SWISS BANK CORPORATION NEW YORK $25,000,000
BRANCH
222 Broadway
New York, New York 10038
Attention: Nancy A. Hanrahan
Telecopier: (212) 574-4395
TORONTO DOMINION (TEXAS), INC. $25,000,000
909 Fannin Street, 17th Floor
Houston, Texas 77010
Attention: Jano Mott
Telecopier: (713) 951-9921
THE INDUSTRIAL BANK OF JAPAN, $15,000,000
LIMITED NEW YORK BRANCH
245 Park Avenue
New York, New York 10167
Attention: Ira Gottlieb
Telecopier: (212) 557-3581
KREDIETBANK N.V. $15,000,000
125 West 55th Street
New York, New York 10019
Attention: Diane M. Grimmig
Telecopier: (212) 956-5580
</TABLE>
<PAGE> 75
3
<TABLE>
<CAPTION>
Name and Address of Lender Amount of Commitment
- -------------------------- --------------------
<S> <C>
SOCIETE GENERALE, SOUTHWEST AGENCY $15,000,000
2001 Ross Avenue, Suite 48000
Dallas, Texas 75201
Attention: Molly Franklin
Telecopier: (214) 754-0171
</TABLE>
<PAGE> 1
OPTION AGREEMENT
OPTION AGREEMENT (this "Agreement") dated as of April 20, 1996 among the
persons listed on Schedule 1 hereto (each, a "Holder" and, collectively, the
"Holders"), El Paso Natural Gas Company, a Delaware corporation ("Parent"), and
The El Paso Company, a Delaware corporation and a wholly owned subsidiary of
Parent (the "Purchaser"). Parent, the Purchaser and Cornerstone Natural Gas,
Inc., a Delaware corporation (the "Company"), propose to enter into an
Agreement and Plan of Merger (the "Merger Agreement") on the date of this
Agreement providing for the making of a tender offer by Purchaser (the "Offer")
for shares of Common Stock, par value $.10 per share, of the Company (the
"Company Common Stock"), at a purchase price of $6.00 per share, and a
subsequent merger (the "Merger") between the Company and the Purchaser.
Each Holder owns the number of shares of Company Common Stock (the
"Shares"), options to purchase Company Common Stock (the "Stock Options") or
warrants to purchase shares of Company Common Stock (the "Warrants" and,
collectively with the Stock Options and the Shares, the "Optioned Securities"),
or has the right to vote the number of Shares or other securities (the "Voting
Securities"), listed opposite the name of such Holder on Schedule 1. Parent
and the Purchaser have required, as a condition to entering into the Merger
Agreement, that the Holders enter into this Agreement. The Holders believe
that it is in the best interest of the Company and its stockholders to induce
Parent and the Purchaser to enter into the Merger Agreement and, therefore, the
Holders are willing to enter into this Agreement.
Accordingly, in consideration of the mutual covenants and agreements set
forth herein and in consideration of $1.00 and such other valuable
consideration the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. The Option. Each Holder hereby grants the Purchaser an
irrevocable option (the "Option") to purchase all of the Optioned Securities of
such Holder at the price set forth with respect to such Optioned Securities on
Schedule 1 (or such higher price as may be paid pursuant to the Offer), payable
in cash, without interest.
2. Exercise of the Option; Term. On the terms and subject to the
conditions of this Agreement, (a) the Purchaser may exercise the Option at any
time after later of (i) December 2, 1996, (ii) the date on which all waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), applicable to the exercise of the Option have expired
or been terminated and (iii) the date of expiration or termination of the
Offer, by written notice to each Holder specifying a date and time for the
closing not later than thirty (30) business days from the date of such notice
(which date and time may be one day after the delivery of such notice or
earlier if reasonably practicable), but only if (b) (i) the Merger Agreement
shall have been terminated and (ii) either (A) the stockholders of the Company
shall have failed to approve the Merger at the stockholders' meeting
contemplated by Section 9.4 of the Merger Agreement (the "Meeting"), (B) the
Meeting shall not have
<PAGE> 2
occurred (other than by reason of a breach by Parent or the Purchaser of its
obligations under the Merger Agreement), or (C) the termination fee
contemplated by Section 11.5(a) of the Merger Agreement shall have become due
and payable or the Merger Agreement shall have been terminated pursuant to
Section 11.2(e) or Section 11.4(c), (d), (e) or (f); provided that, (x)
notwithstanding clause (a)(i) of this sentence, the Purchaser may exercise the
Option at any time after the later of the periods prescribed in clauses (a)(ii)
and (a)(iii) of this sentence, if the Merger Agreement shall have been
terminated pursuant to Section 11.2(e) or Section 11.4(c), (d), (e) or (f) and
(y) notwithstanding clause (b) of this sentence, the Purchaser shall exercise
the Option if the Offer has been consummated in accordance with its terms. The
Option shall expire on the earliest of (a) the Effective Time (as defined in
the Merger Agreement), or (b) twelve months after the termination of the Merger
Agreement (but in any event not later than June 30, 1997) (such expiration date
is referred to herein as the "Expiration Date").
3. Closing. At the closing:
(a) against delivery of the Optioned Securities, free and
clear of all liens, claims, charges and encumbrances of any kind or
nature whatsoever, Parent shall cause the Purchaser to make payment to
each Holder of the aggregate price for such Holder's Optioned Securities
by wire transfer of immediately available funds; and
(b) each Holder shall deliver to the Purchaser a duly executed
certificate or certificates representing the number of Optioned
Securities purchased from such Holder, together with transfer powers
endorsed in blank relating to such certificates and, if requested by the
Purchaser, an irrevocable proxy (subject to receiving an opinion from
the Purchaser's counsel that such proxy does not violate the federal
proxy rules), duly executed by such Holder, authorizing such persons as
the Purchaser shall designate to act for such Holder as his lawful
agents, attorneys and proxies, with full power of substitution, to vote
in such manner as each such agent, attorney and proxy or his substitute
shall in his sole discretion deem proper, and otherwise act with respect
to the Optioned Securities at any meeting (whether annual or special and
whether or not an adjourned meeting) of the Company's Holders or
otherwise, and revoking any prior proxies granted by such Holder with
respect to the Holder's Optioned Securities.
Notwithstanding any provision of this Agreement to the contrary, the
Holders shall validly tender their Shares pursuant to the Offer and shall not
withdraw such Shares prior to the expiration of the Offer, and their obligation
to sell any Optioned Securities shall be satisfied, solely with respect to the
Shares so tendered, upon the purchase of such Shares by the Purchaser pursuant
to the Offer. If the Shares, together with any other shares of Company Common
Stock validly tendered and not withdrawn pursuant to the Offer, satisfy the
Minimum Condition (as defined in the Merger Agreement), then, subject to the
terms and conditions of the Offer, the Purchaser shall purchase the Shares
pursuant to the Offer.
-2-
<PAGE> 3
4. Covenants of the Holders.
(a) During the period from the date of this Agreement until
the Expiration Date, except in accordance with the provisions of this
Agreement, each Holder severally and not jointly agrees that he will
not:
(i) sell, transfer, pledge, hypothecate, assign or
otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer,
pledge, hypothecation, assignment or other disposition of, any
Optioned Securities or Voting Securities;
(ii) deposit any Optioned Securities or Voting Securities
into a voting trust, or grant any proxies or enter into a voting
agreement with respect to any Optioned Securities or Voting
Securities; or
(iii) initiate, solicit or knowingly encourage, directly
or indirectly, any inquiries or the making or implementation of
any proposal that constitutes, or may reasonably be expected to
lead to, any Proposal (as defined in the Merger Agreement) or
enter into discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain a Proposal, or agree
to or endorse any Proposal; except that any Holder who is a
member of the board of directors of the Company may conduct
himself in the manner expressly permitted under Section 9.1 of
the Merger Agreement.
(b) Any additional shares of Company Common Stock, warrants,
options or other securities or rights exercisable for, exchangeable for
or convertible into shares of Company Common Stock (collectively,
"Equity Securities") acquired by any Holder will become subject to this
Agreement and shall, for all purposes of this Agreement, be considered
Optioned Securities or Voting Securities, as the case may be.
(c) Each Holder agrees not to engage in any action or omit to
take any action which would have the effect of preventing or disabling
such Holder from delivering his Optioned Securities to the Purchaser or
otherwise performing his obligations under this Agreement. To the
extent that any Optioned Securities (other than Company Common Stock)
may not be assigned by such Holder to the Purchaser without exercising,
exchanging or converting such Optioned Securities for or into Company
Common Stock, subject to the Purchaser making a non-interest bearing
loan as set forth below, each Holder agrees to exercise, exchange or
convert such Optioned Securities for or into Company Common Stock prior
to the closing of the purchase of such Optioned Securities upon exercise
of the Option. In order to facilitate the exercise of any Stock Option,
the Purchaser shall loan to any requesting Holder funds sufficient to
allow such Holder to exercise the Stock Option. Such loan shall be non-
interest bearing and, at the Purchaser's option, shall be secured by a
pledge of the shares of Company Common Stock acquired upon exercise of
such Stock Option.
-3-
<PAGE> 4
5. Representations and Warranties of each Holder. Each Holder
severally and not jointly represents and warrants to Parent and the Purchaser
as follows:
(a) (i) such Holder is the record or beneficial owner of
the Optioned Securities, or has the right to vote the Voting Securities,
listed opposite the name of such Holder on Schedule 1, (ii) such
Optioned Securities or Voting Securities are the only Equity Securities
owned of record or beneficially by such Holder or in which such Holder
has any interest or which such Holder has the right to vote, as the case
may be, and (iii) such Holder does not have any option or other right to
acquire any other Equity Securities;
(b) such Holder has the right, power and authority to execute
and deliver this Agreement and to perform his obligations hereunder; the
execution, delivery and performance of this Agreement by such Holder
will not require the consent of any other person and will not constitute
a violation of, conflict with or result in a default under (i) any
contract, understanding or arrangement to which such Holder is a party
or by which such Holder is bound, (ii) any judgment, decree or order
applicable to such Holder, or (iii) any law, rule or regulation of any
governmental body applicable to such Holder; and this Agreement
constitutes a valid and binding agreement on the part of such Holder,
enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity;
(c) any Shares included in the Optioned Securities owned by
such Holder have been validly issued and are fully paid and
nonassessable and any shares of Company Common Stock issuable upon
exercise of the Stock Options or Warrants, when issued and upon payment
of the exercise price therefor, will be validly issued, fully paid and
nonassessable;
(d) except as set forth on Schedule 1 and except for the
Endevco Investors Joint Venture Agreement, which will terminate on or
before sale of the Optioned Securities, the Optioned Securities owned by
such Holder are now, and at all times during the term of this Agreement
will be, held by such Holder free and clear of all adverse claims,
liens, encumbrances and security interests, and none of the Optioned
Securities or Voting Securities are subject to any voting trust or other
agreement or arrangement (except as created by this Agreement) with
respect to the voting or disposition of the Optioned Securities or
Voting Securities; and there are no outstanding options, warrants or
rights to purchase or acquire, or agreements (except for this Agreement)
relating to, such Optioned Securities or Voting Securities; and
(e) upon purchase of the Optioned Securities owned by such
Holder, the Purchaser will obtain good and marketable title to such
Optioned Securities, free and clear of all adverse claims, liens,
encumbrances and security interests (except any created by the
Purchaser).
-4-
<PAGE> 5
6. Effect of Representations, Warranties and Covenants of Holders.
The representations, warranties and covenants of the Holders shall be several
and not joint. The liability of each individual Holder shall extend only to
the representations, warranties and covenants of such Holder and not to any
representation, warranty or covenant of any other Holder.
7. Representations and Warranties of Parent and the Purchaser. Each
of Parent and the Purchaser hereby represents and warrants to each Holder that:
it is a corporation duly formed under the laws of the State of Delaware; it has
all requisite corporate power and authority to enter into and perform all its
obligations under this Agreement; the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on its part; this Agreement has
been duly executed and delivered by it; and this Agreement constitutes a valid
and binding agreement on its part, enforceable in accordance with its terms,
subject to applicable bankruptcy insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
8. Voting of Equity Securities. Each Holder listed on Exhibit A
hereby agrees that, during the time this Agreement is in effect, at any meeting
of the stockholders of the Company, however called, and in any action by
written consent of the stockholders of the Company, he shall (a) vote all
Voting Securities of such Holder in favor of the Merger; (b) not vote any
Voting Securities in favor of any action or agreement which would result in a
breach in any material respect of any covenant, representation or warranty or
any other obligation of the Company under the Merger Agreement; and (c) vote
all Voting Securities of such Holder against any action or agreement which
would impede, interfere with or attempt to discourage the Offer or the Merger,
including, but not limited to: (i) any Proposal (other than the Offer and the
Merger) involving the Company or any of its subsidiaries; (ii) any change in
the management or board of directors of the Company, except as otherwise agreed
to in writing by the Purchaser; (iii) any material change in the present
capitalization or dividend policy of the Company; or (iv) any other material
change in the Company's corporate structure or business. At the request of the
Purchaser, each Holder listed on Exhibit A, in furtherance of the transactions
contemplated hereby and by the Merger Agreement, shall promptly execute and
deliver to the Purchaser an irrevocable proxy substantially in the form of
Exhibit B hereto and irrevocably appoint the Purchaser or its designees, its
attorney and proxy to vote all Voting Securities of such Holder, for all
purposes whatsoever, with full power of substitution. Each such Holder
acknowledges that this proxy (a) shall be coupled with an interest, (b)
constitutes, among other things, an inducement for Parent and the Purchaser to
enter into the Merger Agreement, and (c) shall be irrevocable and shall not be
terminated by operation of law upon the occurrence of any event. Any such
proxy shall terminate upon the termination of this Agreement.
9. Adjustments. In the event of any increase or decrease or other
change in the Optioned Securities by reason of stock dividends, split-up,
recapitalizations, combinations, exchanges of shares or the like, the number of
Optioned Securities and Voting Securities subject to this Agreement shall be
adjusted appropriately.
-5-
<PAGE> 6
10. Purchase of Warrants. Immediately following the purchase of
shares of Company Common Stock pursuant to the Offer, Parent shall purchase
(and the Holders shall sell) all outstanding Warrants held by the Holders, at a
purchase price per Warrant in cash equal to the excess, if any, of $6.00 (or
such higher cash price per share of Company Common Stock as shall be paid by
the Purchaser pursuant to the Offer) over the exercise price per share of
Company Common Stock covered by such Warrant, multiplied by the number of
shares of Company Common Stock covered by such Warrant. Each Holder shall
deliver to the Purchaser not less than two business days prior to the
expiration of the Offer the Warrants of such Holder and all documents necessary
or appropriate to effect the transactions contemplated by this Section 10, duly
executed by or on behalf of such Holder. All payments required by this Section
10 shall be made by wire transfer of immediately available funds at the
closing.
11. Governing Law. This Agreement shall be governed by and construed
in accordance with the law of the State of New York without regard to its rules
of conflict of laws.
12. Further Assurances. Each party hereto shall perform such further
acts and execute such further documents as may reasonably be required to carry
out the provisions of this Agreement.
13. Legend. As soon as practicable after the execution of this
Agreement, the following legend shall be placed on the certificates
representing the Optioned Securities:
"The Securities represented by this certificate are subject to
certain transfer and other restrictions contained in an Option
Agreement, dated as of April 20, 1996, among El Paso Natural Gas
Company, The El Paso Company and certain stockholders of the
Corporation."
14. Assignment. This Agreement may not be assigned by any party
hereto, except that the Purchaser may assign its right to purchase the Optioned
Securities to one or more of its affiliates.
15. Remedies. The parties agree that legal remedies for breach of
this Agreement will be inadequate and that this Agreement may be enforced by
Parent and the Purchaser by injunctive or other equitable relief.
16. Notices. All notices or other communications required or
permitted hereunder shall be in writing (except as otherwise provided herein)
and shall be deemed duly given if delivered in person, by confirmed facsimile
transmission or by overnight courier service, addressed as follows:
-6-
<PAGE> 7
To Parent or the Purchaser:
El Paso Natural Gas Company
100 North Stanton Street
El Paso, Texas 79901
Attention: H. Brent Austin,
Senior Vice President and
Chief Financial Officer
With a copy to:
Fried, Frank, Harris, Shriver
& Jacobson
One New York Plaza
New York, New York 10004
Attention: Gary P. Cooperstein, Esq.
Facsimile: (212) 859-4000
To each Holder:
At the address set forth beneath the name of such Holder on
Schedule 1
Akin, Gump, Strauss, Hauer & Feld, LLP
1700 Pacific Avenue., #4100
Dallas, Texas 75201
Attention: Jack Stillwell, Esq.
With copies to:
Schlanger, Mills, Mayer & Grossberg, LLP
5847 San Felipe, #1700
Houston, Texas 77057
Attention: Clarence Mayer, Esq.
17. 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
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto 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 extent possible.
-7-
<PAGE> 8
18. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same agreement.
19. Binding Effect; Benefits. This Agreement shall survive the death
or incapacity of any Holder and shall inure to the benefit of and shall be
binding upon the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns. Nothing in this Agreement,
expressed or implied, is intended to or shall confer on any person other than
the parties hereto and their respective heirs, legal representatives and
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
IN WITNESS WHEREOF, the Holders and the Purchaser have entered into this
Agreement as of the date first written above.
EL PASO NATURAL GAS COMPANY
By: /s/ H. Brent Austin
-----------------------------------
H. Brent Austin
THE EL PASO COMPANY
By: /s/ Robert G. Phillips
-----------------------------------
Robert G. Phillips
HOLDERS:
ENDEVCO INVESTORS JOINT VENTURE
By: /s/ Ray C. Davis
-----------------------------------
Ray C. Davis, Trustee
COLLINS & WARE, INC.
By: /s/ Ted Collins, Jr.
-----------------------------------
Ted Collins, Jr., President
/s/ James E. Davison
--------------------------------------
JAMES E. DAVISON
-8-
<PAGE> 9
H&S PRODUCTION, INC., PENSION TRUST
By: /s/ Scott G. Heape
-----------------------------------
Scott G. Heape, Trustee
/s/ Robert W. McDonald
--------------------------------------
ROBERT W. McDONALD
R. LACY, INC.
By: /s/ Neal A. Hawthorn
-----------------------------------
Neal A. Hawthorn, V.P.
/s/ Richard D. Brannon
--------------------------------------
RICHARD D. BRANNON, TRUSTEE
SANDOLLAR OIL & GAS, INC.
By: /s/ Jon P. Stephenson
-----------------------------------
Jon P. Stephenson
SMITH & CULPEPPER
By: /s/ Roger M. Smith
-----------------------------------
Roger M. Smith, G.P.
/s/ W.H. Hunt
--------------------------------------
W.H. HUNT
LYDA HUNT-HERBERT TRUSTS
DAVID S. HUNT
By: /s/ Gage A. Prichard, Trustee
/s/ John G. Rebensdorf, Trustee
-----------------------------------
-9-
<PAGE> 10
LYDA HUNT-HERBERT TRUSTS
DOUGLAS HUNT
By: /s/ Gage A. Prichard, Trustee
/s/ John G. Rebensdorf, Trustee
-----------------------------------
LYDA HUNT-HERBERT TRUSTS
BRUCE W. HUNT
By: /s/ Gage A. Prichard, Trustee
/s/ John G. Rebensdorf, Trustee
-----------------------------------
LYDA HUNT-HERBERT TRUSTS
BARBARA A. HUNT
By: /s/ Gage A. Prichard, Trustee
/s/ John G. Rebensdorf, Trustee
-----------------------------------
LYDA HUNT-HERBERT TRUSTS
LYDA BUNKER HUNT
By: /s/ Gage A. Prichard, Trustee
/s/ John G. Rebensdorf, Trustee
-----------------------------------
/s/ Ben H. Cook
--------------------------------------
BEN H. COOK
/s/ Ray C. Davis
--------------------------------------
RAY C. DAVIS
/s/ Kelcy L. Warren
--------------------------------------
KELCY L. WARREN
-10-
<PAGE> 11
/s/ James W. Bryant
--------------------------------------
JAMES W. BRYANT
/s/ Kelly J. Jameson
--------------------------------------
KELLY J. JAMESON
/s/ Clarence Mayer
--------------------------------------
CLARENCE MAYER
/s/ Robert L. Cavnar
--------------------------------------
ROBERT L. CAVNAR
-11-
<PAGE> 12
SCHEDULE 1
<TABLE>
<CAPTION>
Name Shares Stock Options Warrants Voting Securities
---- ------ ------------- -------- -----------------
<S> <C> <C> <C> <C>
Endevco Investors
Joint Venture
Collins & Ware, Inc. 228,833 0 0 228,833
James E. Davison 533,944 0 0 533,944
H&S Production, Inc 99,924 0 0 99,924
Robert W. McDonald 152,554 0 0 152,554
R. Lacy, Inc. 533,944 0 0 533,944
Richard D. Brannon, 0 0
Trustee 300,000 300,000
Sandollar Oil & Gas, 150,000 0 0 150,000
Inc.
Smith & Culpepper 43,516 0 0 43,516
W.H. Hunt 152,554 0 0 152,554
Lyda Hunt-Herbert
Trusts
David S. Hunt 76,278 0 0 76,278
Douglas Hunt 76,278 0 0 76,278
Bruce W. Hunt 76,278 0 0 76,278
Barbara A. Hunt 76,278 0 0 76,278
Lyda Bunker Hunt 76,278 0 0 76,278
Total 2,576,659 0 0 2,576,659
Ben H. Cook 1,618,612 0 512,821 1,618,612
Ray C. Davis 381,388 60,000 769,231 381,388
Kelcy L. Warren 352,465 60,000 769,231 352,465
James W. Bryant 509,062 0 0 509,062
Kelly J. Jameson 3,328 15,000 256,410 3,328
Clarence Mayer 0 0 256,410 0
Robert L. Cavnar 5,000 69,500 0 5,000
Total 5,446,514 204,500 2,564,103 5,446,514
</TABLE>
-12-
<PAGE> 13
EXHIBIT A
SECTION 8 HOLDERS
<TABLE>
<CAPTION>
Name Voting Securities
- ---- -----------------
<S> <C>
Ben H. Cook 1,618,612
Ray C. Davis 381,388
Kelcy L. Warren 352,465
James W. Bryant 509,062
R. Lacy, Inc. 533,944
James E. Davison 533,944
Richard D. Brannon, Trustee 300,000
Collins & Ware, Inc. 228,833
Robert W. McDonald 152,554
W.H. Hunt 152,554
Total 4,763,356
</TABLE>
-13-
<PAGE> 14
EXHIBIT B
PROXY
The undersigned hereby irrevocably appoints designees of The El Paso
Company, a Delaware corporation (the "Purchaser"), the attorneys, agents and
proxies, with full power of substitution, for the undersigned and in the name,
place and stead of the undersigned to vote in such manner as such attorneys,
agents and proxies or their substitutes shall in their sole discretion deem
proper and otherwise act, including the execution of written consents, with
respect to all voting equity securities (the "Securities"), of Cornerstone
Natural Gas, Inc., a Delaware corporation (the "Company"), which the
undersigned is or may be entitled to vote at any meeting of the Company held
after the date hereof, whether annual or special and whether or not an
adjourned meeting, or in respect of which the undersigned is or may be entitled
to act by written consent. This Proxy is coupled with an interest and shall be
irrevocable and binding on any successor in interest of the undersigned. This
Proxy shall operate to revoke any prior proxy as to the Securities heretofore
granted by the undersigned. This Proxy shall terminate upon the termination of
the Option Agreement dated as of April 20, 1996 among the undersigned, certain
other Holders, El Paso Natural Gas Company and the Purchaser.
Dated:
-14-
<PAGE> 1
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT, made as of the 20th day of April,
1996, by and between Cornerstone Natural Gas, Inc., a Delaware corporation
("Cornerstone") and Ben H. Cook ("Individual").
WHEREAS, El Paso Natural Gas Company, a Delaware corporation
("EPG"), The El Paso Company, a Delaware corporation ("Purchaser"), and
Cornerstone have entered into an Agreement and Plan of Merger, dated as of
April 20, 1996 (the "Merger Agreement");
WHEREAS, Individual will sell his shares in Cornerstone to
Purchaser pursuant to the Merger Agreement and will receive from Purchaser
substantial payments for such shares by reason of such sale;
WHEREAS, in connection with and as an inducement for EPG and
Purchaser to enter into the Merger Agreement and to purchase the shares owned
by Individual, Individual agrees not to compete with Cornerstone for the
periods described herein; and
WHEREAS, it is a prerequisite to the consummation of the
transactions under the Merger Agreement that Individual and Cornerstone enter
into this Noncompetition Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, agreements and understandings contained herein, the parties
hereto agree as follows:
1. Covenants.
(a) Unauthorized Disclosure and Confidentiality. Individual
understands, acknowledges and agrees that the business, profitability and
goodwill of Cornerstone are dependent upon certain trade secrets and other
proprietary information which are unique and valuable property of Cornerstone;
<PAGE> 2
Individual further understands, acknowledges and agrees that such
trade secrets and other proprietary information, which for the purpose of this
Agreement are restricted to mean only the terms of contracts to which
Cornerstone and its subsidiaries are parties, including sources of supply under
such contracts (collectively known as "Trade Secrets"), shall be kept
confidential and agrees not to disclose any of such Trade Secrets to any
person, firm or corporation for any reason or purpose whatsoever, except to
authorized representatives of Cornerstone, except as required by law and except
to the extent that such Trade Secrets are or become publicly known other than
by reason of a breach of this provision by Individual.
(b) Noncompetition. In recognition of the above nature of
Cornerstone's Trade Secrets and the geographic scope of its business and
competition, Individual agrees, for the purpose of protecting the goodwill and
other legitimate business interests of Cornerstone, that he will not, directly
or indirectly, for his own account or for the account of others, as an officer,
director, stockholder, owner, partner, employee, promoter, consultant, manager,
or otherwise, contract, arrange or otherwise participate in any manner in the
business of processing or gathering oil, natural gas or natural gas liquids (x)
for three (3) years following the Effective Time (as defined in the Merger
Agreement) with respect to the areas listed in Part A of Appendix I attached
hereto, (y) for three (3) years following the Effective Time with respect to
any processing or gathering opportunity in any area within a 10 mile radius of
any existing processing or gathering system or facility of Cornerstone or any
of its subsidiaries or any point of any such system or facility as it presently
exists, unless the proposed processing or gathering activities do not compete
with any existing system or facility of Cornerstone or any of its subsidiaries
and Cornerstone and its subsidiaries have no plans to pursue the proposed
processing or gathering opportunity, and (z) for eighteen (18) months following
the Effective Time with respect to any gathering or processing systems or
facilities that will serve production from the Austin Chalk formation in the
areas listed in Part B of
2
<PAGE> 3
Appendix I; provided, however, that nothing herein shall prohibit Individual
and any entities controlled by him from owning not more than 2% of any class of
securities of a publicly traded entity which is engaged in any such business.
(c) Non-Solicitation. Individual agrees, for one (1) year
following the Effective Time, that neither he nor any entity directly or
indirectly controlled by him will interfere with the relationship of
Cornerstone or any of its subsidiaries or other entities owned or controlled by
Cornerstone (the "Subsidiaries") with, or endeavor to employ or entice away
from Cornerstone or any of the Subsidiaries, any individual, which is an
employee of Cornerstone or any of the Subsidiaries; provided that nothing
herein shall restrict Individual or any entity controlled by him from hiring
either (i) John Noland if John Noland is required by Cornerstone to relocate
from Dallas, Texas and declines to so relocate or (ii) Doug Dormer.
(d) Individual agrees that in the event of a breach or
threatened breach by Individual of this Noncompetition Agreement, Cornerstone
shall be entitled to an injunction restraining Individual from such breach or
threatened breach.
(e) Individual further agrees that Cornerstone may at any
time, provide a copy, or disclose the contents, of this Noncompetition
Agreement, to any new or prospective employer(s) or business associates of
Individual prior to the termination of this Noncompetition Agreement upon
determination by Cornerstone that Individual or the new or prospective employer
or business associate is engaging in or planning to engage in any action which
may breach or aid in the breach of any provision of this Noncompetition
Agreement.
(f) Individual understands that Cornerstone will pursue any and
all remedies at law or otherwise to recover from any new or prospective
employer of Individual for any loss, damage or costs which Cornerstone incurs
as a result of the breach or the inducement of the breach of this Agreement,
including, but not limited, to recovery for damages and expense resulting from
loss of business or profit
3
<PAGE> 4
(g) In the event that any provisions of this Noncompetition
Agreement shall be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable laws or court interpretations thereof,
such provisions deemed excessive shall be reformed, without affecting the
validity and enforceability of the provisions of this Agreement which are not
reformed, to the maximum time, geographic and occupational limitations which
shall be permitted.
2. Gathering System.
(a) Each of Individual and each affiliate he controls which has
any rights to purchase interests in the Oletha gathering system, whether
pursuant to Section 6 of the Bill of Sale, Assignment and Deed dated April 1,
1993 (the "Assignment") from Ben H. Cook, H&S Production, Inc., Palo Verde Oil
Company, Sandollar Oil & Gas, Inc., S&P Co. and Gary S. Swindell or otherwise
(the "Purchase Option") is, concurrently with the execution of this Agreement,
executing an irrevocable assignment (to the extent such rights are assignable)
effective as of the Effective Time in favor of EPG of any and all rights which
Individual and his affiliates have or may have under the Purchase Option, in
the form of Appendix II, if such assignment has not previously been effected.
Individual hereby covenants to use his best efforts (but without the
requirement to expend funds) to cause all other persons who may have rights
under the Purchase Option to irrevocably waive such rights or to assign such
rights to EPG, and to take such other actions as may be necessary or
appropriate to cause such Purchase Option to be terminated or otherwise to
prevent such Purchase Option becoming exercisable.
(b) Individual hereby agrees to indemnify and hold harmless EPG,
Cornerstone and their respective affiliates from and against all losses,
damages, including consequential damages, liabilities, costs and expenses,
including legal fees and expenses, which may be suffered or incurred arising
out of, resulting from or relating to Kelcy L. Warren ("Warren") ceasing to
perform the Required Functions (as defined in the Noncompetition Agreement
dated the date hereof between Cornerstone and Warren) for
4
<PAGE> 5
any reason other than (a) death or (b) physical or mental disability preventing
Warren from performing the Required Functions including, but not limited to
damages, costs or losses suffered or incurred by reason of the exercise of the
Purchase Option contained in paragraph 6 of the Assignment; provided, however,
in no event shall Individual have any liability for the failure of Warren to
actively serve as the President of Energy Transfer Corporation or perform the
Required Functions after the Purchase Option has, by its terms, terminated, or
has been waived or assigned to Cornerstone in its entirety.
3. New Ventures.
(a) If, within three years after the Effective Date, Individual
or any entity directly or indirectly controlled by him, either alone or
together with Ben H. Cook and/or Warren or any entities either of them
controls, directly or indirectly, forms or invests in any venture (whether a
corporation, partnership, joint venture, business trust or other entity) in the
business of processing or gathering of oil, natural gas or natural gas liquids,
for which third party equity financing is or has been received or is sought (a
"New Venture") (other than warrants or other equity "kickers" granted as a
yield enhancement as part of bona fide debt financing arrangements provided by
financial institutions whose primary business is providing debt financing
(which shall exclude any individual, corporation, partnership, joint venture,
business trust or other person or entity engaged in the oil and gas industry
whose primary business is not providing debt financing)) , then Cornerstone (or
its affiliates) shall have the option to acquire a one-eighth (1/8) equity or
ownership interest in each such New Venture, free of any promote or override to
which the equity interest acquired or to be acquired by such third party may be
subject. Individual shall notify Cornerstone promptly in writing of any New
Venture and provide all information reasonably available so that Cornerstone or
such affiliate can make an investment decision, and within 30 days following
receipt of such written notice, Cornerstone shall notify Individual in writing
of its election whether to exercise its option with respect to such New
Venture. The exercise of the option with respect to any New
5
<PAGE> 6
Venture shall take place as promptly as practicable following receipt by
Individual of an election by Cornerstone to exercise the option.
Notwithstanding the foregoing, if gathering or processing
facilities are being built as part of development of an oil or gas field in
which Individual has a working interest and the equity interests in such
facilities are owned solely by the working interest owners, so long as
Individual's investment in the wells or working interest exceeds his investment
in the gathering or processing facilities, such facilities shall not constitute
a New Venture within the meaning of this Agreement.
(b) In the event that any New Venture in respect of which
Cornerstone or an affiliate has exercised the option described in the preceding
paragraph intends to issue (i) any shares of capital stock or other equity
securities or ownership interests or (ii) securities or rights convertible
into, exchangeable for or exercisable for shares of capital stock or equity
securities or interests:
(A) such New Venture shall give Cornerstone (or
such affiliate) written notice of its intent to sell such securities or
interests, specifying the number thereof to be sold and the minimum
price and terms and conditions of such sale and offering to sell such
securities or interests to Cornerstone (or such affiliate);
(B) if Cornerstone (or such affiliate) shall
not, within 30 days after receipt of the notice given pursuant to clause
(A) above, accept such offer in writing with respect to the securities
or interests specified in such notice, then such New Venture shall be
free to sell the securities or interests specified in such notice (but
only those securities or interests) at a price equal to or above the
minimum price and on other terms and conditions no less favorable to
such New Venture than those specified in such notice, at any time after
the expiration of such 30-day period;
(C) if Cornerstone (or such affiliate) shall
accept such offer within 30 days after the notice given pursuant to
clause (A) above, then Cornerstone (or such affiliate) shall purchase
the securities or interests specified in such notice in accordance with
the terms of the offer.
6
<PAGE> 7
4. Certain Opportunities. Cornerstone agrees that, subject to
compliance by Individual with the provisions of Section 1 of this Agreement,
including, without limitation, the non-competition restrictions contained in
Section 1(b), Individual may pursue the business opportunities set forth on
Appendix III hereto, and Cornerstone hereby disclaims any interest in pursuing
such opportunities to the extent, if any, that such opportunities may be deemed
corporate opportunities of Cornerstone. EPG and Purchaser acknowledge that the
price paid to stockholders was not reduced by reason of the provisions of this
Section and that EPG and Purchaser would not have increased the price paid to
stockholders if this Section 4 did not exist.
5. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to Cornerstone: If to Individual:
Cornerstone Natural Gas, Inc. to the address set forth
8080 North Central Express on the signature page
Suite 1200 hereof
Dallas, Texas 75206
Attention: Chairman of the Board
and Chief Executive Officer
Facsimile: (214) 739-8251
With a copy to: With a copy to:
Gary P. Cooperstein, Esq. Clarence Mayer, Esq.
Fried, Frank, Harris, Schlanger, Mills, Mayer
Shriver & Jacobson & Grossberg, L.L.P.
One New York Plaza 5847 San Felipe, Suite 1700
New York, NY 10004 Houston, Texas 77057
Facsimile: (212) 747-1526 Facsimile: (713) 785-2091
7
<PAGE> 8
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
6. Binding Effect/Assignment. This Noncompetition Agreement
shall be binding upon the parties hereto and shall inure to the benefit of
Cornerstone and EPG and their respective successors and assigns. This
Noncompetition Agreement may be assigned by Cornerstone and EPG to their
respective affiliates. Neither this Noncompetition Agreement nor any right,
interest or obligation hereunder shall be assignable or transferable by
Individual, or such party's beneficiaries or legal representatives.
7. Miscellaneous. No provision of this Noncompetition Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Individual and Cornerstone. No
waiver by any party hereto at any time of any breach by any other party hereto
of, or compliance with, any condition or provision of this Noncompetition
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Noncompetition Agreement.
8. Effective Date. The term of this Agreement shall begin as of
the Effective Time, provided that this Agreement shall be null and void if the
Merger Agreement is terminated.
9. Entire Agreement. This Noncompetition Agreement sets forth
the entire understanding of the parties hereto with respect to the subject
matter hereof and thereof
8
<PAGE> 9
and supersede all prior agreements, written or oral, between them as to such
subject matter.
10. Headings. The headings contained herein are solely for the
purpose of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
11. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
12. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, without reference
to the principles of conflict of laws thereof.
13. Consent to Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the jurisdiction of the
courts of the State of Texas or of the United States of America located in the
State of Texas for any actions, suits or proceedings arising out of or relating
to this Noncompetition Agreement and the transactions contemplated hereby and
agrees not to commence any action, suit or proceeding relating hereto except in
such courts, and further agrees that service of any process, summons, notice or
document by United States registered or certified mail shall be effective
service of process for any action, suit or proceeding brought in any such
court. Each of the parties hereto hereby irrevocably and unconditionally
waives any objection to personal jurisdiction and the laying of venue of any
action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby, in the courts of the State of Texas or of the United
States of America located in the State of Texas, and hereby further irrevocably
and unconditionally waives and agrees not to plead or claim in
9
<PAGE> 10
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
14. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first written above.
APPROVED CORNERSTONE NATURAL GAS, INC.
THE EL PASO COMPANY By: /s/ RAY C. DAVIS
-----------------------------------
By: /s/ ROBERT G. PHILLIPS Name: Ray C. Davis
--------------------------- ---------------------------------
Name: Robert G. Phillips Title: Chief Executive Officer
----------------------- --------------------------------
Title: Senior Vice President
-----------------------
/s/ BEN H. COOK
--------------------------------------
Ben H. Cook
Address for notices:
Ben H. Cook
P.O. Box 1906
Longview, Texas 75606
10
<PAGE> 1
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT, made as of the 20th day of April,
1996, by and between Cornerstone Natural Gas, Inc., a Delaware corporation
("Cornerstone") and Ray C. Davis ("Individual").
WHEREAS, El Paso Natural Gas Company, a Delaware corporation
("EPG"), The El Paso Company, a Delaware corporation ("Purchaser"), and
Cornerstone have entered into an Agreement and Plan of Merger, dated as of
April 20, 1996 (the "Merger Agreement");
WHEREAS, Individual will sell his shares in Cornerstone to
Purchaser pursuant to the Merger Agreement and will receive from Purchaser
substantial payments for such shares by reason of such sale;
WHEREAS, in connection with and as an inducement for EPG and
Purchaser to enter into the Merger Agreement and to purchase the shares owned
by Individual, Individual agrees not to compete with Cornerstone for the
periods described herein; and
WHEREAS, it is a prerequisite to the consummation of the
transactions under the Merger Agreement that Individual and Cornerstone enter
into this Noncompetition Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, agreements and understandings contained herein, the parties
hereto agree as follows:
1. Covenants.
(a) Unauthorized Disclosure and Confidentiality. Individual
understands, acknowledges and agrees that the business, profitability and
goodwill of Cornerstone are dependent upon certain trade secrets and other
proprietary information which are unique and valuable property of Cornerstone;
<PAGE> 2
Individual further understands, acknowledges and agrees that such
trade secrets and other proprietary information, which for the purpose of this
Agreement are restricted to mean only the terms of contracts to which
Cornerstone and its subsidiaries are parties, including sources of supply under
such contracts (collectively known as "Trade Secrets"), shall be kept
confidential and agrees not to disclose any of such Trade Secrets to any
person, firm or corporation for any reason or purpose whatsoever, except to
authorized representatives of Cornerstone, except as required by law and except
to the extent that such Trade Secrets are or become publicly known other than
by reason of a breach of this provision by Individual.
(b) Noncompetition. In recognition of the above nature of
Cornerstone's Trade Secrets and the geographic scope of its business and
competition, Individual agrees, for the purpose of protecting the goodwill and
other legitimate business interests of Cornerstone, that he will not, directly
or indirectly, for his own account or for the account of others, as an officer,
director, stockholder, owner, partner, employee, promoter, consultant, manager,
or otherwise, contract, arrange or otherwise participate in any manner in the
business of processing or gathering oil, natural gas or natural gas liquids (x)
for three (3) years following the Effective Time (as defined in the Merger
Agreement) with respect to the areas listed in Part A of Appendix I attached
hereto, (y) for three (3) years following the Effective Time with respect to
any processing or gathering opportunity in any area within a 10 mile radius of
any existing processing or gathering system or facility of Cornerstone or any
of its subsidiaries or any point of any such system or facility as it presently
exists, unless the proposed processing or gathering activities do not compete
with any existing system or facility of Cornerstone or any of its subsidiaries
and Cornerstone and its subsidiaries have no plans to pursue the proposed
processing or gathering opportunity, and (z) for eighteen (18) months following
the Effective Time with respect to any gathering or processing systems or
facilities that will serve production from the Austin Chalk formation in the
areas listed in Part B of
2
<PAGE> 3
Appendix I; provided, however, that nothing herein shall prohibit Individual
and any entities controlled by him from owning not more than 2% of any class of
securities of a publicly traded entity which is engaged in any such business.
(c) Non-Solicitation. Individual agrees, for one (1) year
following the Effective Time, that neither he nor any entity directly or
indirectly controlled by him will interfere with the relationship of
Cornerstone or any of its subsidiaries or other entities owned or controlled by
Cornerstone (the "Subsidiaries") with, or endeavor to employ or entice away
from Cornerstone or any of the Subsidiaries, any individual, which is an
employee of Cornerstone or any of the Subsidiaries; provided that nothing
herein shall restrict Individual or any entity controlled by him from hiring
either (i) John Noland if John Noland is required by Cornerstone to relocate
from Dallas, Texas and declines to so relocate or (ii) Doug Dormer.
(d) Individual agrees that in the event of a breach or
threatened breach by Individual of this Noncompetition Agreement, Cornerstone
shall be entitled to an injunction restraining Individual from such breach or
threatened breach.
(e) Individual further agrees that Cornerstone may at any
time, provide a copy, or disclose the contents, of this Noncompetition
Agreement, to any new or prospective employer(s) or business associates of
Individual prior to the termination of this Noncompetition Agreement upon
determination by Cornerstone that Individual or the new or prospective employer
or business associate is engaging in or planning to engage in any action which
may breach or aid in the breach of any provision of this Noncompetition
Agreement.
(f) Individual understands that Cornerstone will pursue any and
all remedies at law or otherwise to recover from any new or prospective
employer of Individual for any loss, damage or costs which Cornerstone incurs
as a result of the breach or the inducement of the breach of this Agreement,
including, but not limited, to recovery for damages and expense resulting from
loss of business or profit
3
<PAGE> 4
(g) In the event that any provisions of this Noncompetition
Agreement shall be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable laws or court interpretations thereof,
such provisions deemed excessive shall be reformed, without affecting the
validity and enforceability of the provisions of this Agreement which are not
reformed, to the maximum time, geographic and occupational limitations which
shall be permitted.
2. Gathering System.
(a) Each of Individual and each affiliate he controls which has
any rights to purchase interests in the Oletha gathering system, whether
pursuant to Section 6 of the Bill of Sale, Assignment and Deed dated April 1,
1993 (the "Assignment") from Ben H. Cook, H&S Production, Inc., Palo Verde Oil
Company, Sandollar Oil & Gas, Inc., S&P Co. and Gary S. Swindell or otherwise
(the "Purchase Option") is, concurrently with the execution of this Agreement,
executing an irrevocable assignment (to the extent such rights are assignable)
effective as of the Effective Time in favor of EPG of any and all rights which
Individual and his affiliates have or may have under the Purchase Option, in
the form of Appendix II, if such assignment has not previously been effected.
Individual hereby covenants to use his best efforts (but without the
requirement to expend funds) to cause all other persons who may have rights
under the Purchase Option to irrevocably waive such rights or to assign such
rights to EPG, and to take such other actions as may be necessary or
appropriate to cause such Purchase Option to be terminated or otherwise to
prevent such Purchase Option becoming exercisable.
(b) Individual hereby agrees to indemnify and hold harmless EPG,
Cornerstone and their respective affiliates from and against all losses,
damages, including consequential damages, liabilities, costs and expenses,
including legal fees and expenses, which may be suffered or incurred arising
out of, resulting from or relating to Kelcy L. Warren ("Warren") ceasing to
perform the Required Functions (as defined in the Noncompetition Agreement
dated the date hereof between Cornerstone and Warren) for
4
<PAGE> 5
any reason other than (a) death or (b) physical or mental disability preventing
Warren from performing the Required Functions including, but not limited to
damages, costs or losses suffered or incurred by reason of the exercise of the
Purchase Option contained in paragraph 6 of the Assignment; provided, however,
in no event shall Individual have any liability for the failure of Warren to
actively serve as the President of Energy Transfer Corporation or perform the
Required Functions after the Purchase Option has, by its terms, terminated, or
has been waived or assigned to Cornerstone in its entirety.
3. New Ventures.
(a) If, within three years after the Effective Date, Individual
or any entity directly or indirectly controlled by him, either alone or
together with Ben H. Cook and/or Warren or any entities either of them
controls, directly or indirectly, forms or invests in any venture (whether a
corporation, partnership, joint venture, business trust or other entity) in the
business of processing or gathering of oil, natural gas or natural gas liquids,
for which third party equity financing is or has been received or is sought (a
"New Venture") (other than warrants or other equity "kickers" granted as a
yield enhancement as part of bona fide debt financing arrangements provided by
financial institutions whose primary business is providing debt financing
(which shall exclude any individual, corporation, partnership, joint venture,
business trust or other person or entity engaged in the oil and gas industry
whose primary business is not providing debt financing)) , then Cornerstone (or
its affiliates) shall have the option to acquire a one-eighth (1/8) equity or
ownership interest in each such New Venture, free of any promote or override to
which the equity interest acquired or to be acquired by such third party may be
subject. Individual shall notify Cornerstone promptly in writing of any New
Venture and provide all information reasonably available so that Cornerstone or
such affiliate can make an investment decision, and within 30 days following
receipt of such written notice, Cornerstone shall notify Individual in writing
of its election whether to exercise its option with respect to such New
Venture. The exercise of the option with respect to any New
5
<PAGE> 6
Venture shall take place as promptly as practicable following receipt by
Individual of an election by Cornerstone to exercise the option.
Notwithstanding the foregoing, if gathering or processing
facilities are being built as part of development of an oil or gas field in
which Individual has a working interest and the equity interests in such
facilities are owned solely by the working interest owners, so long as
Individual's investment in the wells or working interest exceeds his investment
in the gathering or processing facilities, such facilities shall not constitute
a New Venture within the meaning of this Agreement.
(b) In the event that any New Venture in respect of which
Cornerstone or an affiliate has exercised the option described in the preceding
paragraph intends to issue (i) any shares of capital stock or other equity
securities or ownership interests or (ii) securities or rights convertible
into, exchangeable for or exercisable for shares of capital stock or equity
securities or interests:
(A) such New Venture shall give Cornerstone (or
such affiliate) written notice of its intent to sell such securities or
interests, specifying the number thereof to be sold and the minimum
price and terms and conditions of such sale and offering to sell such
securities or interests to Cornerstone (or such affiliate);
(B) if Cornerstone (or such affiliate) shall
not, within 30 days after receipt of the notice given pursuant to clause
(A) above, accept such offer in writing with respect to the securities
or interests specified in such notice, then such New Venture shall be
free to sell the securities or interests specified in such notice (but
only those securities or interests) at a price equal to or above the
minimum price and on other terms and conditions no less favorable to
such New Venture than those specified in such notice, at any time after
the expiration of such 30-day period;
(C) if Cornerstone (or such affiliate) shall
accept such offer within 30 days after the notice given pursuant to
clause (A) above, then Cornerstone (or such affiliate) shall purchase
the securities or interests specified in such notice in accordance with
the terms of the offer.
6
<PAGE> 7
4. Certain Opportunities. Cornerstone agrees that, subject to
compliance by Individual with the provisions of Section 1 of this Agreement,
including, without limitation, the non-competition restrictions contained in
Section 1(b), Individual may pursue the business opportunities set forth on
Appendix III hereto, and Cornerstone hereby disclaims any interest in pursuing
such opportunities to the extent, if any, that such opportunities may be deemed
corporate opportunities of Cornerstone. EPG and Purchaser acknowledge that the
price paid to stockholders was not reduced by reason of the provisions of this
Section and that EPG and Purchaser would not have increased the price paid to
stockholders if this Section 4 did not exist.
5. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to Cornerstone: If to Individual:
Cornerstone Natural Gas, Inc. to the address set forth
8080 North Central Express on the signature page
Suite 1200 hereof
Dallas, Texas 75206
Attention: Chairman of the Board
and Chief Executive Officer
Facsimile: (214) 739-8251
With a copy to: With a copy to:
Gary P. Cooperstein, Esq. Clarence Mayer, Esq.
Fried, Frank, Harris, Schlanger, Mills, Mayer
Shriver & Jacobson & Grossberg, L.L.P.
One New York Plaza 5847 San Felipe, Suite 1700
New York, NY 10004 Houston, Texas 77057
Facsimile: (212) 747-1526 Facsimile: (713) 785-2091
7
<PAGE> 8
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
6. Binding Effect/Assignment. This Noncompetition Agreement
shall be binding upon the parties hereto and shall inure to the benefit of
Cornerstone and EPG and their respective successors and assigns. This
Noncompetition Agreement may be assigned by Cornerstone and EPG to their
respective affiliates. Neither this Noncompetition Agreement nor any right,
interest or obligation hereunder shall be assignable or transferable by
Individual, or such party's beneficiaries or legal representatives.
7. Miscellaneous. No provision of this Noncompetition Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Individual and Cornerstone. No
waiver by any party hereto at any time of any breach by any other party hereto
of, or compliance with, any condition or provision of this Noncompetition
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Noncompetition Agreement.
8. Effective Date. The term of this Agreement shall begin as of
the Effective Time, provided that this Agreement shall be null and void if the
Merger Agreement is terminated.
9. Entire Agreement. This Noncompetition Agreement sets forth
the entire understanding of the parties hereto with respect to the subject
matter hereof and thereof
8
<PAGE> 9
and supersede all prior agreements, written or oral, between them as to such
subject matter.
10. Headings. The headings contained herein are solely for the
purpose of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
11. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
12. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, without reference
to the principles of conflict of laws thereof.
13. Consent to Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the jurisdiction of the
courts of the State of Texas or of the United States of America located in the
State of Texas for any actions, suits or proceedings arising out of or relating
to this Noncompetition Agreement and the transactions contemplated hereby and
agrees not to commence any action, suit or proceeding relating hereto except in
such courts, and further agrees that service of any process, summons, notice or
document by United States registered or certified mail shall be effective
service of process for any action, suit or proceeding brought in any such
court. Each of the parties hereto hereby irrevocably and unconditionally
waives any objection to personal jurisdiction and the laying of venue of any
action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby, in the courts of the State of Texas or of the United
States of America located in the State of Texas, and hereby further irrevocably
and unconditionally waives and agrees not to plead or claim in
9
<PAGE> 10
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
14. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first written above.
APPROVED CORNERSTONE NATURAL GAS, INC.
THE EL PASO COMPANY By: /s/ KELCY L. WARREN
-----------------------------------
By: /s/ ROBERT G. PHILLIPS Name: Kelcy L. Warren
--------------------------- ---------------------------------
Name: Robert G. Phillips Title: President
----------------------- --------------------------------
Title: Senior Vice President
----------------------- /s/ RAY C. DAVIS
--------------------------------------
Ray C. Davis
Address for notices:
Ray C. Davis
9826 Crestline Drive
Dallas, TX 75220
10
<PAGE> 1
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT, made as of the 20th day of April,
1996, by and between Cornerstone Natural Gas, Inc., a Delaware corporation
("Cornerstone") and Kelcy L. Warren ("Individual").
WHEREAS, El Paso Natural Gas Company, a Delaware corporation
("EPG"), The El Paso Company, a Delaware corporation ("Purchaser"), and
Cornerstone have entered into an Agreement and Plan of Merger, dated as of
April 20, 1996 (the "Merger Agreement");
WHEREAS, Individual will sell his shares in Cornerstone to
Purchaser pursuant to the Merger Agreement and will receive from Purchaser
substantial payments for such shares by reason of such sale;
WHEREAS, in connection with and as an inducement for EPG and
Purchaser to enter into the Merger Agreement and to purchase the shares owned
by Individual, Individual agrees not to compete with Cornerstone for the
periods described herein; and
WHEREAS, it is a prerequisite to the consummation of the
transactions under the Merger Agreement that Individual and Cornerstone enter
into this Noncompetition Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, agreements and understandings contained herein, the parties
hereto agree as follows:
1. Covenants.
(a) Unauthorized Disclosure and Confidentiality. Individual
understands, acknowledges and agrees that the business, profitability and
goodwill of Cornerstone are dependent upon certain trade secrets and other
proprietary information which are unique and valuable property of Cornerstone;
<PAGE> 2
Individual further understands, acknowledges and agrees that such
trade secrets and other proprietary information, which for the purpose of this
Agreement are restricted to mean only the terms of contracts to which
Cornerstone and its subsidiaries are parties, including sources of supply under
such contracts (collectively known as "Trade Secrets"), shall be kept
confidential and agrees not to disclose any of such Trade Secrets to any
person, firm or corporation for any reason or purpose whatsoever, except to
authorized representatives of Cornerstone, except as required by law and except
to the extent that such Trade Secrets are or become publicly known other than
by reason of a breach of this provision by Individual.
(b) Noncompetition. In recognition of the above nature of
Cornerstone's Trade Secrets and the geographic scope of its business and
competition, Individual agrees, for the purpose of protecting the goodwill and
other legitimate business interests of Cornerstone, that he will not, directly
or indirectly, for his own account or for the account of others, as an officer,
director, stockholder, owner, partner, employee, promoter, consultant, manager,
or otherwise, contract, arrange or otherwise participate in any manner in the
business of processing or gathering oil, natural gas or natural gas liquids (x)
for three (3) years following the Effective Time (as defined in the Merger
Agreement) with respect to the areas listed in Part A of Appendix I attached
hereto, (y) for three (3) years following the Effective Time with respect to
any processing or gathering opportunity in any area within a 10 mile radius of
any existing processing or gathering system or facility of Cornerstone or any
of its subsidiaries or any point of any such system or facility as it presently
exists, unless the proposed processing or gathering activities do not compete
with any existing system or facility of Cornerstone or any of its subsidiaries
and Cornerstone and its subsidiaries have no plans to pursue the proposed
processing or gathering opportunity, and (z) for eighteen (18) months following
the Effective Time with respect to any gathering or processing systems or
facilities that will serve production from the Austin Chalk formation in the
areas listed in Part B of
2
<PAGE> 3
Appendix I; provided, however, that nothing herein shall prohibit Individual
and any entities controlled by him from owning not more than 2% of any class of
securities of a publicly traded entity which is engaged in any such business.
(c) Non-Solicitation. Individual agrees, for one (1) year
following the Effective Time, that neither he nor any entity directly or
indirectly controlled by him will interfere with the relationship of
Cornerstone or any of its subsidiaries or other entities owned or controlled by
Cornerstone (the "Subsidiaries") with, or endeavor to employ or entice away
from Cornerstone or any of the Subsidiaries, any individual, which is an
employee of Cornerstone or any of the Subsidiaries; provided that nothing
herein shall restrict Individual or any entity controlled by him from hiring
either (i) John Noland if John Noland is required by Cornerstone to relocate
from Dallas, Texas and declines to so relocate or (ii) Doug Dormer.
(d) Individual agrees that in the event of a breach or
threatened breach by Individual of this Noncompetition Agreement, Cornerstone
shall be entitled to an injunction restraining Individual from such breach or
threatened breach.
(e) Individual further agrees that Cornerstone may at any
time, provide a copy, or disclose the contents, of this Noncompetition
Agreement, to any new or prospective employer(s) or business associates of
Individual prior to the termination of this Noncompetition Agreement upon
determination by Cornerstone that Individual or the new or prospective employer
or business associate is engaging in or planning to engage in any action which
may breach or aid in the breach of any provision of this Noncompetition
Agreement.
(f) Individual understands that Cornerstone will pursue any and
all remedies at law or otherwise to recover from any new or prospective
employer of Individual for any loss, damage or costs which Cornerstone incurs
as a result of the breach or the inducement of the breach of this Agreement,
including, but not limited, to recovery for damages and expense resulting from
loss of business or profit
3
<PAGE> 4
(g) In the event that any provisions of this Noncompetition
Agreement shall be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable laws or court interpretations thereof,
such provisions deemed excessive shall be reformed, without affecting the
validity and enforceability of the provisions of this Agreement which are not
reformed, to the maximum time, geographic and occupational limitations which
shall be permitted.
2. Gathering System.
(a) Each of Individual and each affiliate he controls which has
any rights to purchase interests in the Oletha gathering system, whether
pursuant to Section 6 of the Bill of Sale, Assignment and Deed dated April 1,
1993 (the "Assignment") from Ben H. Cook, H&S Production, Inc., Palo Verde Oil
Company, Sandollar Oil & Gas, Inc., S&P Co. and Gary S. Swindell or otherwise
(the "Purchase Option") is, concurrently with the execution of this Agreement,
executing an irrevocable assignment (to the extent such rights are assignable)
effective as of the Effective Time in favor of EPG of any and all rights which
Individual and his affiliates have or may have under the Purchase Option, in
the form of Appendix II, if such assignment has not previously been effected.
Individual hereby covenants to use his best efforts (but without the
requirement to expend funds) to cause all other persons who may have rights
under the Purchase Option to irrevocably waive such rights or to assign such
rights to EPG, and to take such other actions as may be necessary or
appropriate to cause such Purchase Option to be terminated or otherwise to
prevent such Purchase Option becoming exercisable. In connection with the
foregoing, Individual shall continue to be and actively serve as the President
of Energy Transfer Corporation ("ETC"), without compensation, for as long as
EPG may request and, at the direction of EPG, will perform the following
functions (the "Required Functions"):
Individual will have all powers and duties usually associated with the
office of President (subject to such limitations or extensions set by
the Board of Directors) and will not delegate any such powers or duties;
as President of ETC, Warren will
4
<PAGE> 5
continue to be the senior officer of ETC answering only to the Board of
Directors of ETC and will be responsible for the general and active
management of ETC; among other things, Individual will be responsible
for (i) making sure that new gas is correctly and promptly connected to
the Oletha gathering system, (ii) the marketing of gas from the system
and (iii) causing the system to be maintained.
(b) Individual hereby agrees to indemnify and hold harmless EPG,
Cornerstone and their respective affiliates from and against all losses,
damages, including consequential damages, liabilities, costs and expenses,
including legal fees and expenses, which may be suffered or incurred arising
out of, resulting from or relating to Individual's ceasing to perform the
Required Functions for any reason other than (a) death or (b) physical or
mental disability preventing Individual from performing the Required Functions
including, but not limited to damages, costs or losses suffered or incurred by
reason of the exercise of the Purchase Option contained in paragraph 6 of the
Assignment; provided, however, in no event shall Individual have any liability
for the failure to actively serve as the President of ETC or perform the
Required Functions after the Purchase Option has, by its terms, terminated, or
has been waived or assigned to Cornerstone in its entirety.
3. New Ventures.
(a) If, within three years after the Effective Date, Individual
or any entity directly or indirectly controlled by him, either alone or
together with Ben H. Cook and/or Ray C. Davis or any entities either of them
controls, directly or indirectly, forms or invests in any venture (whether a
corporation, partnership, joint venture, business trust or other entity) in the
business of processing or gathering of oil, natural gas or natural gas liquids,
for which third party equity financing is or has been received or is sought (a
"New Venture") (other than warrants or other equity "kickers" granted as a
yield enhancement as part of bona fide debt financing arrangements provided by
financial institutions whose primary business is providing debt financing
(which shall exclude any individual, corporation, partnership, joint venture,
business trust or other person or entity
5
<PAGE> 6
engaged in the oil and gas industry whose primary business is not providing
debt financing)) , then Cornerstone (or its affiliates) shall have the option
to acquire a one-eighth (1/8) equity or ownership interest in each such New
Venture, free of any promote or override to which the equity interest acquired
or to be acquired by such third party may be subject. Individual shall notify
Cornerstone promptly in writing of any New Venture and provide all information
reasonably available so that Cornerstone or such affiliate can make an
investment decision, and within 30 days following receipt of such written
notice, Cornerstone shall notify Individual in writing of its election whether
to exercise its option with respect to such New Venture. The exercise of the
option with respect to any New Venture shall take place as promptly as
practicable following receipt by Individual of an election by Cornerstone to
exercise the option.
Notwithstanding the foregoing, if gathering or processing
facilities are being built as part of development of an oil or gas field in
which Individual has a working interest and the equity interests in such
facilities are owned solely by the working interest owners, so long as
Individual's investment in the wells or working interest exceeds his investment
in the gathering or processing facilities, such facilities shall not constitute
a New Venture within the meaning of this Agreement.
(b) In the event that any New Venture in respect of which
Cornerstone or an affiliate has exercised the option described in the preceding
paragraph intends to issue (i) any shares of capital stock or other equity
securities or ownership interests or (ii) securities or rights convertible
into, exchangeable for or exercisable for shares of capital stock or equity
securities or interests:
(A) such New Venture shall give Cornerstone (or
such affiliate) written notice of its intent to sell such securities or
interests, specifying the number thereof to be sold and the minimum
price and terms and conditions of such sale and offering to sell such
securities or interests to Cornerstone (or such affiliate);
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(B) if Cornerstone (or such affiliate) shall
not, within 30 days after receipt of the notice given pursuant to clause
(A) above, accept such offer in writing with respect to the securities
or interests specified in such notice, then such New Venture shall be
free to sell the securities or interests specified in such notice (but
only those securities or interests) at a price equal to or above the
minimum price and on other terms and conditions no less favorable to
such New Venture than those specified in such notice, at any time after
the expiration of such 30-day period;
(C) if Cornerstone (or such affiliate) shall
accept such offer within 30 days after the notice given pursuant to
clause (A) above, then Cornerstone (or such affiliate) shall purchase
the securities or interests specified in such notice in accordance with
the terms of the offer.
4. Certain Opportunities. Cornerstone agrees that, subject to
compliance by Individual with the provisions of Section 1 of this Agreement,
including, without limitation, the non-competition restrictions contained in
Section 1(b), Individual may pursue the business opportunities set forth on
Appendix III hereto, and Cornerstone hereby disclaims any interest in pursuing
such opportunities to the extent, if any, that such opportunities may be deemed
corporate opportunities of Cornerstone. EPG and Purchaser acknowledge that the
price paid to stockholders was not reduced by reason of the provisions of this
Section and that EPG and Purchaser would not have increased the price paid to
stockholders if this Section 4 did not exist.
5. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
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If to Cornerstone: If to Individual:
Cornerstone Natural Gas, Inc. to the address set forth
8080 North Central Express on the signature page
Suite 1200 hereof
Dallas, Texas 75206
Attention: Chairman of the Board
and Chief Executive Officer
Facsimile: (214) 739-8251
With a copy to: With a copy to:
Gary P. Cooperstein, Esq. Clarence Mayer, Esq.
Fried, Frank, Harris, Schlanger, Mills, Mayer
Shriver & Jacobson & Grossberg, L.L.P.
One New York Plaza 5847 San Felipe, Suite 1700
New York, NY 10004 Houston, Texas 77057
Facsimile: (212) 747-1526 Facsimile: (713) 785-2091
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
6. Binding Effect/Assignment. This Noncompetition Agreement
shall be binding upon the parties hereto and shall inure to the benefit of
Cornerstone and EPG and their respective successors and assigns. This
Noncompetition Agreement may be assigned by Cornerstone and EPG to their
respective affiliates. Neither this Noncompetition Agreement nor any right,
interest or obligation hereunder shall be assignable or transferable by
Individual, or such party's beneficiaries or legal representatives.
7. Miscellaneous. No provision of this Noncompetition Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Individual and Cornerstone. No
waiver by any party hereto at any time of any breach by any other party hereto
of, or compliance with, any condition or
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provision of this Noncompetition Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth in this
Noncompetition Agreement.
8. Effective Date. The term of this Agreement shall begin as of
the Effective Time, provided that this Agreement shall be null and void if the
Merger Agreement is terminated.
9. Entire Agreement. This Noncompetition Agreement sets forth
the entire understanding of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior agreements, written or oral,
between them as to such subject matter.
10. Headings. The headings contained herein are solely for the
purpose of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
11. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
12. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, without reference
to the principles of conflict of laws thereof.
13. Consent to Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the jurisdiction of the
courts of the State of
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Texas or of the United States of America located in the State of Texas for any
actions, suits or proceedings arising out of or relating to this Noncompetition
Agreement and the transactions contemplated hereby and agrees not to commence
any action, suit or proceeding relating hereto except in such courts, and
further agrees that service of any process, summons, notice or document by
United States registered or certified mail shall be effective service of
process for any action, suit or proceeding brought in any such court. Each of
the parties hereto hereby irrevocably and unconditionally waives any objection
to personal jurisdiction and the laying of venue of any action, suit or
proceeding arising out of this Agreement or the transactions contemplated
hereby, in the courts of the State of Texas or of the United States of America
located in the State of Texas, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
14. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same Agreement.
15. Consulting Agreement. If requested by Cornerstone at any
time prior to the Effective Time, Individual agrees to enter into the
Consulting Agreement, the form of which is attached as Appendix IV hereto. EPG
and Purchaser have required, as a condition to their willingness to enter into
the Merger Agreement, that Individual agrees to provide the consulting services
under the Consulting Agreement if requested. At no time has individual
requested such Consulting Agreement; in fact, Individual declined a more
attractive employment offer from Cornerstone and EPG.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first written above.
APPROVED CORNERSTONE NATURAL GAS, INC.
THE EL PASO COMPANY By: /s/ RAY C. DAVIS
-----------------------------------
By: /s/ ROBERT G. PHILLIPS Name: Ray C. Davis
--------------------------- ---------------------------------
Name: Robert G. Phillips Title: Chief Executive Officer
----------------------- --------------------------------
Title: Senior Vice President
-----------------------
/s/ KELCY L. WARREN
--------------------------------------
Kelcy L. Warren
Address for notice:
Kelcy L. Warren
P.O. Box 706
Palestine, TX 75802
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EXHIBIT 99(c)(5)
FORM OF CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, made as of the ____ day of _____,
1996, by and between Cornerstone Natural Gas, Inc., a Delaware corporation
("Cornerstone") and Kelcy Warren ("Warren").
WHEREAS, El Paso Natural Gas Company, a Delaware corporation, The
El Paso Company, a Delaware corporation, and Cornerstone have entered into an
Agreement and Plan of Merger, dated as of April 20, 1996 (the "Merger
Agreement");
WHEREAS, Warren has served Cornerstone in various capacities
since 1985, including serving as President and Chief Operating Officer since
1993;
WHEREAS, Cornerstone desires to obtain Warren's services as a
consultant to Cornerstone, both for his expertise and to provide for a smooth
transition; and
WHEREAS, Warren agrees to be so retained upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. Term. Cornerstone hereby agrees to retain Warren as a
consultant to Cornerstone and Warren agrees to be so retained by Cornerstone on
the terms and conditions set forth below for a period of one year from the date
hereof (the "Term").
2. Services. During the Term, Warren shall perform the
services described herein as may reasonably be requested from time to time by
the Board of Directors or Chief Executive Officer of Cornerstone in
consultation with Warren. Such consulting services shall consist of the
rendering of advice with respect to Cornerstone's operations in natural gas
gathering, processing and marketing. Warren agrees to make himself available
at reasonable times and places not more frequently than an average of four (4)
days per month in any calendar quarter (such availability to be limited for
example due to illness or vacation) or as may otherwise be mutually agreed
between the parties. It is understood that Warren is not expected to be on
regular or full time call and
<PAGE> 2
that Warren's services as a consultant may be rendered by personal consultation
at his residence or office or by correspondence through mail, telephone or
telecopy or other modes of communications at times, including evenings and
weekends, most convenient to him, and that Warren shall not be required to
relocate in connection with his services hereunder; provided that he may be
required to travel in connection with his services hereunder, but not more than
two (2) days in any calendar month.
3. Compensation. In full consideration for the services to
be rendered by Warren to Cornerstone hereunder, Cornerstone shall pay to Warren
a fee of $17,791.67 on the first day of each calendar month during the Term.
Cornerstone shall reimburse Warren, promptly after receipt of invoices
therefor, for all reasonable out-of-pocket expenses incurred by Warren in
connection with his service hereunder.
4. Governing Law. This Consulting Agreement shall be
governed by, and construed in accordance with, the laws of the State of Texas,
without reference to the principles of conflict of laws thereof.
5. Consent to Jurisdiction. Each of the parties hereto
hereby irrevocably and unconditionally consents to submit to the jurisdiction
of the courts of the State of Texas or of the United States of America located
in the State of Texas for any actions, suits or proceedings arising out of or
relating to this Consulting Agreement and the transactions contemplated hereby
and agrees not to commence any action, suit or proceeding relating hereto
except in such courts, and further agrees that service of any process, summons,
notice or document by United States registered or certified mail shall be
effective service of process for any action, suit or proceeding brought in any
such court. Each of the parties hereto hereby irrevocably and unconditionally
waives any objection to personal jurisdiction and the laying of venue of any
action, suit or proceeding arising out of this Consulting Agreement or the
transactions contemplated hereby, in the courts of the State of Texas or of the
United States of America located in the State of Texas, and hereby further
irrevocably and unconditionally waives and agrees not to plead
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or claim in any such court that any such action, suit or proceeding brought in
any such court has been brought in an inconvenient forum.
6. Counterparts. This Consulting Agreement may be executed
in separate counterparts, each of which shall be an original and all of which
taken together shall constitute one and the same Consulting Agreement.
IN WITNESS WHEREOF, the parties have caused this Consulting
Agreement to be duly executed as of the date first written above.
CORNERSTONE NATURAL GAS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
--------------------------------------
Kelcy Warren
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