<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1998
REGISTRATION NO. 333-49863
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EL PASO NATURAL GAS COMPANY*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4922 74-0608280
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(713) 420-2131
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
<TABLE>
<S> <C>
BRITTON WHITE, JR. CHARLES M. DARLING, IV
EXECUTIVE VICE PRESIDENT PRESIDENT AND GENERAL COUNSEL
AND GENERAL COUNSEL DEEPTECH INTERNATIONAL INC.
EL PASO NATURAL GAS COMPANY 600 TRAVIS STREET
1001 LOUISIANA STREET SUITE 7400
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 420-2131 (713) 224-7400
</TABLE>
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
GARY P. COOPERSTEIN, ESQ. RICK L. BURDICK, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
ONE NEW YORK PLAZA 711 LOUISIANA STREET
NEW YORK, NEW YORK 10004 SUITE 1900
(212) 859-8000 HOUSTON, TEXAS 77002
(713) 220-5800
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective and the
satisfaction or waiver of all other conditions to the merger (the "Merger") of
DeepTech International Inc. ("DeepTech") with (i) El Paso Natural Gas Company
("El Paso") or a subsidiary thereof pursuant to the Agreement and Plan of Merger
(the "Original Merger Agreement"), dated as of February 27, 1998, or (ii) if
stockholders of DeepTech approve the amended merger contemplated by the Original
Merger Agreement, as amended by Amendment No. 1 dated as of June 16, 1998 (as so
amended, the "Amended Merger Agreement"), a new El Paso holding company or a
subsidiary of the new El Paso holding company pursuant to the Amended Merger
Agreement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
* As more fully described in this Registration Statement, subject to the
approval of the Amended Merger Agreement by DeepTech stockholders, El Paso
intends to adopt a holding company structure prior to the Merger whereby El Paso
and its subsidiaries would become direct and indirect subsidiaries of El Paso
Energy Corporation ("El Paso Energy"), a newly formed Delaware holding company.
If the DeepTech stockholders approve the Amended Merger Agreement, the holding
company reorganization is expected to occur prior to the effective time of the
Merger, in which case El Paso Energy will file an amendment to this Registration
Statement pursuant to Rule 414 under the Securities Act adopting this
Registration Statement as its own registration statement and setting forth any
material changes made in connection with or resulting from the succession.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY COPY -- SUBJECT TO COMPLETION -- DATED JUNE , 1998
DEEPTECH INTERNATIONAL INC.
7500 CHASE TOWER
600 TRAVIS STREET
HOUSTON, TEXAS 77002
Dear Stockholder:
On February 27, 1998, DeepTech International Inc. entered into an Agreement
and Plan of Merger (the "Original Merger Agreement") with El Paso Natural Gas
Company and El Paso Acquisition Company, a wholly owned subsidiary of El Paso,
pursuant to which DeepTech would merge with El Paso, or under certain
circumstances, with El Paso Acquisition Company. The holders of a majority of
DeepTech's common stock have already approved the merger and accordingly no
further action by the stockholders of DeepTech is necessary for this merger to
occur. Subsequent to the date this merger was approved, El Paso determined to
reorganize its corporate structure to establish a new El Paso holding company.
The Board of Directors of DeepTech has approved an amendment dated as of June
16, 1998 to the Original Merger Agreement (as amended, the "Amended Merger
Agreement"), subject to approval by DeepTech stockholders. If the Amended Merger
Agreement is approved by DeepTech stockholders, El Paso intends to effect its
holding company reorganization prior to the merger with DeepTech, in which case
DeepTech would merge either with the new holding company, El Paso Energy
Corporation, or, under certain circumstances, with El Paso Acquisition Company.
If the Amended Merger Agreement is not approved by DeepTech stockholders, El
Paso will not effect the holding company reorganization prior to the merger, and
the merger will be consummated in accordance with the terms of the Original
Merger Agreement.
DeepTech intends to solicit written consents from stockholders to approve the
Amended Merger Agreement and, if written consents are not promptly obtained, to
solicit proxies in connection with a meeting of stockholders of DeepTech to be
held on , 1998 at for the purpose of approving the Amended
Merger Agreement. This meeting will only be held if DeepTech has not previously
received written consents from the holders of a majority of the outstanding
shares of DeepTech common stock approving the Amended Merger Agreement.
The Amended Merger Agreement provides for the substitution of the new holding
company, El Paso Energy Corporation, in place of El Paso Natural Gas Company as
a party to the merger agreement and the substitution of the common stock of El
Paso Energy Corporation as consideration in the merger, in lieu of the common
stock of El Paso Natural Gas Company. The terms of the El Paso Energy
Corporation common stock and the rights of former DeepTech stockholders as
stockholders of El Paso Energy Corporation would be substantially identical to
the terms of the El Paso Natural Gas Company common stock and the rights of
former DeepTech stockholders as stockholders of El Paso Natural Gas Company. The
remaining terms of the merger will be substantially identical, whether the
merger is consummated in accordance with the Original Merger Agreement or in
accordance with the Amended Merger Agreement.
In connection with the merger, you have the right to specify (i) the number
of shares of DeepTech common stock you own that you would like to convert into
the right to receive cash consideration and (ii) the number of such shares which
you would like to convert into the right to receive stock consideration. As
described in more detail in the enclosed Proxy Statement/Prospectus, depending
upon the number of shares of DeepTech common stock which elect stock or cash,
the merger may be either a tax-free or a taxable transaction. In either case,
you may specify, by completion of the appropriate box on the enclosed Form of
Election, that (x) if the average of the closing prices of a share of El Paso
common stock on the New York Stock Exchange during the ten consecutive trading
days ending on and including the trading day immediately prior to the effective
time of the merger is less than $25.00, your share or shares of DeepTech common
stock will be converted into the right to receive cash consideration,
notwithstanding your election to receive stock, and (y) if the average price
during such specified ten-day period is greater than $37.50, your share or
shares of DeepTech common stock will be converted into the right to receive the
stock consideration, notwithstanding your election to receive cash.
If you make no election, your shares of DeepTech common stock will be treated
as if they were covered by a stock election for purposes of the merger
agreement. If the merger is a taxable transaction, regardless of any election
you have made, you will receive cash for your shares of DeepTech common stock
unless you specify by marking the appropriate box on the Form of Election that
you wish to receive El Paso common stock in a taxable transaction. You should
not mark this box on the Form of Election unless you wish to receive stock in a
taxable transaction.
The material terms of the merger and the transactions contemplated by the
merger agreement and other agreements related to DeepTech and certain of its
subsidiaries are as follows:
(i) DeepTech will sell to its subsidiary, Tatham Offshore, Inc., $8 million
of debt owed to it by its wholly owned subsidiary, DeepFlex Production Services,
Inc., and its subsidiaries in exchange for (x) the stock of Tatham Offshore
Development, Inc. (a subsidiary of Tatham Offshore which owns an interest in an
undeveloped oil and gas property in the Gulf of Mexico) and (y) the cancellation
of reversionary interests in certain oil and gas properties owned by Leviathan
Gas Pipeline Partners, L.P.;
(ii) DeepFlex will deliver to DeepTech the shares of Tatham Offshore common
and preferred stock which DeepFlex owns in exchange for $12 million of debt owed
by DeepFlex to DeepTech;
(iii) DeepTech will contribute to DeepFlex the remaining balance of
approximately $61.4 million of debt owed by DeepFlex to DeepTech;
(iv) DeepTech will contribute the stock of DeepFlex to Tatham Offshore.
DeepFlex, through its subsidiaries, owns all of the assets of DeepTech's
offshore contract drilling services business;
(v) DeepTech will effect a rights offering to DeepTech stockholders of the
Tatham Offshore common and preferred stock owned by DeepTech. DeepTech will
retain $75 million of the net rights offering proceeds and will contribute the
balance (other than amounts necessary to satisfy certain tax payment obligations
of Tatham Offshore) to Tatham Offshore;
(vi) El Paso will acquire the minority interests in Leviathan Holdings
Company, Offshore Gas Marketing, Inc. and Offshore Gas Processors, Inc. held by
certain members of DeepTech management and third parties for an aggregate of $55
million in cash;
(vii) DeepTech will merge with and into El Paso (or, if the Amended Merger
Agreement has been approved and the El Paso holding company reorganization has
occurred, El Paso Energy) or, under certain circumstances, with El Paso
Acquisition Company; and
(viii) Tatham Offshore will transfer certain oil and gas properties owned by
it to a subsidiary of Leviathan in exchange for 7,500 shares of Tatham
Offshore's 9% Senior Convertible Preferred Stock owned by Leviathan and the
satisfaction of all accrued and unpaid dividends on the Senior Convertible
Preferred Stock owed to Leviathan.
The consummation of the merger is subject to customary conditions precedent
and requires consent from the holders of DeepTech's 12% Senior Secured Notes due
2000 and Senior Subordinated Notes due 2000.
If the merger is a taxable transaction and you (i) have not executed a
written consent or voted in favor of the merger and (ii) are required under the
merger agreement to accept cash for your shares of DeepTech common stock (other
than cash exchanged for fractional shares), you will be entitled to appraisal
rights. To exercise such right, you must send to DeepTech within 20 days of your
receipt of this Proxy Statement/Prospectus (or, if the Amended Merger Agreement
is approved by DeepTech stockholders no later than the earlier of (a) 20 days
after receipt of notice of such approval or (b) the date of the DeepTech
stockholders' meeting) a notice stating that you demand the appraisal of your
shares. Within 120 days after the effective date of the merger, you may file a
petition in the Delaware Court of Chancery demanding a determination of the
value of the stock. Notwithstanding the foregoing, any time within 60 days after
the effective date of the merger, you will have the right to withdraw your
demand for appraisal and to accept the terms offered pursuant to the merger.
This Proxy Statement/Prospectus is being provided to DeepTech stockholders
for the purposes of, among others, (i) soliciting the approval by DeepTech
stockholders of the Amended Merger Agreement and the merger contemplated thereby
and (ii) providing each DeepTech stockholder an opportunity to elect the type of
consideration he or she wishes to receive in the merger. The attached Proxy
Statement/Prospectus contains a more detailed description of the merger and the
transactions contemplated by the merger agreement. We encourage you to read the
Proxy Statement/Prospectus thoroughly.
Very truly yours,
/s/ Thomas P. Tatham
THOMAS P. TATHAM
CHAIRMAN OF THE BOARD
Houston, Texas
, 1998
This Proxy Statement/Prospectus and the accompanying Form of Election are
first being mailed to stockholders of DeepTech on or about , 1998.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1998.
<PAGE> 3
DEEPTECH INTERNATIONAL INC.
600 TRAVIS STREET
SUITE 7400
HOUSTON, TEXAS 77002
(713) 224-7400
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
stockholders of DeepTech International Inc. ("DeepTech") will be held at
on , 1998, at 9:00 a.m., local time, for the
following purposes:
1. To approve the Agreement and Plan of Merger, dated as of February 27,
1998, as amended by Amendment No. 1 ("Amendment No. 1") dated as of June ,
1998 (as amended, the "Amended Merger Agreement"), among DeepTech, El Paso
Natural Gas Company ("El Paso"), El Paso Acquisition Company, a wholly owned
subsidiary of El Paso ("Merger Sub") and El Paso Energy Corporation, a wholly
owned subsidiary of El Paso ("El Paso Energy"), and the merger (the "Merger") of
DeepTech with El Paso Energy or a subsidiary of El Paso Energy, and the
transactions contemplated by the Amended Merger Agreement; and
2. To transact any other business which may be properly brought before the
Special Meeting or any adjournment or postponement thereof.
The holders of a majority of DeepTech's common stock have already approved
the merger of DeepTech with El Paso Natural Gas Company or a subsidiary thereof
pursuant to the original Agreement and Plan of Merger dated as of February 27,
1998 (the "Original Merger Agreement") and accordingly no further action by the
stockholders of DeepTech is necessary for this merger to occur. The Board of
Directors of DeepTech has approved Amendment No. 1 to the Original Merger
Agreement, subject to approval of the Amended Merger Agreement by DeepTech
stockholders. If the Amended Merger Agreement is approved by DeepTech
stockholders, El Paso intends to effect its holding company reorganization prior
to the merger with DeepTech, in which event DeepTech would merge either with the
new holding company, El Paso Energy, or, under certain circumstances, with El
Paso Acquisition Company. If the Amended Merger Agreement is not approved by
DeepTech stockholders, El Paso will not effect the holding company
reorganization prior to the merger, and the merger will be consummated in
accordance with the terms of the Original Merger Agreement.
DeepTech intends to solicit written consents from stockholders to approve
the Amended Merger Agreement and, if written consents are not promptly obtained,
to solicit proxies in connection with the Special Meeting. The Special Meeting
will only be held if DeepTech has not previously received written consents from
the holders of a majority of the outstanding shares of DeepTech common stock
approving the Amended Merger Agreement.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU APPROVE THE AMENDED
MERGER AGREMENT AND THE MERGER CONTEMPLATED THEREBY WHICH IS DESCRIBED IN DETAIL
IN THE ACCOMPANYING PROXY STATEMENT/ PROSPECTUS.
The affirmative vote or consent of the holders of at least a majority of
the outstanding stock of DeepTech entitled to vote is required to approve the
Amended Merger Agreement and the merger contemplated thereby.
Only stockholders of record at the close of business on , 1998
are entitled to give written consents in connection with the approval of the
Amended Merger Agreement and the merger contemplated thereby and to notice of,
and to vote at, the Special Meeting (if held) and at any and all adjournments or
postponements thereof. Reference is made to the attached Proxy
Statement/Prospectus for a more complete description of the Amended Merger
Agreement and the transactions contemplated in connection therewith.
By Order of the Board of Directors
/s/ DONALD V. WEIR
--------------------------------------
Donald V. Weir
Assistant Secretary
Houston, Texas
June ,1998
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information....................................... 1
Incorporation of Documents by Reference..................... 2
Questions and Answers About the Merger and Related
Transactions.............................................. 4
Diagram of Election Choices................................. 10
Summary..................................................... 12
The Merger and Related Transactions......................... 32
The Written Consents and the Special Meeting................ 49
The Merger Agreement........................................ 51
The Contribution Agreement.................................. 64
The Standby Agreement and the Purchase Commitment
Agreement................................................. 66
The Tax Sharing Agreement................................... 67
The Redemption Agreement.................................... 67
Stockholder Agreements...................................... 68
Purchase of Minority Interests.............................. 68
Interests of Certain Persons in the Merger.................. 68
Certain Material U.S. Federal Income Tax Consequences of the
Merger.................................................... 69
Comparison of the Rights of Holders of El Paso Common Stock
and DeepTech Common Stock................................. 72
The Exchange Ratio.......................................... 80
Market Price and Dividend Information....................... 81
Selected Historical Consolidated Financial Data of El
Paso...................................................... 82
Selected Historical Consolidated Financial Data of
DeepTech.................................................. 83
Unaudited Pro Forma Condensed Consolidated Financial
Statements of DeepTech International Inc. and
Subsidiaries.............................................. 84
Experts..................................................... 90
Legal Matters............................................... 90
Stockholder Proposals....................................... 90
</TABLE>
Appendices:
A-1 -- Merger Agreement
A-2 -- Amendment No. 1 to the Merger Agreement
B -- Contribution Agreement
C -- Fairness Opinion of Chase Securities, Inc.
Annex:
I --Section 262 of the Delaware General Corporation Law
i
<PAGE> 5
AVAILABLE INFORMATION
Each of El Paso, DeepTech and Leviathan Gas Pipeline Partners, L.P.
("Leviathan"), of which Leviathan Gas Pipeline Company is the general partner
and the holder of a 27.3% ownership interest (DeepTech, which holds an 85%
interest in Leviathan Gas Pipeline Company, is the holder of an effective 23.2%
ownership interest in Leviathan), is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following Regional Offices of
the Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549, at
prescribed rates. The Commission also maintains a World Wide Web site that
contains reports, proxy and information statements, and other information
regarding registrants (including El Paso, DeepTech and Leviathan) that file
electronically with the Commission (at http://www.sec.gov). The common stock of
El Paso and the common units and preference units of Leviathan are listed on the
New York Stock Exchange and the common stock of DeepTech is listed on the Nasdaq
National Market, and reports, proxy statements and other information (i)
relating to El Paso and Leviathan can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005 and (ii) relating
to DeepTech can be inspected at the offices of NASD Operations, 1735 K Street,
N.W., Washington, D.C.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement on Form S-4 (the "Registration Statement")
filed with the Commission by El Paso, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Reference is made
to the Registration Statement and the exhibits thereto for further information.
Exhibits to the Registration Statement that are omitted from this Proxy
Statement/Prospectus may also be obtained at the Commission's World Wide Web
site described above. Statements contained or incorporated by reference herein
concerning the provisions of any agreement or other document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission are not
necessarily complete, and readers are referred to the copy so filed for more
detailed information, each such statement being qualified in its entirety by
such reference.
El Paso has supplied all information contained or incorporated by reference
in this Proxy Statement/Prospectus relating to El Paso and DeepTech has supplied
all such information relating to DeepTech and Leviathan.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS (OTHER
THAN EXHIBITS THERETO WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER OF SHARES OF DEEPTECH COMMON STOCK TO WHOM THIS PROXY STATEMENT/PROSPECTUS
IS SENT, UPON WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO EL
PASO, TO NORMA F. DUNN, VICE PRESIDENT, INVESTOR AND PUBLIC RELATIONS, EL PASO
NATURAL GAS COMPANY, 1001 LOUISIANA STREET, HOUSTON, TEXAS 77002, TELEPHONE
(713) 420-2131 AND, IN THE CASE OF DOCUMENTS RELATING TO DEEPTECH OR LEVIATHAN,
TO DEEPTECH INTERNATIONAL INC., 7500 CHASE TOWER, 600 TRAVIS STREET, HOUSTON,
TEXAS 77002, ATTN: DENNIS KUNETKA, SENIOR VICE PRESIDENT -- INVESTOR AND PUBLIC
RELATIONS, TELEPHONE (713) 224-7400. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE NOT LATER THAN , 1998.
If the Amended Merger Agreement described herein is approved by written
consent of DeepTech stockholders, DeepTech will supplementally notify DeepTech
stockholders of such approval, and this Proxy Statement/Prospectus as so
supplemented will constitute the Information Statement/Prospectus with respect
to the Amended Merger Agreement and the transactions contemplated thereby.
1
<PAGE> 6
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE A PROSPECTUS WITH
RESPECT TO THE RIGHTS OFFERING (AS DEFINED HEREIN) OR THE SHARES OF CAPITAL
STOCK OF TATHAM OFFSHORE, INC. ("TATHAM OFFSHORE") WHICH MAY BE ACQUIRED UPON
EXERCISE OF THE RIGHTS (AS DEFINED HEREIN). THE RIGHTS OFFERING IS BEING MADE
PURSUANT TO A SEPARATE REGISTRATION STATEMENT OF TATHAM OFFSHORE AND NEITHER EL
PASO NOR DEEPTECH MAKES ANY RECOMMENDATION TO HOLDERS OF RIGHTS AS TO WHETHER
THEY SHOULD EXERCISE OR SELL ANY RIGHTS OR ASSUMES ANY RESPONSIBILITY FOR THE
ACCURACY OR COMPLETENESS OF INFORMATION RELATING TO TATHAM OFFSHORE, THE RIGHTS
OFFERING OR THE RIGHTS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE OFFERING OF SECURITIES MADE BY THIS PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EL PASO OR DEEPTECH.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN SINCE THE DATE
OF THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission pursuant to
the Exchange Act are incorporated herein by reference and shall be deemed a part
hereof:
EL PASO COMMISSION FILINGS (FILE NO. 1-2700)
1. the El Paso Proxy Statement on Schedule 14A dated February 6, 1998;
2. the El Paso Proxy Statement on Schedule 14A dated April 6, 1998;
3. the El Paso Annual Report on Form 10-K for the year ended December 31,
1997;
4. the El Paso Quarterly Report on Form 10-Q for the quarter ended March
31, 1998;
5. the El Paso Current Reports on Form 8-K dated December 26, 1996 and
March 17, 1998 and Form 8-K/A dated January 21, 1997 and January 22,
1997; and
6. the El Paso Registration Statement on Form 8-A, as amended to date,
filed with respect to the El Paso Common Stock.
DEEPTECH COMMISSION FILINGS (FILE NO. 1-959)
1. the DeepTech Proxy Statement on Schedule 14A dated November 24, 1997;
2. the DeepTech Annual Report on Form 10-K/A for the year ended June 30,
1997;
3. the DeepTech Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1997, December 31, 1997 and March 31, 1998;
4. the DeepTech Current Reports on Form 8-K dated July 23 and December 31,
1997; and
5. the DeepTech Registration Statement on Form 8-A, as amended to date,
filed with respect to the DeepTech Common Stock.
LEVIATHAN COMMISSION FILINGS (FILE NO. 1-11680)
1. the Leviathan Annual Report on Form 10-K for the year ended December 31,
1997;
2. the Leviathan Quarterly Report on Form 10-Q for the quarter ended March
31, 1998; and
2
<PAGE> 7
3. the Leviathan Registration Statement on Form 8-A, as amended to date,
filed with respect to the Leviathan preference units and common units.
All reports and other documents filed by El Paso, DeepTech or Leviathan
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Proxy Statement/Prospectus and prior to the date of the
effective time of the merger described herein shall be deemed to be incorporated
by reference herein and to be a part hereof from the dates of filing of such
reports and documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein, or in any other subsequently filed document that
also is incorporated or deemed to be incorporated by reference herein, modifies
or supersedes the earlier statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Proxy Statement/Prospectus.
3
<PAGE> 8
QUESTIONS AND ANSWERS ABOUT THE MERGER
AND RELATED TRANSACTIONS
Q: WHAT IS THE PROPOSED MERGER?
A: The proposed merger is a merger of DeepTech with El Paso or, if the merger
is restructured under certain circumstances, a subsidiary of El Paso. If the
amended merger agreement described herein is approved by DeepTech
stockholders, El Paso intends to reorganize its corporate structure prior to
the merger into a holding company structure as described below, in which
case the proposed merger would become a merger of DeepTech with a new El
Paso holding company or, if the merger is restructured under certain
circumstances, a subsidiary of the new El Paso holding company. Prior to the
merger, DeepTech will dispose of its existing assets other than its general
and limited partnership interests in Leviathan, through the contribution of
its offshore drilling services business to its subsidiary, Tatham Offshore,
Inc., and a rights offering to DeepTech stockholders of the shares of Tatham
Offshore owned by DeepTech. As a result, at the time of the merger, DeepTech
will have no material assets other than its Leviathan interests and cash.
This Proxy Statement/Prospectus is being provided to DeepTech stockholders
for the purpose of, among other things, (i) soliciting the approval by
DeepTech stockholders of the amended merger agreement and the merger
contemplated thereby and (ii) providing each DeepTech stockholder an
opportunity to elect the type of consideration he or she wishes to receive
in the merger.
Q: WHY IS DEEPTECH MERGING WITH EL PASO?
A: DeepTech is merging with El Paso because DeepTech's Board of Directors,
after consultation with financial and legal advisors, believes that the
current activity in oil and gas mergers and acquisitions has resulted in
favorable prices for companies such as DeepTech. In addition, the DeepTech
Board believes that DeepTech's prospects for continued performance as an
independent company were not as good as they would be when combined with El
Paso. Furthermore, the tax structure of the transaction and the fact that
DeepTech stockholders have the right to take El Paso stock or cash in the
transaction all make the transaction more favorable to the DeepTech
stockholders. This was deemed to be particularly true given the values
DeepTech had been offered in connection with other proposals for
transactions such as the merger.
Q: WHAT WILL A DEEPTECH STOCKHOLDER RECEIVE IN THE MERGER?
A: For each of your shares of DeepTech common stock, you will receive, at your
election, (i) a fraction of a share of common stock of El Paso, equal to or
greater than 0.3733 shares of El Paso common stock but in no event greater
than 0.56 of a share of El Paso common stock (subject to adjustments as
described below) depending upon the average of the closing sales prices of a
share of El Paso common stock on the New York Stock Exchange during the ten
consecutive trading days ending on and including the trading day immediately
prior to the effective time of the merger, or (ii) $14.00 in cash, without
interest. If the average price of El Paso common stock is at least $25.00
and not more than $37.50, then for each of your shares of DeepTech common
stock you will receive a fraction of a share of El Paso common stock
determined by dividing $14.00 by the average El Paso stock price during the
specified ten-day period. If the average price of the El Paso common stock
is less than $25.00, you will receive 0.56 of a share of El Paso common
stock for each of your shares of DeepTech common stock. If the average price
of El Paso common stock is more than $37.50, you will receive 0.3733 of a
share of El Paso common stock for each of your shares of DeepTech common
stock.
The number of shares of El Paso common stock or cash to be received by each
DeepTech stockholder will also be adjusted appropriately to reflect any
change in the number of shares of DeepTech common stock outstanding on a
fully diluted basis, including shares of DeepTech common stock issuable upon
the exercise of options or warrants, between the date of the merger
agreement and the effective time of the merger.
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Each share of El Paso common stock issued to holders of DeepTech common stock in
the merger will be issued together with one-half of an associated preferred
stock purchase right under the Amended and Restated Shareholder Rights
Agreement, dated as of July 23, 1997, as amended from time to time, between
El Paso and The First National Bank of Boston, as rights agent. El Paso
will not issue fractional shares of El Paso common stock in the merger.
Instead, El Paso will pay a cash adjustment to holders who would otherwise
receive fractional shares of El Paso common stock equal to the product of
such fraction of a share and the average El Paso common stock price.
Q: WHAT IS THE "EXCHANGE RATIO"?
A: The Exchange Ratio is the fraction of a share of El Paso common stock which
a DeepTech stockholder will receive for each share of DeepTech common stock
which is converted into El Paso common stock in the merger. As described
above, when the average El Paso stock price is equal to or greater than
$25.00 but less than or equal to $37.50, the Exchange Ratio will be
determined by dividing $14.00 by the average closing price of El Paso common
stock during the specified ten-day period (subject to adjustments as
described above). When the average El Paso stock price is less than $25.00,
the Exchange Ratio will be 0.56 and when the average El Paso stock price is
more than $37.50, the Exchange Ratio will be 0.3733.
Holders of DeepTech common stock may call 1-800- - at any time between
the date of this Proxy Statement/Prospectus and the election record date (as
described below) to hear a pre-recorded message indicating the average price
and the Exchange Ratio if each were calculated on the date of the call.
Q: WHAT IS THE EL PASO HOLDING COMPANY REORGANIZATION? HOW WOULD IT AFFECT ME?
A: The El Paso holding company reorganization is the formation of a new
Delaware holding company whose charter, By-laws and capitalization will be
substantially identical to El Paso's. The holding company reorganization
will allow El Paso to restructure its current businesses into separate
regulated and unregulated groups of subsidiaries.
If DeepTech stockholders approve the amended merger agreement, the holding
company reorganization is expected to be consummated prior to the merger, in
which case any shares issued in the merger will be shares of common stock of
the new El Paso holding company. The terms of these shares and your rights
as a shareholder of the new El Paso holding company would be substantially
identical to the terms of the El Paso common stock and your rights as a
shareholder of the existing El Paso. The holding company reorganization will
not affect the tax consequences of the merger.
Q: WHAT APPROVAL BY DEEPTECH STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE
MERGER?
A: The holders of a majority of the outstanding shares of DeepTech common stock
have already approved the original merger agreement and the merger
contemplated thereby by action by written consent. This merger does not
require any further vote under Delaware law.
The amended merger agreement and the merger contemplated thereby require the
approval of the holders of a majority of the outstanding shares of DeepTech
common stock. DeepTech intends to solicit written consents to approve the
amended merger agreement and, if DeepTech does not obtain these consents
promptly, to solicit proxies in connection with a special meeting of
stockholders which would be held on , 1998 if DeepTech has not
received the requisite written consents.
Q: WHAT WILL HAPPEN IF DEEPTECH STOCKHOLDERS DO NOT APPROVE THE AMENDED MERGER
AGREEMENT?
A: El Paso will not effect its holding company reorganization prior to the
merger, and DeepTech will merge with the existing El Paso parent entity or a
subsidiary of El Paso, in accordance with the terms of the original merger
agreement.
Q: CAN I REVOKE MY WRITTEN CONSENT OR PROXY?
A: The written consents with respect to the original merger agreement and the
merger contemplated thereby have become effective and accordingly these
consents are irrevocable. You may revoke your written consent with respect
to the amended merger agreement at any time prior to the delivery to
DeepTech of
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written consents executed by the holders of record of a majority of the
outstanding shares of DeepTech common stock, by delivering a signed notice
of revocation to DeepTech. There are three ways in which you may revoke your
proxy relating to the special meeting, if it is held. First, you may submit
a written notification stating that you would like to revoke your proxy.
Second, you may complete and submit a new proxy card. DeepTech stockholders
choosing either of these methods should send their notice of revocation or
new proxy card to the person indicated on page 1. As a third method, you may
attend the DeepTech special meeting and vote in person. If you wish to vote
in person at the DeepTech special meeting after you have submitted a proxy
card (and have not revoked such proxy), you still must provide a written
notification stating that you would like to revoke your proxy. If you hold
your shares in "street name" through a nominee or broker, you must follow
directions received from your broker to cast or change your vote.
Q: WHAT DO I NEED TO DO NOW?
A: Please mail your signed written consent and proxy card in the enclosed
postage prepaid return envelope as soon as possible. Since a majority of the
voting shares of DeepTech must approve the merger, it is important that
DeepTech stockholders return their signed written consents and proxy cards.
YOUR VOTE IS VERY IMPORTANT. You must also complete, sign and mail the form
of election in the enclosed return envelope to indicate whether you prefer
to receive shares of El Paso common stock or cash for all or any part of
your shares of DeepTech common stock.
In order to be effective, the form of election must be submitted to the
exchange agent listed on the return envelope no later than the Election
Record Date, which is 5:00 p.m., New York City time, on , 1998
and must be accompanied by the stock certificates representing the shares of
DeepTech common stock for which the election is being made or an appropriate
guarantee of delivery as set forth in the form of election from a member of
any registered national securities exchange or of the National Association
of Securities Dealers, Inc. or a commercial bank or trust company having an
office or correspondent in the United States.
Q: WHAT SHOULD I DO IF I WANT TO RECEIVE CASH IN THE MERGER?
A: If you want to receive cash for any of your shares, you must complete Box A
in the form of election indicating the number of your DeepTech shares for
which you wish to receive cash.
Even if you elect to receive cash in the merger, by checking Box C(2) on the
form of election, you may automatically convert your cash election to a
stock election if the average closing price of El Paso common stock for the
specified ten-day period is greater than $37.50 (so that, based upon the
Exchange Ratio, the fraction of share of El Paso common stock which would be
issued for each DeepTech share would have a value of more than $14.00).
Q: WHAT SHOULD I DO IF I WANT TO RECEIVE EL PASO COMMON STOCK IN THE MERGER?
A: If you want to receive El Paso common stock for any of your shares, you
should complete Box B in the form of election indicating the number of your
DeepTech shares for which you wish to receive El Paso common stock.
Even if you elect to receive El Paso common stock in the merger, by checking
Box C(1) on the form of election, you may automatically convert your stock
election to a cash election if the average closing price of El Paso common
stock during the specified ten-day period is less than $25.00 (so that,
based upon the Exchange Ratio, the fraction of a share of El Paso common
stock which would be issued for each DeepTech share would have a value of
less than $14.00).
In addition, if the merger is a taxable transaction, regardless of any
election you may have made, you will receive cash for your DeepTech shares
unless you specify by marking Box D on the form of election that you wish to
receive El Paso common stock in a taxable transaction. You should not mark
this box on the form of election unless you wish to receive stock in a
taxable transaction.
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Q: WHAT WILL HAPPEN IF I FAIL TO SUBMIT A VALID FORM OF ELECTION?
A: If you do not submit a valid form of election, or withdraw your election,
you will receive El Paso common stock for your DeepTech shares, unless the
merger is a taxable transaction, in which case you will receive cash for
your shares.
Q: CAN I CHANGE OR REVOKE MY ELECTION AFTER I HAVE MAILED MY SIGNED FORM OF
ELECTION?
A: Yes. You can change your election at any time on or prior to the Election
Record Date by delivering a written notice to the exchange agent on or prior
to the Election Record Date accompanied by a properly completed form of
election.
You can revoke your election by delivering a written notice to the exchange
agent on or prior to the Election Record Date or by withdrawing your stock
certificates previously deposited with the exchange agent prior to the
Election Record Date. You can withdraw any revocation of an election by
notice of such withdrawal delivered to the exchange agent on or prior to the
Election Record Date.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES WHEN I RETURN MY FORM OF ELECTION?
A: Yes. A form of election will not be effective unless accompanied by the
stock certificates representing the shares of DeepTech common stock for
which the election is being made or an appropriate guarantee of delivery
from a member of any registered national securities exchange or of the
National Association of Securities Dealers Inc. or a commercial bank or
trust company having an office or correspondent in the United States. The
exchange agent will hold the certificates on your behalf. If for any reason
the merger is not consummated, the exchange agent will return your stock
certificates to you.
Q: UNDER WHAT CIRCUMSTANCES WILL THE MERGER BE RESTRUCTURED? HOW WOULD IT
AFFECT ME?
A: Under the merger agreement, there is no limit on the number of shares of
DeepTech common stock which may be converted into the cash consideration or
the stock consideration. If more than 50% of the total merger consideration
consists of cash, El Paso and DeepTech will restructure the form of the
merger as a merger of a subsidiary of El Paso with and into DeepTech. This
restructuring is to ensure that, regardless of whether stockholders of
DeepTech elect to receive stock or cash in the merger, DeepTech will not
incur any corporate level income tax by reason of the merger. If the merger
is restructured, the merger will be a taxable transaction for all DeepTech
stockholders, whether you elect to receive cash or El Paso common stock.
If the merger is a taxable transaction, regardless of any election you may
have made, you will receive cash for your shares of DeepTech common stock
unless you specify by marking Box D on the form of election that you wish to
receive El Paso common stock in a taxable transaction. You should not mark
Box D on the form of election unless you wish to receive stock in a taxable
transaction.
Except for the effects upon the election procedure and the tax consequences
to DeepTech stockholders just described, this restructuring will not alter
any of the material terms of the merger agreement.
In addition, El Paso has the right under the merger agreement to restructure
the merger as a merger of DeepTech with and into a subsidiary of El Paso.
This restructuring will not alter any of the material terms of the merger,
including the tax consequences to DeepTech stockholders.
Q: HOW WILL DEEPTECH DISPOSE OF THE ASSETS WHICH EL PASO IS NOT ACQUIRING
THROUGH THE MERGER?
A: DeepTech will dispose of these assets prior to the merger through the
following steps:
- DeepTech will sell to its subsidiary, Tatham Offshore, Inc., $8 million of
debt owed to it by its wholly owned subsidiary, DeepFlex Production
Services, Inc., and its subsidiaries in exchange for (i) the stock of
Tatham Offshore Development, Inc. (a subsidiary of Tatham Offshore which
owns interests in certain undeveloped oil and gas properties in the Gulf
of Mexico) and (ii) the cancellation of reversionary interests in certain
oil and gas properties owned by Leviathan.
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- DeepFlex will deliver to DeepTech the shares of common and preferred stock
of Tatham Offshore which DeepFlex owns in exchange for $12 million of debt
owed by DeepFlex to DeepTech.
- DeepTech will contribute to DeepFlex the remaining balance of
approximately $61.4 million of debt owed by DeepFlex to DeepTech.
- DeepTech will contribute the stock of DeepFlex to Tatham Offshore.
DeepFlex, through its subsidiaries, owns all of the assets of DeepTech's
offshore contract drilling services business.
- DeepTech will effect a rights offering to the stockholders of DeepTech of
the Tatham Offshore common and preferred stock owned by DeepTech. DeepTech
will retain $75 million of the net rights offering proceeds and will
contribute the balance (other than amounts necessary to satisfy certain
tax payment obligations of Tatham Offshore) to Tatham Offshore.
- El Paso will acquire the minority interests in Leviathan Holdings Company,
Offshore Gas Marketing, Inc. and Offshore Gas Processors, Inc. (each a
subsidiary of DeepTech) held by certain members of DeepTech management and
third parties for an aggregate of $55 million in cash.
- Tatham Offshore will transfer certain oil and gas properties owned by it
to a subsidiary of Leviathan in exchange for 7,500 shares of Tatham
Offshore's 9% Senior Convertible Preferred Stock owned by Leviathan and
the satisfaction of all accrued and unpaid dividends on the 9% Senior
Convertible Preferred Stock owed to Leviathan.
Q: WHAT IS THE RIGHTS OFFERING?
A: The rights offering is the distribution to stockholders of record of
DeepTech on the date fixed by the Board of Directors of DeepTech of rights
to buy each stockholder's proportionate share of the Tatham Offshore common
and preferred stock owned by DeepTech.
The rights offering will be open to holders of rights generally for a period
fixed by the Tatham Offshore Board of Directors which shall be no more than
50 days.
At any time during the rights offering, any holder of rights may exercise
his/her rights by paying the subscription price of $3.25 for the underlying
shares of Tatham Offshore common and preferred stock comprising each right.
Because DeepTech will list the rights on the Nasdaq over the counter market,
holders of rights may also have the option of selling their rights on the
Nasdaq over the counter market.
Holders of rights have no obligation to purchase the Tatham Offshore stock.
To assure the completion of the rights offering, Tatham Brothers, LLC, an
affiliate of Mr. Thomas P. Tatham, the Chairman of the Board and Chief
Executive Officer of DeepTech, has agreed to buy such number of unsubscribed
Tatham Offshore common and preferred stock in the rights offering as will
result in DeepTech receiving net proceeds from the rights offering of not
less than $75 million. In addition, Tatham Brothers will have the right to
purchase any unpurchased shares in the rights offering. Tatham Offshore will
purchase any shares of Tatham Offshore common and preferred stock not
purchased by Tatham Brothers in the rights offering.
Q: HOW CAN I LEARN MORE ABOUT THE RIGHTS OFFERING?
A: The rights offering is described in detail in a separate registration
statement which Tatham Offshore has filed with the Securities and Exchange
Commission.
Q: WILL DEEPTECH STOCKHOLDERS HAVE APPRAISAL RIGHTS IN THE MERGER?
A: Under Delaware corporate law, DeepTech stockholders will not have rights to
an appraisal of the value of their shares in connection with the merger,
except in a case in which the merger is restructured as a taxable
transaction as described above. In that situation, a DeepTech stockholder
who (i) did not execute a written consent in favor of the merger, (ii) is
required under the merger agreement to accept cash for his/her shares of
DeepTech common stock (other than cash exchanged for fractional shares),
(iii) held
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his/her shares of DeepTech common stock through the effective time of the merger
and (iv) exercises and perfects dissenters' right will be entitled to receive
payment of the fair value of his/her shares.
Q: HOW WILL THE MERGER BE TREATED FOR ACCOUNTING PURPOSES?
A: The merger will be accounted for as a purchase of DeepTech by El Paso, which
means the purchase price, including costs directly related to the merger,
will be allocated to the assets acquired and liabilities assumed based on
their estimated fair values at the time of completion of the merger. To the
extent the purchase price exceeds the fair value of DeepTech's identified
net assets, the excess will be recorded as cost in excess of net assets
acquired and amortized to expense over a period of no more than 40 years.
Results of operations of DeepTech will be included in El Paso's financial
statements after the closing of the merger.
Q: WHAT ARE THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO
ME?
A: The merger generally will not subject stockholders of DeepTech to U.S.
federal income tax to the extent they receive El Paso common stock pursuant
to the merger. DeepTech stockholders that receive both cash and El Paso
common stock will recognize gain, if any, but not loss, equal to the lesser
of the cash received and the gain realized, computed separately for each
block of DeepTech common stock exchanged in the merger. If a DeepTech
stockholder receives only cash in the merger, or if the merger is
restructured as a taxable transaction as described above, DeepTech
stockholders will generally recognize gain or loss equal to the difference
between the value of the consideration received in the merger (the cash
and/or the El Paso common stock) and the stockholder's basis in the DeepTech
stock surrendered. In general, any gain recognized in the merger by a
DeepTech stockholder will be capital gain, although under unusual
circumstances it could be ordinary income.
To review the tax consequences to DeepTech stockholders of the merger in
greater detail, see pages 69 to 71.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: El Paso and DeepTech are working towards quickly completing the merger.
Regulatory approvals and DeepTech debtholder approvals must be obtained
prior to the consummation of the merger. Subject to such approvals, El Paso
and DeepTech anticipate completing the merger in July 1998.
WHO CAN HELP ANSWER MY QUESTIONS?
If you have more questions about the merger or the related transactions,
you should contact:
DEEPTECH INTERNATIONAL INC.
7500 CHASE TOWER
600 TRAVIS STREET
HOUSTON, TEXAS 77002
ATTN: DENNIS A. KUNETKA
SENIOR VICE PRESIDENT -- INVESTOR RELATIONS
TELEPHONE NO.: (713) 224-7400
IF YOU WOULD LIKE ADDITIONAL COPIES OF THE PROXY STATEMENT/PROSPECTUS,
YOU SHOULD CONTACT:
BOSTON EQUISERVE, L.P.
150 ROYALL STREET
CANTON, MASSACHUSETTS 02021
ATTN:
TELEPHONE NO.: (800) 736-3001
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The following diagrams illustrate the various election choices available to
DeepTech stockholders in connection with the merger.
DIAGRAM OF ELECTION CHOICES -- CASH ELECTION
(IE., BOX A IS CHECKED)
[DIAGRAM OF ELECTION CHOICES - CASH ELECTION]
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DIAGRAM OF ELECTION CHOICES -- STOCK ELECTION
(IE., BOX B IS CHECKED)
[DIAGRAM OF ELECTION CHOICES - STOCK ELECTION]
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SUMMARY
This summary highlights certain information from this document and may not
contain all of the information that is important to you. To understand the
merger and related transactions fully and for a more complete description of the
legal terms of the merger and related transactions, you should read carefully
this entire document and the documents referred to in the "Incorporation of
Documents by Reference" section at the beginning of this document.
THE COMPANIES
EL PASO NATURAL GAS COMPANY
1001 LOUISIANA
HOUSTON, TEXAS 77002
(713) 420-2131
El Paso is a diversified energy company with principal operations
consisting of the interstate and intrastate transportation, gathering and
processing of natural gas, the marketing of natural gas and other commodities,
and the development and operations of energy infrastructure facilities
worldwide. El Paso, a Delaware corporation and incorporated in 1928, has been
doing business under the name El Paso Energy Corporation since April 22, 1996.
EL PASO ACQUISITION COMPANY
1001 LOUISIANA
HOUSTON, TEXAS 77002
(713) 420-2131
El Paso Acquisition Company is a wholly owned subsidiary of El Paso,
incorporated in Delaware on February 13, 1998 for the purpose of the merger.
Prior to the consummation of the merger, El Paso Acquisition Company will not
engage in any activity other than activities related to the transactions
contemplated by the merger agreement.
DEEPTECH INTERNATIONAL INC.
7500 CHASE TOWER
600 TRAVIS STREET
HOUSTON, TEXAS 77002
(713) 224-7400
DeepTech is a diversified energy company engaged, through its subsidiaries,
in offshore contract drilling services and the acquisition, development,
production, processing, transportation and marketing of, and the exploration
for, oil and gas located primarily offshore the United States in the Gulf of
Mexico and offshore eastern Canada. As explained in this Proxy
Statement/Prospectus, prior to the merger, DeepTech will contribute its offshore
contract drilling services business to Tatham Offshore, Inc. and will dispose of
its Tatham Offshore stock through a rights offering to DeepTech stockholders. As
a result, at the time of the merger, DeepTech will have no material assets other
than its interests in Leviathan and cash.
HOLDING COMPANY REORGANIZATION (SEE PAGE 45)
If DeepTech stockholders approve the amended merger agreement, El Paso
intends to adopt a holding company structure prior to the merger whereby El Paso
and its subsidiaries would become direct and indirect subsidiaries of El Paso
Energy Corporation, a newly formed Delaware holding company. Pursuant to the
holding company reorganization, holders of shares of El Paso common stock would
become holders on a share-for-share basis of shares of common stock of El Paso
Energy with the result that El Paso Energy would replace El Paso as the publicly
held corporation, and all stockholders of El Paso immediately prior to such
reorganization would own the same number of shares of common stock of El Paso
Energy immediately after the reorganization. If DeepTech stockholders approve
the amended merger agreement and the holding company reorganization occurs prior
to the effective time of the merger, unless the context otherwise requires, all
references to El Paso will be deemed references to El Paso Energy and references
to El Paso common stock will be deemed references to El Paso Energy common
stock.
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THE WRITTEN CONSENTS AND THE SPECIAL MEETING
WRITTEN CONSENTS (SEE PAGE 49)
DeepTech intends to solicit written consents of DeepTech stockholders to
approve the amended merger agreement and, if the written consents are not
promptly obtained from the holders of record of a majority of the outstanding
shares of DeepTech common stock, to solicit proxies for a special meeting of
DeepTech stockholders which will be held only if the requisite written consents
have not previously been obtained.
If the Amended Merger Agreement is approved by written consent of DeepTech
stockholders, DeepTech will supplementally notify DeepTech stockholders of such
approval, and this Proxy Statement/Prospectus as so supplemented will constitute
the Information Statement/Prospectus with respect to the Amended Merger
Agreement and the transactions contemplated thereby.
PURPOSE OF THE WRITTEN CONSENTS AND THE SPECIAL MEETING (SEE PAGE 49)
The purpose of the solicitation of the written consents and the special
meeting is to (i) seek DeepTech stockholder approval of a proposal to approve
the amended merger agreement and the related merger and (ii) if the special
meeting is held, transact such other business as may properly come before the
special meeting or at any adjournments or postponements thereof. See "THE
WRITTEN CONSENTS AND THE SPECIAL MEETING -- Purpose of the Written Consents and
the Special Meeting."
RECORD DATE; SHARES ENTITLED TO VOTE (SEE PAGE 49)
Only holders of record of shares of DeepTech common stock at the close of
business on , 1998 are entitled to act by written consent and to
receive notice of and to vote at the special meeting. On such date, there were
shares of common stock outstanding. Each share of DeepTech common stock
will be entitled to one vote in connection with the written consent and on each
matter to be acted upon at the special meeting. See "THE WRITTEN CONSENTS AND
THE SPECIAL MEETING -- Record Date; Shares Entitled to Vote."
VOTE REQUIRED (SEE PAGE 49)
On February 27, 1998, DeepTech obtained written consents from the holders
of a majority of the outstanding shares of DeepTech common stock approving the
original merger agreement and the merger contemplated thereby. Under Delaware
law, DeepTech is not required to obtain any further stockholder approval in
connection with the original merger agreement and the merger contemplated
thereby.
The affirmative vote or consent of the holders of a majority of the
outstanding shares of DeepTech entitled to vote is required to approve the
amended merger agreement and the related merger. An abstention or a failure to
vote or consent with respect to the amended merger agreement and the related
merger will have the effect of a vote cast against the proposal. Brokers who
hold outstanding stock of DeepTech as nominees will not have discretionary
authority to vote or give consents with respect to such shares in the absence of
instructions from the beneficial owners thereof. See "THE WRITTEN CONSENTS AND
THE SPECIAL MEETING -- Record Date; Shares Entitled to Vote" and "-- Proxies."
DATE, TIME AND PLACE OF MEETING (SEE PAGE 49)
If necessary, the special meeting of DeepTech shareholders will be held on
, 1998, at commencing at 9:00 a.m. local time. See "THE
WRITTEN CONSENTS AND THE SPECIAL MEETING -- Date, Time and Place of Meeting."
SECURITY OWNERSHIP OF MANAGEMENT
As of the record date, the directors and executive officers of DeepTech
owned approximately % of the outstanding stock of DeepTech entitled to act by
written consent and to vote at the special meeting. Each of the directors and
executive officers of DeepTech has advised DeepTech that he or she plans to vote
or give a written consent or to direct all outstanding stock of DeepTech owned
by him or her and entitled to vote to be voted or to cause a consent to be
executed in favor of the amended merger agreement and the merger contemplated
thereby.
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THE MERGER AND RELATED TRANSACTIONS
The merger agreement, Amendment No. 1 to the merger agreement and the
contribution and distribution agreement are attached as Appendices A-1, A-2 and
B, respectively, to this Proxy Statement/Prospectus. We encourage you to read
carefully the merger agreement and the contribution and distribution agreement
as they are the legal documents that govern the merger and the related
transactions.
THE MERGER AND RELATED TRANSACTIONS (SEE PAGES 32 TO 48)
The proposed merger is a merger of DeepTech with El Paso or, if the merger
is restructured under certain circumstances, with a subsidiary of El Paso. If
DeepTech stockholders approve the amended merger agreement, El Paso intends to
reorganize its corporate structure prior to the merger into a holding company
structure as described below, in which case the proposed merger will become a
merger of DeepTech with a new El Paso holding company or, if the merger is
restructured under certain circumstances, a subsidiary of the new El Paso
holding company. Prior to the merger, DeepTech will dispose of its existing
assets other than its general and limited partnership interests in Leviathan,
through the contribution of its offshore drilling services business to its
subsidiary, Tatham Offshore, and a rights offering to DeepTech stockholders of
the shares of Tatham Offshore owned by DeepTech. As a result, at the time of the
merger, DeepTech will have no material assets other than its Leviathan interests
and cash.
DeepTech will dispose of certain assets which El Paso is not acquiring
prior to the merger through the following steps:
- DeepTech will sell to Tatham Offshore $8 million of debt owed to it by
its wholly owned subsidiary, DeepFlex, and its subsidiaries in exchange
for (i) the stock of Tatham Offshore Development, Inc. (a subsidiary of
Tatham Offshore which owns an interest in the Sunday Silence field, an
undeveloped oil and gas property in the Gulf of Mexico) and (ii) the
cancellation of reversionary interests in certain oil and gas properties
owned by Leviathan.
- DeepFlex will deliver to DeepTech the shares of Tatham Offshore common
and preferred stock which DeepFlex owns in exchange for $12 million of
debt owed by DeepFlex to DeepTech.
- DeepTech will contribute to DeepFlex the remaining balance of
approximately $61.4 million of debt owed by DeepFlex to DeepTech.
- DeepTech will contribute the stock of DeepFlex to Tatham Offshore.
DeepFlex, through its subsidiaries, owns all of the assets of DeepTech's
offshore contract drilling services business.
- DeepTech will effect a rights offering to DeepTech stockholders of the
Tatham Offshore common and preferred stock owned by DeepTech. DeepTech
will retain $75 million of the net rights offering proceeds and will
contribute the balance (other than amounts necessary to satisfy certain
tax payment obligations of Tatham Offshore) to Tatham Offshore.
- El Paso will acquire the minority interests in Leviathan Holdings
Company, Offshore Gas Marketing, Inc. and Offshore Gas Processors, Inc.
(each, a subsidiary of DeepTech) held by certain members of DeepTech
management and third parties for an aggregate of $55 million in cash.
- Tatham Offshore will transfer certain oil and gas properties owned by it
to a subsidiary of Leviathan in exchange for 7,500 shares of Tatham
Offshore's 9% Senior Convertible Preferred Stock owned by Leviathan and
the satisfaction of all accrued and unpaid dividends on the 9% Senior
Convertible Preferred Stock owed to Leviathan.
WHAT DEEPTECH STOCKHOLDERS WILL RECEIVE (SEE PAGES 51 TO 52)
As a result of the merger, as illustrated in the table on page 80, each
DeepTech stockholder will receive, at such stockholder's election, for each
share of DeepTech common stock, (i) no less than 0.3733 or more than 0.56 of a
share of El Paso common stock (subject to adjustments described below) depending
upon the average of the closing sales prices of a share of El Paso common stock
on the New York Stock Exchange
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during the ten consecutive trading days ending on and including the trading day
immediately prior to the effective time of the merger, or (ii) $14.00 in cash,
without interest.
If the average price of El Paso common stock is at least $25.00 and not
more than $37.50, then for each of your shares of DeepTech common stock for
which you elect to receive stock you will receive a fraction of a share of El
Paso common stock determined by dividing $14.00 by the average closing price of
El Paso common stock during the specified ten-day period.
If the average price of the El Paso common stock is less than $25.00, you
will receive 0.56 of a share of El Paso common stock for each of your shares of
DeepTech common stock for which you elect to receive stock. If the average price
of El Paso common stock is more than $37.50, you will receive 0.3733 of a share
of El Paso common stock for each of your shares of DeepTech common stock for
which you elect to receive stock.
The number of shares of El Paso common stock or cash to be received by each
DeepTech stockholder will also be adjusted appropriately to reflect any change
in the number of shares of DeepTech common stock outstanding on a fully diluted
basis, including shares of DeepTech common stock issuable upon the exercise of
options or warrants, between the date of the merger agreement and the effective
time of the merger.
Each share of El Paso common stock issued to holders of DeepTech common
stock in the merger will be issued together with one-half of an associated
preferred stock purchase right under the Amended and Restated Shareholder Rights
Agreement, dated as of July 23, 1997, as amended from time to time, between El
Paso and The First National Bank of Boston, as rights agent. El Paso will not
issue fractional shares of El Paso common stock in the merger. Instead, El Paso
will pay a cash adjustment to holders who would otherwise receive fractional
shares of El Paso common stock equal to the product of such fraction of a share
and the average El Paso common stock price.
If DeepTech stockholders approve the amended merger agreement and the
holding company reorganization occurs prior to the effective time of the merger,
all references in this Proxy Statement/Prospectus to El Paso will be deemed
references to El Paso Energy and references to El Paso common stock will be
deemed references to El Paso Energy common stock. Each share of El Paso Energy
common stock issued to holders of DeepTech common stock in the merger will be
issued together with one associated preferred stock purchase right under the
Shareholder Rights Agreement between El Paso Energy and BankBoston, N.A., as
rights agent.
OWNERSHIP OF EL PASO FOLLOWING THE MERGER
The shares of El Paso common stock that El Paso will issue to DeepTech
stockholders in connection with the merger will constitute a maximum of
approximately % of all of the outstanding El Paso common stock after the
merger based on the number of shares of El Paso and DeepTech common stock
outstanding on , 1998 (assuming an exchange ratio of 0.4480).
OPINION OF DEEPTECH'S FINANCIAL ADVISOR (SEE PAGES 37 TO 43)
In deciding to approve the merger, the DeepTech Board considered the
opinion of its financial advisor as to the fairness of the exchange ratio from a
financial point of view. DeepTech received an opinion from its financial
advisor, Chase Securities, Inc., to the effect that, as of the date of such
opinion, the exchange ratio is fair from a financial point of view to DeepTech
stockholders. The opinion of Chase Securities, Inc. is attached as Appendix C to
this Proxy Statement/Prospectus. Stockholders are encouraged to read this
opinion.
ACCOUNTING TREATMENT (SEE PAGE 43)
The merger will be accounted for as a purchase of DeepTech by El Paso,
which means the purchase price, including costs directly related to the merger,
will be allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the time of completion of the merger. To the extent the
purchase price exceeds the fair value of DeepTech's identified net assets, the
excess will be recorded as cost in
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excess of net assets acquired and amortized to expense over a period of no more
than 40 years. Results of operations of DeepTech will be included in El Paso's
financial statements after the closing of the merger.
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGES
69 TO 71)
The merger generally will not subject stockholders of DeepTech to U.S.
federal income tax to the extent they receive El Paso common stock pursuant to
the merger. DeepTech stockholders that receive both cash and El Paso common
stock will recognize gain, if any, but not loss, equal to the lesser of the cash
received and the gain realized, computed separately for each block of DeepTech
common stock exchanged in the merger. If a DeepTech stockholder receives only
cash in the merger, or if the merger is restructured as a taxable transaction
described below, DeepTech stockholders will generally recognize gain or loss
equal to the difference between the value of the consideration received in the
merger (the cash and/or the El Paso common stock) and the stockholder's basis in
the DeepTech stock surrendered. In general, any gain recognized in the merger by
a DeepTech stockholder will be capital gain, although under unusual
circumstances it could be ordinary income.
To review the tax consequences to DeepTech stockholders of the merger in
greater detail, see pages 69 to 71.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
STOCKHOLDERS WILL DEPEND ON THEIR INDIVIDUAL CIRCUMSTANCES. STOCKHOLDERS SHOULD
CONSULT THEIR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO
THEM OF THE MERGER.
BOARD OF DIRECTORS AND MANAGEMENT OF EL PASO FOLLOWING THE MERGER (SEE PAGE 43)
If the proposed merger is approved and consummated, holders of DeepTech
common stock who do not receive cash in the merger will become stockholders of
El Paso, which will be under the direction of the board of directors and
management of El Paso.
GOVERNMENTAL AND REGULATORY APPROVALS (SEE PAGES 43 TO 44)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
required us to furnish certain information and materials to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and
requires that a specified waiting period expire or be terminated before the
merger can be completed. On March 18, 1998, El Paso and DeepTech each filed
Premerger Notification and Report Forms with the Federal Trade Commission and
the Antitrust Division. The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act expired on April 18, 1998. However, early termination of the
waiting period was granted by the staff of the Federal Trade Commission
effective on March 30, 1998. After the expiration of the waiting period, the
Antitrust Division of the Department of Justice and the Federal Trade Commission
have the authority to challenge the merger on antitrust grounds before or after
the merger is completed.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE 81)
Shares of El Paso and DeepTech common stock are listed on the New York
Stock Exchange and the Nasdaq National Market, respectively. On February 26,
1998, the last full trading day on the Nasdaq National Market and the New York
Stock Exchange prior to the public announcement of the merger, DeepTech common
stock closed at $12 7/8 per share and El Paso common stock closed at $33.50 per
share (adjusted to give retroactive effect to a two-for-one stock split effected
by El Paso on April 1, 1998). On , 1998, DeepTech common stock
closed at $ per share and El Paso common stock closed at $ per
share. Assuming an exchange ratio of 0.4480, the equivalent of a share of
DeepTech common stock was $ on such date.
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LISTING OF EL PASO COMMON STOCK (SEE PAGE 44)
El Paso will list the shares of El Paso common stock to be issued in
connection with the merger on the New York Stock Exchange.
SPECIAL CASH RIGHTS; RESTRUCTURING OF MERGER (SEE PAGES 53 TO 54)
Under the merger agreement, there is no limit on the number of shares of
DeepTech common stock which may be converted into the cash consideration or the
stock consideration. If more than 50% of the total merger consideration consists
of cash, El Paso and DeepTech will restructure the form of the merger as a
merger of a subsidiary of El Paso with and into DeepTech. This restructuring is
to ensure that, regardless of whether stockholders of DeepTech elect to receive
stock or cash in the merger, DeepTech will not incur any corporate level income
tax by reason of the merger. If the merger is restructured, the merger will be a
taxable transaction for all DeepTech stockholders, whether you elect to receive
cash or El Paso common stock.
If the merger is a taxable transaction, regardless of any election you may
have made, you will receive cash for your shares of DeepTech common stock unless
you specify by marking Box D on the form of election that you wish to receive El
Paso common stock in a taxable transaction. You should not mark this box on the
form of election unless you wish to receive stock in a taxable transaction.
Except for the effects upon the election procedure and the tax consequences
to DeepTech stockholders just described, this restructuring will not alter any
of the material terms of the merger agreement.
In addition, El Paso has the right under the Merger Agreement to
restructure the merger as a merger of DeepTech with and into a subsidiary of El
Paso. This restructuring will not alter any of the material terms of the merger,
including the tax consequences to DeepTech stockholders.
APPRAISAL AND DISSENTERS RIGHTS (SEE PAGES 45 TO 48)
Under Delaware corporate law, DeepTech stockholders will not have rights to
an appraisal of the value of their shares in connection with the merger, except
in a case in which the merger is restructured as a taxable transaction as
described above. In that situation, a DeepTech stockholder who (i) did not
execute a written consent or vote in favor of the merger, (ii) is required under
the merger agreement to accept cash for his/her shares of DeepTech common stock
(other than cash exchanged for fractional shares), (iii) held his/her shares of
DeepTech common stock through the effective time of the merger and (iv)
exercises and perfects dissenters' right will be entitled to receive payment of
the fair value of his/her shares.
ELECTION PROCEDURES (SEE PAGES 52 TO 53)
In order to indicate whether you prefer to receive shares of El Paso common
stock or cash for all or any part of your shares of DeepTech common stock, you
must:
- properly complete and sign the form of election;
- enclose your DeepTech stock certificates or an appropriate guarantee of
delivery along with the form of election; and
- return the form of election to the exchange agent no later than Election
Record Date (which is set forth on the form of election).
You will also have an option to elect automatically to change your election
if the average El Paso common stock price is more than $37.50 or less than
$25.00, by marking Box C on the form of election. If the average closing price
of El Paso common stock during the specified ten-day period is greater than
$37.50 and you have marked Box C(2) on the form of election, any cash election
made by you will be treated as a stock election. Conversely, if the average
price of El Paso common stock during the specified ten-day period is less than
$25.00 and you have marked Box C(1) on the form of election, any stock election
made by you will be treated as a cash election.
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If you do not indicate how you want your shares of DeepTech common stock to
be converted, or if you revoke or withdraw your election by the Election Record
Date, your shares of DeepTech common stock will be converted into the right to
receive shares of El Paso common stock (unless the merger is a taxable
transaction, in which case your shares will be converted into the right to
receive cash).
See the diagrams on pages 10 and 11 which illustrate the various election
choices available to DeepTech stockholders in connection with the merger.
In order to make a valid election, each DeepTech stockholder must deliver
to the exchange agent a properly completed form of election accompanied by such
DeepTech stockholder's certificates for shares of DeepTech common stock no later
than 20 days after the later of (i) the date of mailing of this Proxy
Statement/Prospectus to DeepTech stockholders and (ii) the date of mailing of
the rights offering prospectus to DeepTech stockholders. Some time interval
between the Election Record Date and the closing of the merger is necessary (i)
to permit delivery of certificates in accordance with the guaranteed delivery
procedure contemplated by the form of election and (ii) to enable El Paso to
tabulate the elections and determine whether the merger is required to be
restructured as the taxable merger. In addition, the closing of the merger is
subject to the satisfaction or waiver of certain conditions, including the
completion of the rights offering and the receipt of consents from holders of
notes under DeepTech's indenture and senior subordinated promissory note to the
contribution and the rights offering and certain amendments to the indenture and
the senior subordinated note. DeepTech currently expects that the rights
offering will expire on , 1998, and El Paso and DeepTech are not
currently aware of any circumstance which is likely to result in any other
condition to the merger not being satisfied as of such date. If any condition is
not satisfied as of such date, it is possible that there could be a significant
time interval between the Election Record Date and the closing date of the
merger. There can be no assurance that the market value of El Paso common stock
will not vary significantly between the Election Record Date and the closing of
the merger. DeepTech stockholders cannot change or withdraw their elections
after the Election Record Date.
CONDITIONS PRECEDENT TO THE MERGER (SEE PAGES 61 TO 62)
The completion of the merger depends upon meeting a number of conditions,
including the following:
- the effectiveness of the registration statement relating to the issuance
of El Paso common stock in the merger and the absence of a stop order
suspending such effectiveness;
- the absence of any injunction or other court order which would prohibit
or prevent the merger;
- the authorization for listing on the New York Stock Exchange of the El
Paso common stock to be issued in the merger;
- if applicable, the receipt of a legal opinion to the effect that the
receipt of El Paso common stock in the merger will be tax-free to
DeepTech's stockholders;
- the contribution of DeepTech's offshore contract drilling services
businesses to Tatham Offshore and the completion of the rights offering;
- the receipt of consents from holders of notes under DeepTech's indenture
and senior subordinated promissory note to the contribution and the
rights offering and certain amendments to the indenture and the senior
subordinated promissory note;
- El Paso, DeepTech and El Paso Acquisition Company must perform all of
their obligations under the merger agreement;
- the representations and warranties of El Paso, El Paso Acquisition
Company and DeepTech must be accurate and each of El Paso, El Paso
Acquisition Company and DeepTech must certify that its representations
and warranties contained in the merger agreement are true and correct;
- El Paso must receive all required consents, waivers, approvals,
authorizations or orders and make all filings required for the
consummation of the merger and related transactions, except where failure
to obtain would not adversely affect the closing of the merger;
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- DeepTech must receive all required consents or approval to the merger and
related transactions from nongovernmental third parties, except where
failure to obtain, individually or in the aggregate, would not have a
material adverse effect on DeepTech and its subsidiaries or a material
adverse effect upon the consummation of the transactions contemplated by
the merger agreement;
- the absence of any pending litigation by any governmental entity
challenging, prohibiting or imposing limitations on the merger or the
transactions contemplated by the merger agreement or seeking to impose
material damages; and
- each party selling common stock of Leviathan Holdings Company, Offshore
Gas Marketing, Inc. or Offshore Gas Processors, Inc. must perform its
obligations under the relevant purchase and sale agreements.
Certain of these conditions may be waived by the company entitled to assert
the condition.
TERMINATION OF THE MERGER AND PAYMENT OF FEES (SEE PAGES 62 TO 63)
El Paso and DeepTech can agree in writing to terminate the merger agreement
at any time without completing the merger.
Either of El Paso or DeepTech may terminate the merger agreement if:
- either El Paso or DeepTech breaches its representations, warranties or
obligations under the merger agreement in a manner that would cause the
conditions to the merger agreement relating to representations,
warranties and obligations not to be satisfied and the breach cannot be
cured within ten business days after the receipt of notice of the breach;
- any permanent order, decree, ruling or other act of a court restraining
or preventing the consummation of the merger has become final and
non-appealable; or
- the merger has not been consummated by June 30, 1998, except that neither
El Paso nor DeepTech may terminate the merger agreement if its breach is
the reason the transaction has not been completed and the breach cannot
be cured within ten business days after the receipt of notice of the
breach. In addition, El Paso has the option to extend this date to
September 30, 1998. In that case, El Paso will permanently waive the
conditions to the merger except those relating to: (i) the effectiveness
of the registration statement; (ii) the absence of any injunction or
other court order preventing consummation of the merger; (iii) the
listing of the shares of El Paso common stock to be issued in the merger
on the New York Stock Exchange; (iv) any party (except for a party who is
not an employee of DeepTech) selling common stock of Leviathan Holdings
Company, Offshore Gas Marketing, Inc. or Offshore Gas Processors, Inc.
performing its obligations under the relevant purchase and sale
agreement; (v) DeepTech's performance of its obligations under the merger
agreement; and (vi) the accuracy of DeepTech's representations and
warranties but only if either (x) DeepTech has failed to provide a
certificate as to the accuracy of its representations and warranties as
required by the merger agreement or (y) DeepTech knew that its
certificate was inaccurate.
Prior to the time written consents had been signed by the holders of a
majority of the then outstanding shares of DeepTech common stock approving the
original merger, DeepTech had the right to terminate the merger agreement and
enter into a written agreement with a third party who proposed an alternative
transaction which the DeepTech Board determined was superior to the original
merger. On February 27, 1998, the holders of a majority of the outstanding
shares of DeepTech common stock as of such date signed written consents
approving the original merger. Therefore, DeepTech no longer has the right to
terminate the merger agreement for a superior proposal.
If the merger agreement is terminated because of a willful breach by a
party of its representations, warranties or obligations, the breaching party
will be required to reimburse, up to $5 million, the non-breaching party's
out-of-pocket costs and expenses.
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AMENDMENT NO. 1 TO THE MERGER AGREEMENT (SEE PAGE 63)
Amendment No. 1 was executed as of June 16, 1998 among El Paso, DeepTech,El
Paso Acquisition Company and El Paso Energy. The purpose of Amendment No. 1 is
to add El Paso Energy as a party to the merger agreement, to provide for the
issuance of El Paso Energy common stock in the merger and to provide for El Paso
Energy to perform the obligations of El Paso under the merger agreement if the
holding company reorganization occurs prior to the effective time of the merger.
Except as described above, the terms of the merger are substantially unchanged
from the terms of the original merger agreement.
CONTRIBUTION AGREEMENT (SEE PAGES 64 TO 66)
The Rights Offering
The Contribution and Distribution Agreement, dated February 27, 1998, by
and among DeepTech, DeepFlex, El Paso and Tatham Offshore, sets forth the
mechanics of a rights offering and the transfer of DeepFlex, and therefore
DeepTech's offshore contract drilling services business, to Tatham Offshore.
Pursuant to the Contribution and Distribution Agreement, DeepTech will effect a
rights offering to the stockholders of DeepTech of the Tatham Offshore common
and preferred stock owned by DeepTech. DeepTech will retain the first $75
million of the net rights offering proceeds and to the extent any underlying
shares remain unpurchased by Tatham Brothers, LLC pursuant to the Standby
Agreement (discussed below), Tatham Offshore will purchase such shares for cash
at the subscription price of $3.25 for a fraction of such shares, of Tatham
Offshore and DeepTech will contribute such amount to Tatham Offshore, except for
amounts necessary to satisfy certain estimated tax payment obligations of Tatham
Offshore, to the extent Tatham Offshore has not previously paid them. The first
$75 million of the net rights offering proceeds and such estimated tax payment
amount will be held in escrow pursuant to an escrow agreement between the
parties. Accordingly, to the extent the holders of rights purchase more than $75
million of the underlying shares in the rights offering, the net proceeds of
such purchases will be for the benefit of Tatham Offshore and will be used for
general corporate purposes.
The Contribution
Prior to the effective time of the merger,
- DeepTech will sell to Tatham Offshore $8 million of debt owed by DeepFlex
and its subsidiaries in exchange for (x) the stock of Tatham Offshore
Development, Inc. and (y) the cancellation of reversionary interests in
certain oil and gas properties owned by Leviathan.
- DeepFlex will deliver to DeepTech shares of common and preferred stock of
Tatham Offshore owned by DeepFlex in exchange for $12 million of debt
owed by DeepFlex to DeepTech.
- DeepTech will contribute to DeepFlex the remaining balance of
approximately $61.4 million of debt owed by DeepFlex to DeepTech.
- DeepTech will dispose of its offshore contract drilling services business
by contributing to Tatham Offshore the stock of DeepFlex.
CONDITION TO THE CONTRIBUTION AND RIGHTS OFFERING (SEE PAGES 64 TO 65)
The completion of the contribution and the rights offering depends upon the
satisfaction of a number of conditions, including the following:
- the contribution and the rights offering must comply with the applicable
federal and state securities laws and any applicable Nasdaq National
Market regulations.
- the effectiveness of the registration statement relating to the rights
offering and the absence of a stop order suspending such effectiveness.
- the absence of any injunction or order which would prevent the
consummation of the merger.
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- in the case of the rights offering only, DeepTech must receive at least
$75 million in net rights offering proceeds, and certain tax obligations
under the Tax Sharing Agreement must be paid by Tatham Offshore or
retained by DeepTech from any net rights offering proceeds in excess of
$75 million, or such amounts must be deposited in an escrow account in
accordance with the Contribution and Distribution Agreement.
The Contribution and Distribution Agreement requires El Paso and Tatham
Offshore to indemnify each other for certain losses, expenses, claims, damages
and liabilities. Subject to certain exceptions, all intercompany agreements and
arrangements between Tatham Offshore and its subsidiaries and DeepTech and its
subsidiaries will terminate on the effective time of the merger and intercompany
accounts will be settled at the closing of the merger.
THE STANDBY AGREEMENT AND THE PURCHASE COMMITMENT AGREEMENT (SEE PAGES 66 TO 67)
The Standby Agreement, dated as of February 27, 1998, was executed in
connection with the merger and the related transactions and is by and among
DeepTech, Mr. Tatham, Tatham Brothers, El Paso and Tatham Offshore. Pursuant to
the Standby Agreement, to the extent that any underlying shares of common and
preferred stock of Tatham Offshore in the rights offering are not subscribed for
by holders of DeepTech common stock, Tatham Brothers has committed to purchase
in the conditional subscription, at a subscription price of $3.25 for the
underlying shares of Tatham Offshore common and preferred stock purchasable
under each right, such number of unsubscribed underlying shares in the rights
offering as will result in DeepTech receiving net proceeds from the rights
offering of not less than $75 million. In addition, Tatham Brothers has the
right to purchase any underlying shares of common and preferred stock of Tatham
Offshore which DeepTech holds after the rights offering and the conditional
subscription at the subscription price. Mr. Tatham has unconditionally
guaranteed Tatham Brothers' performance under the Standby Agreement, which
guarantee is backed by a letter of credit from NationsBank, N.A. In
consideration of Mr. Tatham's guarantee of the standby commitment as described
above, under the terms of a Repayment Agreement between Mr. Tatham and Tatham
Brothers, dated February 27, 1998, (i) Tatham Brothers granted to Mr. Tatham an
option to purchase up to a one-third membership interest in Tatham Brothers for
$1,000 through the issuance of new membership units and (ii) Mr. Tatham has the
right, but not the obligation, to lend to Tatham Brothers all sums necessary for
Tatham Brothers to fulfill its obligations under the standby commitment.
Pursuant to the Purchase Commitment Agreement, dated February 27, 1998 by
and between Tatham Offshore and Tatham Brothers, in consideration of Tatham
Brothers' standby commitment, Tatham Offshore has agreed to pay to Tatham
Brothers a fee equal to the product of (i) 23,076,923 and (ii) the fee
multiplier. The "fee multiplier" means, with respect to the date of the closing
of the rights offering, (a) if prior to July 1, 1998, $0.25, (b) if on or after
July 1, 1998 through July 31, 1998, $0.275, (c) if on or after August 1, 1998
through August 31, 1998, $0.30 or (d) if on or after September 1, 1998, $0.325.
Such fee is payable by Tatham Offshore in cash, or at its election in shares of
common stock of Tatham Offshore. In connection with the standby commitment,
Tatham Offshore has agreed to grant Tatham Brothers certain registration rights
with respect to the underlying shares of Tatham Offshore common and preferred
stock, including three demand registrations and unlimited piggyback registration
rights for five years.
STOCKHOLDER AGREEMENTS (SEE PAGE 68)
Pursuant to the Stockholder Agreements, dated February 27, 1998, between El
Paso and each of Thomas P. Tatham, Charles M. Darling, IV, Donald V. Weir, Grant
E. Sims, Lehman Brothers Holdings, Inc. and DLJ Capital Corp. (each a
stockholder of DeepTech), each such stockholder has agreed, among other things,
(a) to vote all voting securities of DeepTech owned by such stockholder in favor
of the original merger; (b) not to vote any of such voting securities in favor
of any action or agreement which would result in a breach in any material
respect of any material covenant, representation or warranty or any other
obligation of DeepTech under the original merger agreement; and (c) vote all of
such voting securities against any action or agreement the primary or a
substantial purpose of which would be to materially impede, interfere with or
attempt to discourage the original merger.
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Each such stockholder has signed a written consent approving the original
merger and has agreed not to revoke such consent before the merger agreement is
terminated.
Because shares of El Paso common stock received by certain stockholders who
executed a consent approving the original merger and agreeing not to revoke such
consent before the merger agreement is terminated may be deemed to be
"restricted securities" under the Securities Act of 1933, as amended, El Paso
has agreed to file and keep continuously effective pursuant to the Securities
Act a shelf registration statement, for a period of one year from the effective
time of the merger, to permit the sale or other disposition of any shares of El
Paso common stock that have been acquired by such stockholders.
The Stockholder Agreements also provide that El Paso will purchase any
interests in Leviathan Holdings Company, Offshore Gas Marketing, Inc. and
Offshore Gas Processors, Inc. owned by such stockholders.
PURCHASE OF MINORITY INTERESTS (SEE PAGE 68)
Under the Stockholder Agreements between El Paso and each of Thomas P.
Tatham, Donald V. Weir, Charles M. Darling, IV and Grant E. Sims and the Stock
Purchase Agreements between El Paso and each of John H. Gray, James H. Lytal,
Donald A. Sanders, Ben T. Morris, Michael T. Willis and Donald V. Weir, these
stockholders have agreed to sell all of their common stock and other interests
in Leviathan Holdings Company, Offshore Gas Marketing, Inc. and Offshore Gas
Processors, Inc. to El Paso concurrently with the closing of the merger for an
aggregate purchase price of $55 million, of which more than $54 million
represents the purchase price for the minority interests in Leviathan Holdings
Company.
REDEMPTION AGREEMENT (SEE PAGES 67 TO 68)
Tatham Offshore and Flextrend Development Company, L.L.C., a subsidiary of
Leviathan, have entered into a Redemption Agreement, dated February 27, 1998.
The Redemption Agreement provides for an exchange of certain of Tatham
Offshore's oil and gas properties for 7,500 shares of Tatham Offshore's Series B
9% Senior Convertible Preferred Stock owned by Leviathan on the later of July 1,
1998 or one business day after the closing of the rights offering.
TAX SHARING AGREEMENT (SEE PAGE 67)
The Tax Sharing Agreement to be executed in connection with the merger and
related transactions by and among Tatham Offshore, DeepTech and DeepFlex,
establishes the manner in which the parties will allocate the responsibilities,
liabilities and benefits relating to or affecting the payment of federal, state,
local or foreign income and other taxes, licenses and fees following the date
the contribution of the stock of DeepFlex to Tatham Offshore is effected.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGES 68 TO 69)
Mr. Thomas P. Tatham, the Chief Executive Officer and Chairman of the Board
of DeepTech, has executed a Standby Agreement with Tatham Offshore, Tatham
Brothers and other parties pursuant to which Mr. Tatham will guarantee the
standby underwriting commitment obligations of the standby purchaser, Tatham
Brothers, in connection with the rights offering. In consideration for his
guarantee of the obligations of Tatham Brothers, Mr. Tatham will receive an
option to purchase a one-third equity interest in Tatham Brothers. At the time
of the execution of the Standby Agreement, Mr. Tatham was, and he still is, the
President of Tatham Brothers. In exchange for its commitment to underwrite the
rights offering, Tatham Brothers will receive (i) a commitment fee of between
$5,769,230 and $7,500,000 and (ii) certain registration rights with respect to
the underlying shares, including three demand registrations and unlimited
piggyback registration rights for five years. Mr. Tatham is, and will remain, a
part of the management team at Tatham Offshore after the merger.
Messrs. Weir, Gray, Tatham, Lytal, Sims and Darling, who are all officers
and/or directors of DeepTech or its subsidiaries, have agreed to sell their
interests in Leviathan Holdings Company, Offshore Gas Marketing Inc. and
Offshore Gas Processors, Inc. to El Paso for an aggregate of approximately $52
million.
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In considering the recommendations of the DeepTech Board of Directors and
the independent committee of the DeepTech Board of Directors regarding the
merger, DeepTech stockholders should be aware that certain DeepTech officers and
directors have employment agreements, interests under benefit plans or other
arrangements that provide them with interests in the merger and related
transactions that are different from, and in addition to, the interests of
DeepTech stockholders generally.
El Paso has entered into employment agreements with Grant E. Sims and James
H. Lytal, the Chief Executive Officer and the President, respectively, of
Leviathan, effective as of the closing of the merger. Messrs. Sims and Lytal
will continue to serve as the Chief Executive Officer and the President,
respectively, of Leviathan after the merger for five years commencing from the
effective time of the merger.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Each company has made forward-looking statements in this document (and in
documents that are incorporated by reference in this document) that are subject
to risks and uncertainties. Forward-looking statements include information
concerning possible or assumed future results of operations of El Paso, DeepTech
or the combined company following the merger. Also, when words such as
"believes," "expects," "anticipates" or similar expressions are used, they are
intended to identify forward-looking statements. Stockholders should note that
many factors, some of which are discussed elsewhere in this document and in the
documents which are incorporated by reference herein, could affect the future
financial results of El Paso, DeepTech or the combined company following the
merger and could cause those results to differ materially from those expressed
in the forward-looking statements contained or incorporated by reference in this
document.
23
<PAGE> 28
MARKET PRICE AND DIVIDEND INFORMATION
The El Paso common stock is listed and traded on the New York Stock
Exchange and the DeepTech common stock is listed and traded on the Nasdaq
National Market. The following table sets forth the high and low trading prices
per share of each of the El Paso common stock and the DeepTech common stock on
the New York Stock Exchange and Nasdaq National Market, respectively, for the
periods indicated as reported in published financial sources and the dividends
paid per share for such periods:
<TABLE>
<CAPTION>
EL PASO DEEPTECH
COMMON EL PASO COMMON DEEPTECH
STOCK PRICES* DIVIDENDS STOCK PRICES DIVIDENDS
--------------- DECLARED ------------ DECLARED
CALENDAR QUARTER HIGH LOW PER SHARE* HIGH LOW PER SHARE
---------------- ---- --- ---------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter........................... $19 1/16 $14 5/16 $0.17375 $ 6 5/8 $ 4 1/8 --
Second Quarter.......................... 19 1/2 17 1/8 0.17375 6 1/8 4 1/2 --
Third Quarter........................... 22 15/16 18 7/8 0.17375 8 5 3/8 --
Fourth Quarter.......................... 26 5/8 22 0.17375 7 3/8 5 3/8 --
1997
First Quarter........................... 28 1/2 24 7/16 0.18250 7 5 3/4 --
Second Quarter.......................... 30 5/16 27 1/8 0.18250 8 3/8 6 --
Third Quarter........................... 30 11/32 26 1/2 0.18250 11 7/8 7 5/8 --
Fourth Quarter.......................... 33 3/4 27 11/16 0.18250 14 1/8 10 --
1998
First Quarter........................... 35 5/8 31 1/8 0.19125 14 3/8 10 1/8 --
Second Quarter (through ,
1998)................................
</TABLE>
On February 26, 1998, the last full trading day prior to the first public
announcement of the execution of the merger agreement, the reported high and low
sale prices per share and closing price per share of El Paso common stock and
DeepTech common stock on the New York Stock Exchange and the Nasdaq National
Market, respectively, were as follows:
<TABLE>
<CAPTION>
FEBRUARY 26, 1998
--------------------
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C>
El Paso*.................................................... $33 3/4 $33 1/4 $33 1/2
DeepTech.................................................... 13 1/8 12 3/8 12 7/8
</TABLE>
On , 1998, the last full trading day prior to the date of this
Proxy Statement/Prospectus, the reported high and low sale prices per share and
closing price per share of El Paso common stock and DeepTech common stock on the
New York Stock Exchange and the Nasdaq National Market, respectively, were as
follows:
<TABLE>
<CAPTION>
, 1998
-----------------------
HIGH LOW CLOSE
----- ----- -----
<S> <C> <C> <C>
El Paso..................................................... $ $ $
DeepTech....................................................
</TABLE>
WE URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS FOR SHARES OF EL PASO
COMMON STOCK AND DEEPTECH COMMON STOCK.
- - ---------------
* Adjusted to give retroactive effect to a two-for-one stock split effected in
the form of a 100 percent stock dividend distributed on April 1, 1998 to
holders of record of El Paso common stock on March 13, 1998.
24
<PAGE> 29
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth certain historical per share data for El
Paso and DeepTech and unaudited pro forma and equivalent pro forma combined per
share data after giving effect to the proposed merger at the assumed exchange
ratio of 0.4480 shares of El Paso common stock for each share of DeepTech common
stock which assumes a per share price of El Paso common stock of $31.25. These
data should be read in conjunction with the selected historical consolidated
financial data and the unaudited pro forma combined financial statements
included in this Proxy Statement/Prospectus and the separate historical
consolidated financial statements of El Paso and DeepTech and the notes thereto
incorporated by reference in this Proxy Statement/ Prospectus. The unaudited pro
forma combined financial data are not necessarily indicative of the operating
results or financial position presented and should not be construed as
indicative of future operations.
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
THREE MONTHS ENDED FISCAL YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
El Paso -- Historical Per El Paso Common Share(a):
Basic earnings per common share.......................... $ 0.50 $ 1.64
Diluted earnings per common share........................ 0.48 1.59
Cash dividends declared.................................. 0.19 0.73
Book value............................................... 16.73 16.38
DeepTech -- Historical Per DeepTech Common Share:
Basic and diluted loss per common share.................. $(0.08) $(0.93)
Cash dividends declared.................................. -- --
Book value............................................... 1.50 0.71
DeepTech -- Pro Forma Per DeepTech Common Share:
Basic and diluted loss per common share.................. $(0.15) $(0.47)
Cash dividends declared.................................. -- --
Book value............................................... 0.49(b) N/A
Unaudited Pro Forma Combined Per Share Data(a)(c):
Basic earnings per common share.......................... $ 0.42 $ 1.37
Diluted earnings per common share........................ 0.40 1.34
Cash dividends declared.................................. 0.19 0.73
Book value............................................... 17.48 N/A
DeepTech Equivalent Unaudited Pro Forma Combined Per Share
Data(a)(d):
Basic earnings per common share.......................... $ 0.19 $ 0.62
Diluted earnings per common share........................ 0.18 0.60
Cash dividends declared.................................. 0.09 0.33
Book value............................................... 7.83 N/A
</TABLE>
- - ---------------
(a) All common share and per share amounts have been adjusted to give
retroactive effect to a two-for-one stock split effected by El Paso in the
form of a 100 percent stock dividend distributed on April 1, 1998 to holders
of record of El Paso common stock on March 13, 1998.
(b) The DeepTech unaudited pro forma book value was calculated by dividing the
DeepTech pro forma net equity of $12.2 million by 24,920,057 outstanding
shares of DeepTech at March 31, 1998. However, from April 1, 1998 through
May 31, 1998, DeepTech options and warrants have been exercised to purchase
637,988 shares of DeepTech common stock at an average price of $4.47 per
share, resulting in $2.9 million of additional equity and a revised pro
forma book value of $0.59 per share. Additional warrants and options to
acquire 3,733,550 shares of DeepTech common stock at prices ranging from
$4.00 per share to $13.50 per share (or an average price of $5.11 per share)
remain outstanding. If all of the remaining warrants and options are
exercised prior to the Merger (all of the warrants and options are
"in-the-money"), pro forma book value of DeepTech would be $1.17 per share.
(c) The unaudited pro forma combined per share data assume that 50 percent of
the aggregate merger consideration is paid in cash and 50 percent in El Paso
common stock. An assumed per share price of $31.25 was used to calculate the
assumed El Paso common stock issued. Pro forma earnings per common share was
determined by combining, for each period, the net income of El Paso and the
pro forma net income of DeepTech, reducing the pro forma combined net income
for the amortization of excess purchase price of $3 million for the three
month period and $12 million for the year end period and dividing the
resulting total by the average number of shares outstanding for each period
increased by
25
<PAGE> 30
6.6 million shares assumed issued in the transaction. The following table
illustrates values based on other selected assumptions.
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
THREE MONTHS ENDED FISCAL YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
Share price of $31.25 assuming aggregate merger
consideration is 100% stock
Basic earnings per common share.................. $ 0.40 $1.30
Diluted earnings per common share................ 0.38 1.27
Book value....................................... 18.16 N/A
Share price of $18.00 assuming aggregate merger
consideration is 50% stock and 50% cash
Basic earnings per common share.................. $ 0.42 $1.37
Diluted earnings per common share................ 0.40 1.33
Book value....................................... 16.82 N/A
Share price of $18.00 assuming aggregate merger
consideration is 100% stock
Basic earnings per common share.................. $ 0.39 $1.29
Diluted earnings per common share................ 0.38 1.26
Book value....................................... 16.89 N/A
Share price of $44.00 assuming aggregate merger
consideration is 50% stock and 50% cash
Basic earnings per common share.................. $ 0.42 $1.38
Diluted earnings per common share................ 0.40 1.34
Book value....................................... 17.92 N/A
Share price of $44.00 assuming aggregate merger
consideration is 100% stock
Basic earnings per common share.................. $ 0.40 $1.31
Diluted earnings per common share................ 0.39 1.28
Book value....................................... 19.00 N/A
</TABLE>
(d) The DeepTech equivalent unaudited pro forma combined per share data are
calculated by multiplying the unaudited pro forma combined per share data by
the exchange ratio of 0.4480, which is calculated based on an assumed per
share price of El Paso common stock of $31.25.
26
<PAGE> 31
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA OF EL PASO
The summary financial data set forth below have been derived from the
financial statements of El Paso for each of the five fiscal years ended December
31, 1997 and the unaudited three-month periods ended March 31, 1998 and March
31, 1997. The financial statements for each of the five fiscal years for the
period ended December 31, 1997, have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The summary consolidated financial data set forth below
as of and for each of the three-month periods ended March 31, 1998 and 1997 were
derived from the unaudited condensed financial statements of El Paso and its
consolidated subsidiaries. In the opinion of El Paso's management, the summary
consolidated financial data of El Paso as of and for the three-month periods
ended March 31, 1998 and 1997, include all adjusting entries (consisting only of
normal recurring adjustments) necessary to present fairly the information set
forth therein. The results of operations for the three-month period ended March
31, 1998 should not be regarded as indicative of the results that may be
expected for the full year. This information should be read in conjunction with
the historical financial statements and notes thereto contained in the El Paso
Annual Report on Form 10-K for the year ended December 31, 1997 and the El Paso
Quarterly Report on Form 10-Q for the three-month period ended March 31, 1998,
which are incorporated by reference herein. See "AVAILABLE INFORMATION" and
"INCORPORATION OF DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
FIRST QUARTER
ENDED MARCH 31,
(UNAUDITED) YEAR ENDED DECEMBER 31,
---------------- --------------------------------------------
1998 1997 1997 1996(A) 1995(A) 1994 1993
------ ------ ------ ------- ------- ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIO)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results Data:
Operating revenues.......................... $1,619 $1,831 $5,638 $3,012 $1,038 $ 870 $ 909
Depreciation, depletion and amortization.... 65 67 236 101 72 65 54
Litigation special charge................... -- -- -- -- -- 15 --
Employee separation and asset impairment
charge.................................... -- -- -- 99 -- -- --
Operating income............................ 141 139 521 170 212 222 229
Income before income taxes and minority
interest.................................. 99 87 340 65 133 148 151
Income tax expense.......................... 35 34 129 25 48 58 59
Minority interest........................... 6 6 25 2 -- -- --
Net income available to common stock........ 58 47 186 38 85 90 92
Basic earnings per common share(b).......... 0.50 0.43 1.64 .53 1.24 1.23 1.23
Diluted earnings per common share(b)........ 0.48 0.42 1.59 .52 1.24 1.23 1.23
Cash dividends declared per share of common
stock(b).................................. .19 .18 .73 .70 .66 .61 .55
Basic average common shares
outstanding(b)............................ 115.9 111.2 114.0 72.3 69.0 73.3 74.4
Diluted average common shares
outstanding(b)............................ 121.7 113.2 117.4 73.2 69.0 73.3 74.4
Ratio of earnings to combined fixed charges
and preferred stock dividend
requirements.............................. 2.36 2.35 2.26 1.59 2.51 2.87 3.04
Financial Position Data:
Total assets................................ $9,591 $8,746 $9,532 $8,843 $2,535 $2,332 $2,270
Short-term debt (including current
maturities of long-term debt)............. 751 541 885 841 285 114 7
Long-term debt.............................. 2,115 2,194 2,119 2,215 772 779 796
Minority interest........................... 365 340 365 335 -- -- --
Stockholders' equity........................ 2,017 1,833 1,959 1,638 712 710 708
</TABLE>
- - ---------------
(a) Reflects the acquisitions in September 1995 of Eastex Energy Inc., December
1995 of Premier Gas Company, June 1996 of Cornerstone Natural Gas, Inc., and
December 1996 of El Paso Tennessee Pipeline Co.
(b) All common share and per share amounts have been adjusted to give
retroactive effect to a two-for-one stock split effected in the form of a
100 percent stock dividend distributed on April 1, 1998 to holders of record
of El Paso common stock on March 13, 1998.
27
<PAGE> 32
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF DEEPTECH
The summary selected historical consolidated financial data set forth below
at and for each of the nine months ended March 31, 1998 and 1997 and for each of
the three fiscal years ended June 30, 1997, 1996 and 1995 and at June 30, 1997
and 1996 were derived from the consolidated financial statements and notes
thereto that are incorporated by reference in this Proxy Statement/Prospectus.
The consolidated financial data at June 30, 1995 were derived from DeepTech's
historical consolidated financial statements.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
------------------------- ------------------------------
1998 1997 1997 1996 1995
----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating Results Data:
Operating revenue.................... $111,161 $107,384 $134,117 $ 55,434 $ 25,440
Operating expenses, excluding losses
of equity investees............... 91,611 96,008 127,259 48,196 21,483
Losses of equity investees........... 2,410 244 17,736 1,859 13,909
Net income (loss).................... 1,581 3,297 (19,834) 3,642 (8,428)
Weighted average number of common
shares outstanding................ 20,904 17,713 18,027 16,327 15,315
Basic net income (loss) per common
share............................. 0.08 0.19 (1.10) 0.22 (0.55)
Average number of shares outstanding
assuming dilution................. 24,464 20,325 18,027 16,942 15,315
Diluted net income (loss) per common
share............................. 0.06 0.16 (1.10) 0.21 (0.55)
Cash dividends declared per common
share............................. -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
------------------------- ------------------------------
1998 1997 1997 1996 1995
----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Financial Position Data:
Total assets......................... $234,465 $198,340 $228,218 $156,433 $127,693
Long-term debt....................... 96,414 155,460 164,561 97,534 91,381
Minority interest in consolidated
subsidiaries...................... 347 483 344 186 639
Stockholders' equity................. 37,378 23,204 5,539 12,282 2,382
</TABLE>
28
<PAGE> 33
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL DATA OF DEEPTECH
The unaudited pro forma consolidated financial information at and for the
three months ended March 31, 1998 and for the twelve months ended December 31,
1997 is based on assumptions and adjustments described on pages 80 through 86
and is not necessarily indicative of the results of operations that may be
achieved in the future.
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
PRO FORMA PRO FORMA
THREE MONTHS TWELVE MONTHS
ENDED ENDED
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Operating Results:
Operating revenue......................................... $12,165 $106,879
Operating expenses, excluding losses of equity
investees.............................................. 14,076 106,364
Losses of equity investees................................ 565 343
Net loss.................................................. (3,448) (9,141)
Weighted average number of common shares outstanding...... 22,473 19,466
Basic and diluted net loss per common share............... (0.15) (0.47)
Cash dividends declared per common share.................. -- --
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
MARCH 31, 1998
--------------
(IN THOUSANDS)
<S> <C> <C>
Financial Position Data:
Total assets.............................................. $137,312(a)
Long-term debt............................................ 96,414
Minority interests in consolidated subsidiaries........... 97
Stockholders' equity...................................... 12,240(a)
</TABLE>
- - ---------------
(a) From April 1, 1998 through May 31, 1998, options and warrants totaling
637,988 have been exercised to purchase an equivalent number of shares of
DeepTech common stock at an average price of $4.47 per share resulting in
$2.9 million of additional cash and equity. As of June 1, 1998, DeepTech had
outstanding warrants and options to acquire 3,733,550 shares of common stock
at prices ranging from $4.00 per share to $13.50 per share (or a weighted
average price of $5.11 per share) resulting in potential proceeds of $19.1
million.
29
<PAGE> 34
The following charts illustrate the corporate structure of DeepTech before
and after giving effect to the merger and related transactions.
Corporate Structure Chart
30
<PAGE> 35
The following charts illustrate the corporate structure of DeepTech
before and after giving effect to the Merger and related transactions.
DEEPTECH INTERNATIONAL INC.
CORPORATE STRUCTURE BEFORE THE MERGER
AND RELATED TRANSACTIONS
[Corporate Structure Chart]
31
<PAGE> 36
THE MERGER AND RELATED TRANSACTIONS
The discussion in this Proxy Statement/Prospectus of the Merger (as defined
below), related transactions and the principal terms of the Merger Agreement and
the Contribution and Distribution Agreement and certain related agreements is
subject to, and qualified in its entirety by reference to, the Merger Agreement,
Amendment No. 1 to the Merger Agreement and the Contribution and Distribution
Agreement, copies of which are attached to this Proxy Statement/Prospectus as
Appendices A-1, A-2 and B, respectively, and are incorporated herein by
reference. Unless the context otherwise requires, as used herein the term "El
Paso" refers to El Paso Natural Gas Company and its subsidiaries and the term
"DeepTech" refers to DeepTech International Inc. and its subsidiaries.
THE MERGER
On February 27, 1998, El Paso, El Paso Acquisition Company, a wholly owned
subsidiary of El Paso ("Merger Sub") and DeepTech executed an Agreement and Plan
of Merger (the "Original Merger Agreement"), pursuant to which DeepTech will be
combined with El Paso pursuant to a merger (the "Original Merger") between
DeepTech and El Paso or, under certain circumstances, Merger Sub. See "THE
MERGER AGREEMENT -- Special Cash Rights; Restructuring of Merger." On June 16,
1998, El Paso, Merger Sub, El Paso Energy Corporation, a wholly owned subsidiary
of El Paso ("El Paso Energy") and DeepTech executed Amendment No. 1 ("Amendment
No. 1") to the Original Merger Agreement (as so amended, the "Amended Merger
Agreement"). Pursuant to Amendment No. 1, if DeepTech stockholders approve the
Amended Merger Agreement and the holding company reorganization occurs prior to
the Effective Time (as defined below), DeepTech will merge (the "Amended
Merger," and together with the "Original Merger," the "Merger") with El Paso
Energy, or under certain circumstances, a subsidiary of El Paso Energy. See "THE
MERGER AGREEMENT -- Amendment No. 1." The Merger will become effective upon the
filing of the Certificate of Merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware. Subject to receipt of requisite
regulatory approval, the filing of the Certificate of Merger will occur as soon
as practicable following the satisfaction or waiver of the conditions set forth
in the Merger Agreement. As used in the Merger Agreement and herein, the time at
which the Merger becomes effective will be the "Effective Time." See "THE MERGER
AGREEMENT -- Conditions Precedent."
In the Merger, each share of common stock, par value $0.01 per share, of
DeepTech (the "DeepTech Common Stock") issued and outstanding immediately before
the Effective Time (excluding those held in the treasury of DeepTech and those
owned by El Paso) will be converted into the right to receive, at the election
of the holder thereof, (i) a fraction of a share of common stock, par value
$3.00 per share (the "El Paso Common Stock"), of El Paso (a "Stock Election"),
including the associated El Paso Rights (as defined below) (collectively, the
"Stock Consideration"), with a value of $14.00 per share, based upon the average
of the closing sales prices of a share of El Paso Common Stock on the New York
Stock Exchange (the "NYSE") during the ten consecutive trading days ending on
and including the trading day immediately prior to the Effective Time (the
"Average Price") (provided that, if the Average Price is more than $37.50, the
Average Price will be deemed for this purpose to be $37.50, and if the Average
Price is less than $25.00, the Average Price will be deemed for this purpose to
be $25.00) (the "Exchange Ratio"); or (ii) $14.00 in cash (a "Cash Election"),
without interest (the "Cash Consideration" and, together with the Stock
Consideration, the "Merger Consideration"). The Stock Consideration and the Cash
Consideration will be adjusted to reflect any change in the number of shares of
DeepTech Common Stock outstanding on a fully diluted basis between the date of
the Merger Agreement and the Effective Time. The Stock Consideration will also
be adjusted to reflect any changes in the El Paso Common Stock between the date
of the Merger Agreement and the Effective Time by reason of any stock split,
stock dividend, subdivision, reclassification, combination, exchange of El Paso
Common Stock or similar transaction. The calculation of the Average Price for
purposes of determining the Exchange Ratio described above takes into account
the effect of the 2-for-1 stock split of El Paso Common Stock on April 1, 1998
(the "El Paso Stock Split").
Each share of El Paso Common Stock issued to holders of DeepTech Common
Stock in the Merger will be issued together with one-half of an associated
preferred stock purchase right ("El Paso Rights") under the
32
<PAGE> 37
Amended and Restated Shareholder Rights Agreement (the "El Paso Rights
Agreement"), dated as of July 23, 1997, between El Paso and The First National
Bank of Boston as Rights Agent. Cash will be paid in lieu of fractional share of
El Paso Common Stock.
If DeepTech stockholders approve the Amended Merger Agreement and the
holding company reorganization occurs prior to the Effective Time of the Merger,
all references in this Proxy Statement/Prospectus to El Paso will be deemed
references to El Paso Energy and references to El Paso Common Stock will be
deemed references to El Paso Energy common stock. Each share of El Paso Energy
common stock issued to holders of DeepTech Common Stock in the Merger will be
issued together with one associated preferred stock purchase right under the
Shareholder Rights Agreement between El Paso Energy and BankBoston, N.A., as
rights agent.
The shares of El Paso Common Stock issued to DeepTech stockholders in
connection with the Merger will constitute a maximum of approximately % of
all of the outstanding El Paso Common Stock after the Merger based on the number
of shares of El Paso Common Stock and DeepTech Common Stock outstanding on
, 1998 (assuming an Exchange Ratio of 0.4480). The current El Paso
stockholders will hold approximately % of the outstanding shares of El Paso
Common Stock after the Merger.
Each outstanding and unexercised option (each, a "DeepTech Option") to
purchase shares of DeepTech Common Stock will be assumed by El Paso in the
Merger and converted into an option to purchase shares of El Paso Common Stock
(each, a "Substitute Option"), or (ii) at the option of the holder of such
DeepTech Option, exercisable by written notice to DeepTech prior to the
Effective Time, will be canceled immediately prior to the Effective Time in
exchange for a payment in cash (a "Cash-out Option"). The cash payment for each
Cash-out Option will be equal to the product of (x) the number of shares of
DeepTech Common Stock subject to such DeepTech Option and (y) the excess of the
Cash Consideration over the exercise price per share of DeepTech Common Stock
subject to such DeepTech Option. Assuming that none of the DeepTech Option
holders elect to receive cash with respect to their DeepTech Options,
approximately million shares of El Paso Common Stock will be subject to
such converted options based on the number of shares of DeepTech Common Stock
subject to the existing DeepTech Options multiplied by the Exchange Ratio, and
the exercise price with respect thereto would equal the exercise price under the
DeepTech Options divided by the Exchange Ratio.
Each warrant (a "Warrant") to purchase shares of DeepTech Common Stock
outstanding immediately prior to the Effective Time pursuant to any of the
warrant agreements (the "Warrant Agreements") between certain individuals and
DeepTech will remain outstanding after the Effective Time and will represent the
right to receive, upon exercise of such Warrant, solely the Merger Consideration
receivable by a holder of the number of shares of DeepTech Common Stock for
which such Warrant is exercisable immediately prior to the Merger. For the
purpose of determining the form of Merger Consideration receivable in respect of
any such Warrant, such Warrant will be treated in the same manner as any share
of DeepTech Common Stock as to which a Stock Election has been made. A maximum
of approximately million shares of El Paso Common Stock would be subject to
such Warrants based on the number of shares of DeepTech Common Stock subject to
the existing Warrants multiplied by the Exchange Ratio.
BACKGROUND AND REASONS FOR THE MERGER; RECOMMENDATION OF THE DEEPTECH BOARD
In March of 1997, Mr. Ralph Eads, who at that time was a director of
DeepTech, began discussions with senior management of El Paso regarding a
possible transaction between DeepTech and El Paso. In a subsequent discussion
with El Paso management, Mr. Eads provided El Paso with his opinion as to what
form of transaction would be best for the stockholders of DeepTech. Donaldson,
Lufkin & Jenrette Securities Corporation, Mr. Eads' employer, has an ongoing
investment banking relationship with El Paso.
On July 24, 1997, Messrs. Thomas P. Tatham and Charles M. Darling, IV of
DeepTech met with El Paso's Chairman, Mr. William Wise, and Mr. Eads. At this
meeting Mr. Wise informed Mr. Tatham that El Paso was interested in acquiring
either DeepTech or Leviathan.
33
<PAGE> 38
DeepTech's Board of Directors (the "DeepTech Board") had considered from
time to time the state of the merger and acquisition activity in the oil and gas
industry. Following the expression of interest from El Paso, the DeepTech Board
determined that DeepTech should engage in a "market check" to determine the
value of DeepTech. Accordingly, the DeepTech Board authorized Messrs. Tatham and
Grant E. Sims to contact selected third parties to determine what interest they
would have with respect to the possible sale or merger of either DeepTech or
Leviathan in the event that DeepTech chose to go forward (the "Possible
Transaction"). In giving such authorization, the DeepTech Board emphasized that
Messrs. Tatham and Sims should concentrate on potential purchasers that were in
the energy business. Shortly thereafter, Messrs. Tatham and Sims contacted at
least five large energy companies that they determined to be the best strategic
fit for DeepTech. Three of these companies seriously considered entering into a
Possible Transaction. Two of these companies, one being El Paso, ultimately
provided definitive proposals to purchase either DeepTech or Leviathan.
In the fall of 1997, Mr. Wise presented Mr. Tatham with a proposal in which
El Paso would purchase all of DeepTech, including its interest in Tatham
Offshore. Mr. Tatham considered such offer and discussed it with various members
of the DeepTech Board. After due consideration, the DeepTech Board determined
that such offer did not attribute sufficient value to DeepTech's two
semi-submersible drilling rigs. Therefore, Mr. Tatham informed Mr. Wise that the
DeepTech Board was not prepared to accept such an offer.
Sometime thereafter, Mr. Tatham met with Mr. Wise to discuss the Possible
Transaction and whether such Possible Transaction would include DeepTech's two
semi-submersible drilling rigs and its common and preferred stock of Tatham
Offshore.
In response to this meeting, on December 18, 1997, Mr. Wise sent a letter
to Mr. Tatham proposing a Possible Transaction by which DeepTech would merge
with El Paso pursuant to a merger in which DeepTech stockholders would receive
$14.00 in El Paso Common Stock or cash after DeepTech had disposed of the two
drilling rigs and its Tatham Offshore stock.
On December 19, 1997, the DeepTech Board met to discuss the latest El Paso
proposal as well as another proposal from a major industry participant. After
extensive discussion, it became apparent that the competing proposal was clearly
inferior to El Paso's in terms of both value and structure. The DeepTech Board
decided to appoint an independent committee (the "Independent Committee") headed
by Ms. Nancy Quinn as Chairperson to (i) determine if it was in the best
interest of DeepTech and its stockholders for DeepTech to continue to pursue its
business strategy as currently contemplated or to pursue a strategic alliance, a
business combination or the sale of a substantial portion of, or all or
substantially all of, its assets, including reviewing and analyzing the fairness
of the proposal from El Paso, (ii) evaluate the terms of the proposal from El
Paso and any other proposal, with a view towards identifying the best available
transaction for all stockholders, and, if appropriate, any arrangements related
to the foregoing and (iii) report their conclusions and recommendations to the
DeepTech Board. Furthermore, the DeepTech Board instructed Mr. Tatham to
continue negotiations, and in connection therewith, to enter into an agreement
providing for an exclusive period of negotiation and a mechanism for each party
to conduct a due diligence review.
Immediately after this DeepTech Board meeting, Ms. Quinn initiated regular
discussions with Mr. Rick L. Burdick of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., DeepTech's outside counsel, and representatives of Chase Securities Inc.
("Chase Securities"), a candidate to become the Independent Committee's
financial advisor, to monitor the status of negotiations between DeepTech and El
Paso regarding the Possible Transaction. She reported such discussions to the
other members of the Independent Committee.
On December 22, 1997, DeepTech and El Paso entered into a letter agreement
providing for an exclusive period of negotiation, access to books and records
for due diligence and confidentiality. The letter agreement further contemplated
the negotiation of definitive merger agreements.
Thereafter, during the last days of December and throughout January,
representatives of El Paso engaged in a due diligence review of DeepTech's
business, including a review of its prospects and its engineering, financial,
legal, tax and accounting matters. In addition, these representatives discussed
various organizational, financial and structural issues with respect to the
proposed transaction.
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In late December 1997, El Paso delivered initial drafts of a merger
agreement and related documents to DeepTech and its counsel. Beginning in early
January 1998, representatives of El Paso, DeepTech and their respective counsel
engaged in negotiations regarding the draft merger agreement and related
documents.
During the first two weeks of January 1998, Ms. Quinn was in regular
communication with Mr. Burdick and various members of DeepTech management about
the details and status of the negotiations. On January 14 and 15, 1998, Ms.
Quinn attended meetings in Houston, Texas with members of DeepTech's management,
including Messrs. Tatham, Darling and Weir. In addition, Mr. Burdick and
representatives of Chase Securities attended portions of such meetings. During
those meetings, Ms. Quinn discussed the ongoing negotiations between DeepTech
and El Paso with those members of management and was briefed on the issues
outstanding between the parties with respect to the Possible Transaction. After
those meetings, Ms. Quinn reported the status of the negotiations and the
important outstanding issues to the other members of the Independent Committee.
On January 20, 1998, the Independent Committee held a meeting to further
discuss the Possible Transaction. In addition to the members of the Independent
Committee, Messrs. Robert K. Payson and Donald J. Wolfe, Jr. of the Delaware law
firm of Potter Anderson & Corroon LLP ("Potter Anderson"), which had been
retained on January 12, 1998 as special counsel to the Independent Committee,
attended such meeting. Potter Anderson regularly acts as Delaware corporate
counsel to El Paso, and this was disclosed by Potter Anderson to the Independent
Committee.
At that meeting, the Independent Committee discussed various topics related
to the Possible Transaction, including (i) the status of negotiations and (ii)
the range of compensation that would be paid to Chase Securities for formally
serving as the Independent Committee's financial advisor. In addition, Messrs.
Payson and Wolfe advised the members of the Independent Committee on their
fiduciary obligations to DeepTech in connection with any Possible Transaction.
At about 4:30 p.m. on the day of the meeting, Mr. Kevin McQuilken, Vice
President of Chase Securities and other representatives of Chase Securities
(including its counsel) joined the meeting. The members of the committee
confirmed Chase Securities' expertise in valuations in the oil and gas industry
and its prior relationships with DeepTech and El Paso. However, the Independent
Committee members requested that Chase Securities reconsider Chase Securities'
proposed compensation. After that discussion, the Chase Securities
representatives left the meeting. Ms. Quinn then requested that Mr. Payson
negotiate a final engagement letter (subject to agreement as to compensation)
between the Independent Committee and Chase Securities pursuant to which Chase
Securities would formally serve as the Independent Committee's independent
financial advisor. Ms. Quinn and the representatives of Chase Securities agreed
on a fee and Chase Securities executed an engagement letter with DeepTech which
had been negotiated by Mr. Payson and representatives of Chase Securities.
After thorough deliberation and discussion, the Independent Committee
members noted that on a preliminary basis (i) the El Paso proposal appeared to
present the best value obtainable for DeepTech and (ii) the tax implications of
the El Paso proposal appeared to be the most advantageous among all of the
transactions proposed to date. The Independent Committee reviewed a list of open
issues which had been provided by Mr. Burdick and instructed counsel to
negotiate a right of termination in the event that a superior transaction was
presented to DeepTech after the DeepTech Board approval, but before closing, of
a transaction with El Paso. Ms. Quinn advised the other members of the
Independent Committee that she would keep them informed about the continuing
negotiations between DeepTech and El Paso.
Between January 21 and February 5, 1998, Ms. Quinn had numerous
conversations with Mr. Burdick, representatives of Chase Securities,
representatives of DeepTech (including Mr. Tatham and Mr. Darling), and the
other Independent Committee members regarding the El Paso proposal. The primary
focus of these conversations was to develop a complete understanding of, and
provide input on, the principal terms and conditions of the proposed business
combination between DeepTech and El Paso as they evolved throughout the
negotiations.
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The Independent Committee met again on February 5, 1998, which meeting Mr.
Payson attended. Mr. Payson reported to the Independent Committee that in
connection with his efforts to re-negotiate the provision discussed in the
previous Independent Committee meeting, El Paso's counsel had advised him on El
Paso's behalf that if DeepTech demanded flexibility from El Paso on that
particular issue, then El Paso would withdraw or materially and adversely alter
its proposal. Notwithstanding such position, Mr. Payson had been able to
negotiate a right of termination in the event that a superior offer was received
by DeepTech prior to the approval of the proposed transaction with El Paso by
the holders of a majority of the outstanding shares of DeepTech.
At about 6 p.m. that day, representatives of Chase Securities joined the
meeting and distributed a book prepared by them to each committee member and Mr.
Payson containing statistics and analyses of the businesses of DeepTech and El
Paso. A lengthy discussion ensued among the group regarding: (i) the terms and
structure of the Merger, (ii) the current environment of the oil and gas
industry, (iii) the strategic rationale for the proposed merger, (iv) the tax
consequences of the Merger, and (v) the reasons for the Merger. At the
conclusion of that discussion, Chase Securities advised the Independent
Committee that, in their opinion, the proposed transaction between DeepTech and
El Paso was fair from a financial point of view. The representatives of Chase
Securities then left the meeting. See "-- Opinion of DeepTech's Financial
Advisor".
The members of the committee then discussed Chase Securities' presentation
and opinion, the background of the proposed business combination with El Paso
(including prior expressions of interest from and discussions with third
parties), the current terms and conditions of the proposal and the advice by
counsel. The Independent Committee then unanimously agreed to recommend to the
DeepTech Board the proposed business combination between DeepTech and El Paso as
being fair to, and in the best interest of, DeepTech's stockholders.
On February 6, 1998, the DeepTech Board met to discuss the status of the
negotiations with El Paso. Messrs. Burdick and Payson were present at the
meeting. Prior to the meeting, DeepTech's management had given to the directors
copies of (i) the letter dated December 18, 1997 from Mr. Wise to Mr. Tatham and
the letter dated December 22, 1997 from Mr. Tatham to Mr. Wise regarding the
proposed business combination of the two companies, (ii) an outline of the terms
of the Merger, and (iii) drafts of the definitive agreements with respect to the
Merger. At the meeting, DeepTech's management and Mr. Burdick gave a
presentation regarding the proposed transaction to the directors. This
presentation included a summary of: (i) the terms and structure of the Merger,
(ii) the tax consequences of the Merger, and (iii) an expected timetable for the
Merger.
After the presentation by management and Mr. Burdick, representatives of
Chase Securities joined the meeting and distributed a book prepared by them to
each of the directors containing statistics and analyses of the businesses of
DeepTech and El Paso. Following a detailed presentation by Chase Securities of
its financial analyses (see "-- Opinion of DeepTech's Financial Advisor"), and
discussion among the directors and the representatives of Chase Securities,
Chase Securities delivered its written opinion that the consideration to be
received by the holders of DeepTech Common Stock in connection with Merger was
fair, from a financial point of view, to such holders.
Following the presentation by Chase Securities, Ms. Quinn, on behalf of the
Independent Committee, reported that such committee, at its meeting on February
5, 1998, had unanimously concluded that the Merger was fair to, and in the best
interests of, DeepTech's common stockholders, and recommended its approval to
the DeepTech Board.
Following the recommendation of the Independent Committee, DeepTech's Board
unanimously voted in favor of the Merger and the transactions contemplated
thereby. In reaching its determination, the DeepTech Board consulted with
DeepTech's management, as well as its financial and legal advisors, and
considered the following material factors:
- the prospects for DeepTech's continued performance as an independent
company;
- the results of the "market check" completed by Mr. Tatham and Mr. Sims;
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- the alternative proposal DeepTech had received;
- the ability of DeepTech stockholders to take El Paso stock or cash in the
transaction;
- the fact that DeepTech stockholders would be able to substantially
preserve their ownership interests in DeepTech's offshore contract
drilling services business and Tatham Offshore; and
- the opinion of Chase Securities to the DeepTech Board that as of such
date and, based upon and subject to, certain matters stated therein, from
a financial point of view, the Merger consideration offered to DeepTech's
stockholders was fair to such stockholders.
See "-- Opinion of DeepTech's Financial Advisor" for a discussion of Chase
Securities' opinion, which is subject to certain limitations, qualifications and
assumptions. A copy of Chase Securities' opinion is included as Appendix C to
this Proxy Statement/Prospectus and should be read carefully in its entirety.
The DeepTech Board also considered other factors such as (i) the strategic,
operational and financial opportunities available to DeepTech in the normal
course of its business compared to those that might be available following the
Merger, (ii) the historical and current market prices of DeepTech Common Stock
and El Paso Common Stock and (iii) the proposed structure of the transaction and
the other terms of the Merger Agreement and related agreements.
Furthermore, the DeepTech Board deliberated on the potential risks and
disadvantages of the Merger, including the risk (i) that the operations of the
two companies would not be successfully integrated, and (ii) that the business
combination may not be completed as a result of a failure to satisfy the
conditions precedent to the Merger. In the judgment of the DeepTech Board, the
potential benefits of the Merger outweighed the potential risks and
disadvantages.
Although the foregoing discussion of the factors that the DeepTech Board
considered in reaching its decision is not exhaustive, it is believed to include
all of the material factors the DeepTech Board considered. Because of the
variety of factors considered in connection with its evaluation of the Possible
Transaction and the terms of the Merger Agreement, the DeepTech Board did not
deem it practicable to, and did not, quantify or otherwise assign relative
weights to the specific factors it considered in reaching its conclusions.
Moreover, individual directors may have given different weights to different
factors.
From February 6, 1998 through February 27, 1998, DeepTech and El Paso
continued to negotiate various tax and other structure related provisions.
Throughout this process, DeepTech management provided the DeepTech Board members
with ongoing drafts of the merger documents.
On the evening of February 27, 1998, the DeepTech Board met telephonically
to again ratify their approval and authorization of (i) the Merger as
contemplated by the final merger documents and (ii) the execution of such final
merger documents by the appropriate representatives of DeepTech. Ms. Quinn gave
a full report to the DeepTech Board on the results of the negotiation of the
remaining tax and structural issues as well as the final changes to the terms
and conditions of the Merger. After several questions and a discussion, the
DeepTech Board concluded that the transaction remained substantially the same as
previously approved. The DeepTech Board unanimously ratified their prior
approval and authorization.
On June 16, 1998, the parties executed Amendment No. 1 to the Merger
Agreement.
OPINION OF DEEPTECH'S FINANCIAL ADVISOR
At the February 5, 1998 meeting of the Independent Committee, Chase
rendered to the Independent Committee an oral opinion, which was followed by an
oral presentation to the DeepTech Board on February 6, 1998 and confirmed by
delivery of its written opinion dated February 6, 1998 (the "Chase Opinion"), to
the effect that, as of such date, and based upon and subject to various
qualifications and assumptions described therein, the Consideration to be
received by the holders of DeepTech Common Stock in connection with the Merger
is fair, from a financial point of view, to such holders. As used in the Chase
Opinion, the term "Consideration" means the cash or El Paso Common Stock and the
rights issued pursuant to a Rights Offering to be received by the holders of
DeepTech Common Stock in connection with the Merger.
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THE FULL TEXT OF THE CHASE OPINION, WHICH SETS FORTH ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS ON THE SCOPE OF REVIEW UNDERTAKEN, IS ATTACHED AS
APPENDIX C TO THIS PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS OF DEEPTECH ARE
URGED TO READ THE CHASE OPINION IN ITS ENTIRETY. NO LIMITATIONS WERE IMPOSED BY
DEEPTECH UPON CHASE WITH RESPECT TO THE INVESTIGATIONS MADE OR PROCEDURES
FOLLOWED BY CHASE IN RENDERING ITS OPINION. CHASE WAS NOT REQUESTED TO, AND DID
NOT, GENERALLY SOLICIT OFFERS FROM THIRD PARTIES TO ACQUIRE ALL OR PART OF
DEEPTECH. THE CHASE OPINION, WHICH IS ADDRESSED TO THE INDEPENDENT COMMITTEE AND
THE DEEPTECH BOARD, IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, TO THE HOLDERS OF DEEPTECH COMMON STOCK, OF THE CONSIDERATION TO BE
RECEIVED BY SUCH HOLDERS IN CONNECTION WITH THE MERGER, AND DOES NOT EXPRESS ANY
OPINION AS TO THE UNDERLYING DECISION BY DEEPTECH TO ENGAGE IN THE MERGER OR
CONSUMMATE ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY. THE CHASE OPINION DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF DEEPTECH COMMON STOCK AS TO
WHETHER SUCH HOLDER SHOULD ELECT TO RECEIVE CASH OR EL PASO COMMON STOCK IN
CONNECTION WITH THE MERGER. THE SUMMARY OF THE CHASE OPINION SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION. THE CHASE OPINION DOES NOT CONSTITUTE AN OPINION AS TO THE
PRICE AT WHICH THE SHARES OF EL PASO COMMON STOCK OR THE TATHAM OFFSHORE CAPITAL
STOCK WILL ACTUALLY TRADE FOLLOWING CONSUMMATION OF THE MERGER, NOR DOES THE
CHASE OPINION CONSTITUTE AN OPINION AS TO WHETHER A HOLDER OF A RIGHT SHOULD
EXERCISE SUCH RIGHT.
In connection with the Chase Opinion, Chase, among other things, (i)
reviewed a draft of the Merger Agreement and a draft of the Contribution and
Distribution Agreement in the form provided to it and assumed that the final
forms of the Merger Agreement and the Contribution and Distribution Agreement
would not vary in any regard material to Chase's analysis; (ii) reviewed certain
publicly available business and financial information that Chase deemed relevant
relating to DeepTech, El Paso, Tatham Offshore and Leviathan, as well as the
respective industries in which they operate; (iii) discussed, with members of
management of DeepTech, Leviathan and El Paso, DeepTech's, Leviathan's and El
Paso's respective operations, historical financial statements and future
prospects, as well as such other matters as Chase deemed necessary or
appropriate; (iv) reviewed certain internal non-public financial and operating
data provided to it by or on behalf of the management of DeepTech, Leviathan and
El Paso relating to their respective businesses, including certain forecast and
projection information as to future financial results of such businesses; (v)
compared the financial and operating performance of DeepTech, Leviathan and El
Paso with publicly available information concerning certain other companies
Chase deemed comparable and reviewed the relevant stock market information for
such other companies; (vi) reviewed the financial terms of certain recent
business combinations and acquisition transactions Chase deemed reasonably
comparable to the Merger and otherwise relevant to its inquiry; and (viii) made
such other analyses and examinations as Chase deemed necessary or appropriate.
Chase assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for it, or publicly
available, for purposes of the Chase Opinion, and further relied upon the
assurances of management of DeepTech, Leviathan and El Paso that they were not
aware of any facts that would make such information inaccurate or misleading.
Chase neither made nor obtained any independent evaluations or appraisals of the
assets or liabilities of DeepTech, Leviathan or El Paso, nor did it conduct a
physical inspection of the properties and facilities of DeepTech, Leviathan or
El Paso. Chase assumed that the financial forecast and projection information
provided to it by or on behalf of DeepTech, Leviathan and El Paso were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of DeepTech, Leviathan and El Paso,
respectively, as to the future financial performance of such companies.
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For purposes of the Chase Opinion, Chase assumed that the representations
and warranties of each party contained in the Merger Agreement are true and
correct in all material respects, and that each party will perform in all
material respects all of the covenants and agreements required to be performed
by it under the Merger Agreement and that all conditions to the consummation of
the Merger will be satisfied without waiver thereof. The Chase Opinion is
necessarily based on market, economic and other conditions as they existed and
could be evaluated on the date of the Chase Opinion.
The following summarizes the material analyses performed by Chase and
reviewed with the Independent Committee at its meeting on February 5, 1998 in
connection with Chase's presentation and its opinion to the Independent
Committee on such date:
DeepTech Valuation Analysis -- General
In connection with the Chase Opinion, Chase performed various financial
analyses with respect to each of the principal business segments of DeepTech.
Such analyses, which are summarized below, indicated a potential value range of
$140.0 million to $175.0 million for DeepTech's beneficial interest in the
Leviathan Common Units, $150.0 million to $185.0 million for DeepTech's
beneficial interest in Leviathan Gas Pipeline Company, the general partner of
Leviathan (the "Leviathan General Partner"), $170.0 million to $230.0 million
for DeepTech's interest in DeepFlex and $20.0 million to $30.0 million for
DeepTech's interest in Tatham Offshore. Chase computed the sum of such value
ranges and then subtracted the outstanding indebtedness of DeepTech as of
December 31, 1997, and calculated an estimated value range for the DeepTech
Common Stock of $12.54 to $17.90 per share. Each step of this analysis involved
various complex judgments and determinations as to the most appropriate and
relevant assumptions and financial analyses, as well as the application of
various methods to the particular circumstances involved. The value ranges
produced by such analyses are therefore only estimates, and should not be taken
to represent definitive determinations of value.
Leviathan Common Units (DeepTech Beneficial Interest) Valuation
Analysis -- General. Chase performed a variety of analyses in order to estimate
the potential value of DeepTech's beneficial interest in the Leviathan Common
Units. In order to estimate the potential value of such beneficial interest,
Chase determined the potential value range for the outstanding Common Units of
Leviathan and multiplied that range by DeepTech's beneficial interest in such
units.
Leviathan Common Units (DeepTech Beneficial Interest) -- Selected
Comparable Company Analysis. Chase reviewed certain publicly available financial
and operating data of selected publicly traded master limited partnerships
("MLPs") engaged in the pipeline business (Buckeye Partners, L.P., Kaneb
Pipeline Partners, L.P., Kinder Morgan Energy Partners, L.P., Lakehead Pipe Line
Partners, L.P., Northern Border Partners, L.P., and Teppco Partners, L.P.) to
determine a range of certain financial multiples for such companies. Historical
financial information used in connection with the percentages, multiples and
ratios provided below with respect to the selected comparable companies was as
of the date of the most recent financial statements publicly available for each
MLP.
Chase calculated and compared various financial multiples and ratios for
each of the selected companies using latest twelve months ("LTM") ended
September 30, 1997 reported financial statements and estimated calendar year
1998 financial performance based on publicly available equity analyst research
reports. Such analysis indicated that for the selected MLPs Total Enterprise
Value (defined as total market value of common equity plus the liquidation value
of outstanding preferred equity plus net outstanding indebtedness) as a multiple
of LTM earnings before interest, taxes, depreciation and amortization ("EBITDA")
ranged from 8.5x to 18.9x, Total Enterprise Value, as a multiple of estimated
1998 cash distributions in respect of common partnership units ranged from 12.7x
to 16.6x, and ratios of LTM cash distributions to market price as of February 4,
1998 ranged from 6.4% to 7.3%. Based on its selected comparable company
analysis, Chase estimated a valuation range for DeepTech's beneficial interest
in the Leviathan Common Units of $140.0 million to $180.0 million. In order to
determine Leviathan's estimated 1998 cash distributions for comparison purposes,
Chase used projections provided to it by Leviathan.
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Leviathan Common Units (DeepTech Beneficial Interest) -- Selected
Transactions
Analysis. Chase analyzed certain publicly available information relating to six
selected transactions in the pipeline industry since 1996. The selected
transactions reviewed were Shell Oil Co./Tejas Gas Corp., Koch Midstream
Enterprises, Inc./Delhi Gas Pipeline Corp., Tejas Gas Corp./Transok, Inc.,
Kinder Morgan Energy Partners, L.P./Santa Fe Pacific Pipeline Partners, L.P., KN
Energy, Inc./MidCon Corp. and Duke Power Co./PanEnergy Corp. Chase's analysis
indicated that for the selected transactions Total Enterprise Value ranged from
8.6x to 13.9x LTM EBITDA. Based on its selected transactions analysis, Chase
estimated a valuation range for DeepTech's beneficial interest in the Leviathan
Common Units of $130.0 million to $190.0 million.
Leviathan Common Units (DeepTech Beneficial Interest) -- Discounted Cash
Flow Analysis. Chase performed a discounted cash flow analysis of the estimated
cash distributions in respect of DeepTech's beneficial interest in the Leviathan
Common Units on a stand-alone basis for the five fiscal years ending December
31, 2002. This analysis was based upon certain financial projections provided to
Chase by Leviathan. Chase applied discount rates ranging from 6.0% to 8.0% and
terminal value multiples of projected cash distributions in 2002 of 13.0x, 14.5x
and 16.0x. Based upon its discounted cash flow analysis, Chase estimated a
valuation range for DeepTech's beneficial interest in the Leviathan Common Units
of $140.0 million to $170.0 million.
Leviathan General Partner (DeepTech Beneficial Interest) Valuation
Analysis -- General. Chase performed a variety of analyses in order to estimate
the potential value of DeepTech's beneficial interest in the Leviathan General
Partner. In order to estimate the potential value of such beneficial interest,
Chase determined the potential value range for the Leviathan General Partner and
multiplied that range by DeepTech's beneficial interest in such entity.
Leviathan General Partner (DeepTech Beneficial Interest) -- Selected
Transactions Analysis. Chase analyzed certain publicly available information
relating to two selected pipeline transactions involving the purchase of an
MLP's general partnership interest. The selected transactions reviewed were
Kinder Morgan Energy Partners, L.P./Santa Fe Pacific Pipeline Partners, L.P. and
Kinder Morgan Energy Partners, L.P./Enron Liquids Co. Chase's analysis indicated
that for the selected transactions the purchase price ranged from 21.0x to 23.0x
LTM cash distributions in respect of general partnership interests. Based on its
selected transactions analysis, Chase estimated a valuation range for DeepTech's
beneficial interest in the Leviathan General Partner of $180.0 million to $200.0
million.
Leviathan General Partner (DeepTech Beneficial Interest) -- Discounted Cash
Flow Analysis. Based on projections provided to it by Leviathan, Chase performed
a discounted cash flow analysis of the estimated cash distributions in respect
of DeepTech's beneficial interest in the Leviathan General Partner for the five
fiscal years ending December 31, 2002. Distributions to DeepTech were based on
projections provided by Leviathan, DeepTech's beneficial interest in the
Leviathan General Partner, and the schedule of incentive distributions to the
Leviathan General Partner as stated in the Partnership Agreement of Leviathan.
Chase applied assumed discount rates ranging from 6% to 8% and terminal value
multiples of estimated cash distributions in respect of the Leviathan General
Partner interest in 2002 of 21.0x, 22.0x and 23.0x. Based upon its discounted
cash flow analysis, Chase estimated a valuation range for DeepTech's beneficial
interest in the Leviathan General Partner of $130.0 million to $170.0 million.
DeepFlex -- Selected Comparable Company Analysis. Chase reviewed certain
publicly available financial and operating data of selected publicly traded
companies whose business may be classified as operating drilling rigs on a
contract basis (Atwood Oceanics, Inc., Cliffs Drilling Company, Diamond Offshore
Drilling, Inc., ENSCO International Incorporated, Global Marine Inc., Marine
Drilling Companies, Inc., Noble Drilling Corporation, R&B Falcon Corporation,
and Transocean Offshore Inc.) to determine a range of certain financial
multiples for such companies. Historical financial information used in
connection with the percentages, multiples and ratios provided below with
respect to the selected comparable companies was as of the date of the most
recent financial statements publicly available for each company.
Chase calculated and compared various financial multiples and ratios for
each of the selected companies using estimated calendar year 1998 and 1999
financial performance based on publicly available equity analyst
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research reports. Such analysis indicated that Total Enterprise Value ranged
from 5.6x to 8.8x 1998 estimated EBITDA and from 3.7x to 6.6x 1999 estimated
EBITDA, and that the ratio of common stock market price as of February 4, 1998
to 1998 estimated earnings per share ("P/E Ratio") ranged from 10.0x to 15.8x.
Based on its selected comparable company analysis, Chase estimated a valuation
range for DeepFlex of $190.0 million to $240.0 million. In order to determine
DeepFlex's estimated 1998 and 1999 EBITDA for comparison purposes, Chase used
projections provided to it by DeepTech.
DeepFlex -- Selected Transactions Analysis. Chase analyzed certain publicly
available information relating to 10 selected transactions in the drilling rig
contracting industry since 1993. The selected transactions reviewed were Sonat
Offshore Drilling, Inc./Transocean A/S, ENSCO International Inc./Dual Drilling
Co., Diamond Offshore Drilling, Inc./Arethusa (Offshore) Ltd., Energy Service
Company, Inc./Penrod Holding Corp., Pride Petroleum Services,
Inc./Forasol-Foramer NV, Falcon Drilling Co./Reading & Bates Corp., Parker
Drilling Co./Mallard Bay Drilling Inc., Parker Drilling Co./Hercules Offshore
Corp./Hercules Rig Corp., Noble Drilling Corp./Neddrill Holding BV and Noble
Drilling Corp./Chiles Offshore Corp. Chase's analysis indicated that for the
selected transactions Total Enterprise Value ranged from 6.6x to 30.7x LTM
EBITDA and equity consideration ranged from 1.1x to 4.2x book value. Based on
its selected transactions analysis, Chase estimated a valuation range for
DeepFlex of $200.0 million to $340.0 million.
DeepFlex -- Discounted Cash Flow Analysis. Based on projections provided to
it by DeepTech and DeepFlex, Chase performed a discounted cash flow analysis of
the projected free cash flows of DeepFlex without giving effect to the Merger
for the six fiscal years ending December 31, 2003. Chase applied assumed
discount rates of 12.0%, 14.0% and 16.0% and terminal value multiples of EBITDA
in 2003 of 4.0x, 5.0x and 6.0x. Based upon its discounted cash flow analysis,
Chase estimated a valuation range for DeepFlex of $210.0 million to $250.0
million.
DeepFlex -- Asset Appraisals. Chase reviewed independent asset appraisals
prepared for DeepTech as of July 1996 and September 1996 for DeepFlex's two
second generation semi-submersible oil rigs, the Laffit Pincay and the Bill
Shoemaker. Chase reviewed the asset appraisals, DeepTech's description of
capital improvements since the appraisals, and the relationship between drilling
rig contract day rates at the time of the appraisals and at the time of the
opinion. Based on these appraisals, Chase estimated a valuation range for the
Laffit Pincay and Bill Shoemaker of $169 million to $197 million.
Tatham Offshore -- Reserve Valuation Analysis. Chase evaluated Tatham
Offshore's financial condition and reviewed independent engineering reports
prepared for DeepTech regarding Tatham Offshore's oil and gas producing
properties. Based upon the valuations contained in such reports, Chase estimated
a valuation range for Tatham Offshore of $20.0 million to $30.0 million.
El Paso Common Stock Valuation Analysis
El Paso Common Stock -- Selected Comparable Company Analysis. Chase
reviewed certain publicly available financial and operating data of selected
publicly traded companies whose major lines of business may be classified as
interstate natural gas transmission and distribution (The Coastal Corporation,
Columbia Energy Group, Consolidated Natural Gas Company, Sonat Inc., TransCanada
PipeLines Limited, and The Williams Companies Inc.) to determine a range of
certain financial multiples for such companies. Historical financial information
used in connection with the percentages, multiples and ratios provided below
with respect to the selected comparable companies was as of the date of the most
recent financial statements publicly available for each company.
Chase calculated and compared various financial multiples and ratios for
each of the selected companies using LTM September 30, 1997 reported financial
statements and estimated calendar year 1998 financial performance based on
publicly available equity analyst research reports. Such analysis, which was
based in part on projections provided to Chase by El Paso management, indicated
that Total Enterprise Value ranged from 6.5x to 8.4x LTM EBITDA, and from 5.2x
to 6.9x 1998 estimated EBITDA, LTM P/E Ratios ranged from 10.3x to 21.6x, and
price to estimated 1998 earnings ranged from 15.0x to 23.2x. Based on its
selected comparable company analysis, Chase estimated a valuation range for the
El Paso Common Stock of $27.50 to
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$32.50 per share (adjusted to give effect to the El Paso two-for-one stock
split). In order to determine El Paso's estimated 1998 EBITDA for comparison
purposes, Chase used projections provided to it by El Paso.
El Paso Common Stock -- Discounted Cash Flow Analysis. Based on projections
provided to it by El Paso, Chase performed a discounted cash flow analysis of
the projected free cash flow without giving effect to the Merger for the five
fiscal years ending December 31, 2002. Chase assumed discount rates ranging from
9.0% to 12.0% and terminal value multiples of 2002 EBITDA of 6.0x, 7.0x and
8.0x. Based on its discounted cash flow analysis, Chase estimated a valuation
range for the El Paso Common Stock of $22.50 to $27.50 per share (adjusted to
give effect to the El Paso two-for-one stock split).
El Paso Common Stock -- Analyst Estimates. Chase reviewed eleven equity
research analyst reports regarding the El Paso Common Stock. Chase observed that
of the eleven analysts, eight recommended the purchase of the El Paso Common
Stock and three recommended that investors hold the El Paso Common Stock. In
addition, Chase observed the target prices that analysts predicted for the El
Paso Common Stock over the next twelve months. The estimated prices ranged from
$38.75 per share to $41.00 per share (adjusted to give effect to the El Paso
two-for-one stock split).
Pro Forma Earnings Analysis.
Based on management projections, Chase calculated the pro forma earning per
share ("EPS") effects of the Merger and compared the results to El Paso's stand
alone estimated EPS for estimated fiscal years ending 1998 and 1999. Chase, in
its analysis, calculated the impact on EPS for each the following election
scenarios (assuming cash payments to be financed by indebtedness having an
interest rate of 7.5% per annum): (i) DeepTech shareholders elect to receive
100% El Paso Common Stock; (ii) DeepTech stockholders elect to receive 50% cash
and 50% El Paso Common Stock; and (iii) DeepTech stockholders elect to receive
100% cash. Under each scenario, Chase calculated that the Merger would increase
El Paso's forecasted 1998 and 1999 EPS.
Historical Conversion Ratio Analysis.
Chase reviewed and compared the historical trading prices for the DeepTech
Common Stock and the El Paso Common Stock for the three year period ended
February 3, 1998. This analysis was used to calculate the ratio of the per unit
price of the DeepTech Common Stock to the per unit price of the El Paso Common
Stock (on a split-adjusted basis). Such analysis indicated implied conversion
ratios which ranged from 0.35 to 0.10. In addition, such analysis indicated
average implied conversion ratios for the twelve, twenty-four and thirty-six
month periods ending February 3, 1998 of 0.157, 0.152 and 0.162 respectively. As
of the date of the Chase Opinion, the estimated transaction conversion ratio was
0.215.
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of these methods to the
particular circumstances involved. Such an opinion is therefore not readily
susceptible to partial analysis or summary description and taking portions of
the analyses set out above, without considering the analysis as a whole, would,
in the opinion of Chase, create an incomplete and misleading picture of the
processes underlying the analyses considered in rendering the Chase Opinion.
Chase did not form an opinion as to whether any individual analysis, considered
in isolation, supported or failed to support the Chase Opinion. The Chase
Opinion necessarily involved examining complex considerations and making complex
judgments concerning differences in the potential financial and operating
characteristics of the comparable companies and precedent transactions and of
other factors in relation to the trading and acquisition values of the
comparable companies. In arriving at its opinion, Chase considered the results
of all such analyses and did not attribute particular weight to any one analysis
or factor considered by it.
No other company utilized as a comparison in the comparable company
analyses summarized above is identical to DeepTech, Leviathan, DeepFlex or El
Paso, and no transaction utilized as a comparison in the comparable transaction
analyses summarized above is identical to the Merger. In evaluating comparable
companies and transactions, Chase made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the
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control of DeepTech, such as the impact of competition on DeepTech and the
industry generally, industry growth and the absence of any material adverse
change in the financial condition and prospects of DeepTech or the industry, or
in the financial markets in general.
The analyses performed by Chase, particularly those based on forecasts, are
not necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Chase's analysis of the fairness, from
a financial point of view, to the holders of DeepTech Common Stock, of the
consideration to be received by such holders in connection with the Merger. The
foregoing summary does not purport to be a complete description of the analyses
prepared by Chase.
Chase, as part of its financial advisory business, is continually engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions and valuations for estate, corporate and other purposes. The
Chase Manhattan Corporation and its affiliates, including Chase, in the ordinary
course of business, have, from time to time, provided, and in the future may
continue to provide, commercial and investment banking services to DeepTech,
Leviathan and El Paso and their respective affiliates or subsidiaries. In the
ordinary course of business, Chase or its affiliates may trade in the debt and
equity securities of DeepTech, Leviathan, El Paso or their respective affiliates
or subsidiaries for its own accounts and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
DeepTech engaged Chase as the financial advisor to the Independent
Committee because Chase is an internationally recognized investment banking firm
that has substantial experience in transactions similar to the Merger. The terms
of the engagement of Chase by DeepTech are set forth in a letter agreement,
dated February 3, 1998, between Chase and DeepTech (the "Engagement Letter").
Pursuant to the terms of the Engagement Letter, a fee of $750,000 was payable to
Chase on the date on which Chase advised the Independent Committee that it was
prepared to deliver the Chase Opinion. In addition, DeepTech has agreed to
reimburse Chase for its reasonable expenses, including without limitation
reasonable fees and disbursements of its legal counsel and other professional
advisors, and to indemnify Chase against certain liabilities relating to or
arising out of its engagement.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase of DeepTech by El Paso,
which means the purchase price, including costs directly related to the Merger,
will be allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the time of completion of the Merger. To the extent the
purchase price exceeds the fair value of DeepTech's identified net assets, the
excess will be recorded as cost in excess of net assets acquired and amortized
to expense over a period of no more than 40 years. Results of operations of
DeepTech will be included in El Paso's financial statements after the closing of
the Merger (the "Closing").
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
See "CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
BOARD OF DIRECTORS AND MANAGEMENT OF EL PASO FOLLOWING THE MERGER
If the proposed Merger is approved and consummated, holders of DeepTech
Common Stock who do not receive cash for all shares of DeepTech Common Stock in
the Merger will become stockholders of El Paso, which will be under the
direction of the Board of Directors (the "El Paso Board") and management of El
Paso.
GOVERNMENTAL AND REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be
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consummated until the following steps have been taken: (1) Premerger
Notification and Report Forms have been submitted and certain information has
been furnished to the FTC and the Antitrust Division of the Department of
Justice (the "Antitrust Division"); and (2) required waiting periods have
expired or terminated.
El Paso and DeepTech each filed Premerger Notification and Report Forms
with the FTC and the Antitrust Division, on March 18, 1998. Early termination of
the waiting period was granted by the staff of the FTC effective on March 30,
1998.
At any time before or after the consummation of the Merger and
notwithstanding the expiration or termination of the HSR Act waiting period, any
federal or state antitrust authorities could take action under the antitrust
laws as they deem necessary or desirable in the public interest. Such action
could include seeking to enjoin the consummation of the Merger or seeking
divestiture of all or part of the assets of El Paso or DeepTech. Private parties
may also seek to take legal action under the antitrust laws, if circumstances
permit.
If the Antitrust Division, or any other federal or state antitrust
authority, were to challenge the Merger, the consummation of the Merger could be
postponed beyond June 30, 1998 (the "Drop Dead Date"), in which event, either El
Paso or DeepTech may terminate the Merger Agreement, pursuant to its terms, at
any time after June 30, 1998, subject to El Paso's right to extend the Drop Dead
Date in accordance with the Merger Agreement. See "THE MERGER
AGREEMENT -- Termination, Amendment and Waiver."
STOCK EXCHANGE LISTING
It is a condition to the Merger that, upon consummation of the Merger, the
shares of El Paso Common Stock to be issued by El Paso in connection with the
Merger will be authorized for listing on the NYSE, subject to official notice of
issuance.
DELISTING AND DEREGISTRATION OF DEEPTECH COMMON STOCK
If the Merger is consummated, the DeepTech Common Stock will be delisted
from the Nasdaq National Market (the "NASDAQ").
TREATMENT OF STOCK CERTIFICATES
After the Effective Time, each certificate previously representing shares
of DeepTech Common Stock (a "DeepTech Certificate") will automatically, with no
further action by the holder thereof, represent the right to receive the Merger
Consideration and cash for fractional shares of El Paso Common Stock for each
share of DeepTech Common Stock held. Boston EquiServe, L.P. is the transfer
agent (the "Exchange Agent") and registrar for El Paso Common Stock. Promptly
after the Effective Time, the Exchange Agent will distribute to each holder of
shares of DeepTech Common Stock converted into the right to receive the Cash
Consideration or the Stock Consideration, upon surrender to the Exchange Agent
(to the extent not previously surrendered with a Form of Election) of one or
more DeepTech Certificates for cancellation, a check for the amount of cash to
which such holder is entitled and certificates representing the shares of El
Paso Common Stock to which such holder is entitled. As soon as practicable after
the Effective Time, the Exchange Agent will mail to each holder of record of
DeepTech Common Stock outstanding immediately prior to the Effective Time (other
than any holder who previously surrendered all its DeepTech Certificates with a
Form of Election or pursuant to a guarantee of delivery set forth in a Form of
Election) a letter of transmittal with instructions for use in exchanging its
DeepTech Certificates for certificates representing shares of El Paso Common
Stock.
RELATED TRANSACTIONS
For a description of the related transactions to the Merger, see "THE
CONTRIBUTION AGREEMENT," "THE STANDBY AGREEMENT AND THE PURCHASE COMMITMENT
AGREEMENT," "THE TAX SHARING AGREEMENT," "THE REDEMPTION AGREEMENT" and
"PURCHASE OF MINORITY INTERESTS."
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WRITTEN CONSENTS; SPECIAL MEETING
The holders of a majority of DeepTech's common stock have already approved
the Original Merger Agreement and the Original Merger and accordingly no further
action by the stockholders of DeepTech is necessary for this merger to occur.
The Board of Directors of DeepTech has approved the Amended Merger Agreement and
the Amended Merger, subject to approval by DeepTech stockholders. If the Amended
Merger Agreement is approved by DeepTech stockholders, El Paso intends to effect
its holding company reorganization prior to the merger with DeepTech, in which
case DeepTech would merge either with the new holding company, El Paso Energy,
or, under certain circumstances, with El Paso Acquisition Company. If the
Amended Merger Agreement is not approved by DeepTech stockholders, El Paso will
not effect the holding company reorganization prior to the merger, and the
merger will be consummated in accordance with the terms of the Original Merger
Agreement.
DeepTech intends to solicit written consents from stockholders to approve
the Amended Merger Agreement and, if written consents are not promptly obtained,
to solicit proxies in connection with the Special Meeting for the purpose of
approving the Amended Merger Agreement. The Special Meeting will only be held if
DeepTech has not previously received written consents from the holders of a
majority of the outstanding shares of DeepTech common stock approving the
Amended Merger Agreement.
HOLDING COMPANY REORGANIZATION
If DeepTech stockholders approve the Amended Merger Agreement and the
Amended Merger, El Paso intends to adopt prior to the Effective Time, subject to
certain conditions, a holding company structure whereby El Paso and its
subsidiaries would become direct and indirect subsidiaries of El Paso Energy, a
newly formed Delaware holding company. Pursuant to the holding company
reorganization, holders of shares of El Paso Common Stock would become holders
on a share-for-share basis of shares of common stock of El Paso Energy (the "El
Paso Energy Common Stock") with the result that El Paso Energy would replace El
Paso as the publicly held corporation, and all stockholders of El Paso
immediately prior to such reorganization would own the same number of shares of
El Paso Energy Common Stock immediately after the reorganization. The change to
a holding company structure would be tax free for federal income tax purposes to
stockholders of El Paso and may be effected without a vote of stockholders under
applicable Delaware law.
The holding company reorganization is subject to the satisfaction of
certain conditions, including among other things: (i) approval of the holding
company common stock and preferred stock purchase rights for trading on the
NYSE; (ii) a favorable no-action ruling from the Commission concerning the
absence of a requirement for a registration under the Securities Act of 1933, as
amended (the "Securities Act"), of the El Paso Energy Common Stock to be issued
in the reorganization and certain other securities law issues; and (iii) a
favorable private letter ruling from the Internal Revenue Service or opinion of
counsel, in either case, substantially to the effect that the change to the
holding company structure will be tax free for federal income tax purposes to
stockholders. No assurance can be given that the conditions to forming the
holding company structure will be satisfied or, if satisfied, that the holding
company structure will be implemented.
If DeepTech stockholders approve the Amended Merger Agreement and the
Amended Merger and the holding company reorganization occurs prior to the
effective time of the Merger, in this Proxy Statement/Prospectus references to
El Paso shall be deemed references to El Paso Energy and references to El Paso
Common Stock shall be deemed references to El Paso Energy Common Stock.
APPRAISAL AND DISSENTERS RIGHTS
Under Delaware corporate law, DeepTech stockholders will not have rights to
an appraisal of the value of their shares in connection with the merger, except
in a case in which the merger is restructured as a taxable transaction as
described above. In that situation, a DeepTech stockholder who (i) did not
execute a written consent in favor of the merger, (ii) is required under the
merger agreement to accept cash for his/her shares of DeepTech common stock
(other than cash exchanged for fractional shares), (iii) held his/her shares of
DeepTech common stock through the effective time of the merger and (iv)
exercises and perfects dissenters'
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right (the "Appraisal Right") in accordance with the procedures set forth in
Section 262 of the Delaware General Corporation Law (the "DGCL"), and summarized
herein, will be entitled to receive payment of the fair value of his/her shares
(the "Appraisal Shares"). See "THE MERGER AGREEMENT -- Special Cash Rights;
Restructuring of Merger" and "-- Dissenting Shares."
The failure of a DeepTech stockholder to follow the appropriate procedures
set forth in Section 262 of the DGCL ("Section 262"), and summarized herein,
will result in the termination or waiver of the stockholder's Appraisal Rights.
A person having a beneficial interest in shares of DeepTech Common Stock held of
record in the name of another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect Appraisal Rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS ENTIRETY ANNEX I. ALL REFERENCES
IN SECTION 262 AND THIS SUMMARY TO A "STOCKHOLDER" OR "HOLDER" ARE TO THE RECORD
HOLDER OF THE SHARES OF DEEPTECH COMMON STOCK AS TO WHICH APPRAISAL RIGHTS ARE
ASSERTED.
Under the DGCL, eligible holders of shares of DeepTech Common Stock who
follow the procedures set forth in Section 262 will be entitled to have their
Appraisal Shares appraised by the Delaware Chancery Court and to receive payment
in cash of the "fair value" of such Appraisal Shares, exclusive of any element
of value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, as determined by such court. If the Merger
is not consummated, no DeepTech stockholder will be entitled to Appraisal
Rights.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, the corporation must notify each of its
stockholders, as determined on the record date for such meeting, not less than
twenty (20) days prior to the meeting that appraisal rights are available. The
corporation must also include a copy of Section 262 in such notice.
This Proxy Statement/Prospectus constitutes notice to the holders of
DeepTech Common Stock of their Appraisal Rights as required by Section 262.
Section 262 is attached to this Proxy Statement/Prospectus as Annex I. Any
DeepTech stockholder who wishes to exercise his, her or its Appraisal Rights, or
who wishes to preserve his, her or its right to do so, should review the
following discussion and Annex I carefully. Failure to comply timely and
properly with the procedures specified in Section 262 will result in the loss of
Appraisal Rights.
A HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE APPRAISAL RIGHTS MUST (1)
NOT HAVE EXECUTED A WRITTEN CONSENT OR VOTED IN FAVOR OF THE MERGER, (2) BE
REQUIRED UNDER THE MERGER AGREEMENT TO ACCEPT CASH FOR HIS/HER/ITS SHARES OF
DEEPTECH COMMON STOCK (OTHER THAN CASH EXCHANGED FOR FRACTIONAL SHARES) AND (3)
DELIVER TO DEEPTECH WITHIN 20 DAYS OF HIS, HER OR ITS RECEIPT OF THIS PROXY
STATEMENT/PROSPECTUS (OR, IF THE AMENDED MERGER AGREEMENT IS APPROVED BY
DEEPTECH STOCKHOLDERS NO LATER THAN THE EARLIER OF (A) 20 DAYS AFTER RECEIPT OF
NOTICE OF SUCH APPROVAL OR (B) THE DATE OF THE DEEPTECH STOCKHOLDERS' MEETING),
A WRITTEN DEMAND FOR APPRAISAL. A HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE
SUCH HOLDER'S APPRAISAL RIGHTS MUST BE THE RECORD HOLDER OF SUCH APPRAISAL
SHARES ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL IS MADE AND MUST CONTINUE TO
HOLD SUCH APPRAISAL SHARES OF RECORD UNTIL THE CONSUMMATION OF THE MERGER.
ACCORDINGLY, A HOLDER OF APPRAISAL SHARES WHO IS THE RECORD HOLDER OF APPRAISAL
SHARES ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL IS MADE, BUT WHO THEREAFTER
TRANSFERS SUCH APPRAISAL SHARES PRIOR TO THE CONSUMMATION OF THE MERGER, WILL
LOSE ANY RIGHT TO APPRAISAL IN RESPECT OF SUCH APPRAISAL SHARES.
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Only a holder of record of Appraisal Shares is entitled to assert Appraisal
Rights for the Appraisal Shares registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the holder of record, fully and
correctly, as such holder's name appears on such holder's stock certificate. If
the Appraisal Shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the Appraisal Shares are owned of record by more than one
person as in a joint tenancy or tenancy in common, the demand should be executed
by or on behalf of all joint owners. An authorized agent, including one or more
joint owners, may execute a demand for appraisal on behalf of a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is agent
for such owner or owners. A record holder such as a broker who holds Appraisal
Shares as a nominee for several beneficial owners may exercise appraisal rights
with respect to the Appraisal Shares held for one or more beneficial owners
while not exercising such rights with respect to the Appraisal Shares held for
other beneficial owners; in such case, the written demand should set forth the
number of Appraisal Shares as to which appraisal is sought. When no number of
Appraisal Shares is expressly mentioned, the demand will be presumed to cover
all Appraisal Shares held in the name of the record owner. Stockholders who hold
their Appraisal Shares in brokerage accounts or other nominee forms and who wish
to exercise Appraisal Rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
such a nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO DEEPTECH
INTERNATIONAL INC., 7500 CHASE TOWER, 600 TRAVIS STREET, HOUSTON, TEXAS 77002,
ATTN: DENNIS KUNETKA, SENIOR VICE PRESIDENT -- INVESTOR AND PUBLIC RELATIONS.
Within ten (10) days after the consummation of the Merger, the combined
company will provide notice of the date on which the Merger was consummated to
each stockholder who has properly asserted Appraisal Rights under Section 262
and has not executed a written consent or voted in favor of the Merger.
Within 120 days after the consummation of the Merger but not thereafter,
the combined company or any stockholder who has complied with the statutory
requirements summarized above may file a petition in the Delaware Chancery Court
demanding a determination of the fair value of the Appraisal Shares.
Accordingly, it is the obligation of the stockholders to initiate all necessary
action to perfect their Appraisal Rights within the time prescribed in Section
262. At any time within sixty (60) days from the consummation of the Merger, a
stockholder may withdraw his, her or its demand for appraisal, and accept the
terms offered under the Merger Agreement.
Within 120 days after the consummation of the Merger, any stockholder who
has complied with the requirements for exercise of Appraisal Rights will be
entitled, upon written request, to receive from the combined company a statement
setting forth the aggregate number of Appraisal Shares and the aggregate number
of holders of such Appraisal Shares not voted in favor of the Merger and with
respect to which demands for appraisal have been received. The combined company
must mail the statement within ten (10) days after it has received a written
request or within 10 days after expiration of the period for delivery of demands
for appraisal, whichever is later.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders entitled
to Appraisal Rights and will appraise the fair value of their Appraisal Shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Stockholders considering whether to
seek appraisal should be aware that the fair value of their Appraisal Shares as
determined under Section 262 could be more than, the same as or less than the
value of the consideration they would receive pursuant to the Merger Agreement
if they did not seek appraisal of their Appraisal Shares. Investment banking
opinions as to fairness from a financial point of view are not necessarily
opinions as to fair value under Section 262. The Delaware Supreme Court has
stated 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 the appraisal proceedings.
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The Delaware Chancery Court will determine the amount of interest, if any,
to be paid upon the amounts to be received by persons whose Appraisal Shares
have been appraised. The costs of the action may be determined by the Delaware
Chancery Court and taxed upon the parties as the Delaware Chancery Court deems
equitable. The Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with an appraisal,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all the Appraisal Shares entitled to appraisal.
Any holder of Appraisal Shares who had duly demanded an appraisal in
compliance with Section 262 will not, after the consummation of the Merger, be
entitled to vote the Appraisal Shares subject to such demand for any purpose or
be entitled to the payment of dividends or other distributions on those
Appraisal Shares (except dividends or other distributions payable to holders of
record of Appraisal Shares as of a record date prior to the consummation of the
Merger).
If any stockholder who properly demands appraisal of his, her or its
Appraisal Shares under Section 262 fails to perfect, or effectively withdraws or
loses, his, her or its Appraisal Rights, the Appraisal Shares of such
stockholder will be converted into the right to receive the consideration
receivable with respect to such Appraisal Shares in accordance with the Merger
Agreement. A stockholder will fail to perfect, or effectively lose or withdraw
his, her or its right to appraisal if, among other things, no petition for
appraisal is filed within 120 days after the consummation of the Merger, or if
the stockholder delivers to El Paso a written withdrawal of his, her or its
demand for appraisal. Any such attempt to withdraw an appraisal demand more than
sixty (60) days after the consummation of the Merger will require the written
approval of El Paso.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A
STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH
RESPECT TO SUCH APPRAISAL SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT). IN
VIEW OF THE COMPLEXITY OF THE PROVISIONS OF SECTION 262, DEEPTECH STOCKHOLDERS
WHO ARE CONSIDERING OBJECTING TO THE MERGER SHOULD CONSULT THEIR OWN LEGAL
ADVISORS.
See "COMPARISON OF THE RIGHTS OF HOLDERS OF EL PASO COMMON STOCK AND
DEEPTECH COMMON STOCK."
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THE WRITTEN CONSENTS AND THE SPECIAL MEETING
GENERAL
The holders of a majority of DeepTech's common stock have already approved
the Original Merger Agreement and the Original Merger and accordingly no further
action by the stockholders of DeepTech is necessary for this merger to occur.
The Board of Directors of DeepTech has approved the Amended Merger Agreement and
the Amended Merger, subject to approval by DeepTech stockholders. If the Amended
Merger Agreement is approved by DeepTech stockholders, El Paso intends to effect
its holding company reorganization prior to the merger with DeepTech, in which
case DeepTech would merge either with the new holding company, El Paso Energy,
or, under certain circumstances, with El Paso Acquisition Company. If the
Amended Merger Agreement is not approved by DeepTech stockholders, El Paso will
not effect the holding company reorganization prior to the merger, and the
merger will be consummated in accordance with the terms of the Original Merger
Agreement.
DeepTech intends to solicit written consents from stockholders to approve
the Amended Merger Agreement and, if written consents are not promptly obtained,
to solicit proxies in connection with the Special Meeting for the purpose of
approving the Amended Merger Agreement. The Special Meeting will only be held if
DeepTech has not previously received written consents from the holders of a
majority of the outstanding shares of DeepTech common stock approving the
Amended Merger Agreement.
If the Amended Merger Agreement is approved by written consent of DeepTech
stockholders, DeepTech will supplementally notify DeepTech stockholders of such
approval, and this Proxy Statement/Prospectus as so supplemented will constitute
the Information Statement/Prospectus with respect to the Amended Merger
Agreement and the transactions contemplated thereby.
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of record of shares of DeepTech Common Stock at the close of
business on , 1998 are entitled to act by written consent and to
receive notice of and to vote at the Special Meeting. On , 1998 (the
"Record Date"), there were outstanding shares of DeepTech Common
Stock. Each share of DeepTech Common Stock is entitled to one vote in connection
with the written consent and on each matter to be acted upon at the Special
Meeting. No shares of DeepTech preferred stock were outstanding as of the Record
Date. The affirmative vote or consent of the holders of a majority of the shares
of DeepTech Common Stock entitled to vote is required to approve the Amended
Merger Agreement and the Merger.
PURPOSE OF THE WRITTEN CONSENTS AND THE SPECIAL MEETING
The purpose of the solicitation of the written consents and the Special
Meeting is to (i) seek DeepTech stockholders' approval of the proposal to
approve the Amended Merger Agreement and the Amended Merger and (ii) if the
Special Meeting is held, transact such other business as may properly come
before the Special Meeting and at any and all adjournments or postponements
thereof.
DATE, TIME AND PLACE OF MEETING
If necessary, the Special Meeting will be held at 9:00 a.m., local time, on
, 1998, at for the purposes set
forth in the Notice of Special Meeting and as described below.
PROXIES
If the Special Meeting is held, all shares of DeepTech Common Stock
represented by properly executed proxies received prior to or at the Special
Meeting and not duly and timely revoked will be voted in accordance with the
instructions indicated on such proxies. An abstention or a failure to vote or
consent with respect to the Amended Merger Agreement and the Merger will have
the effect of a vote cast against the proposal. If no instructions are indicated
on a properly executed returned proxy, such proxies will be voted FOR the
approval
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of the proposal. A properly executed proxy marked "ABSTAIN," although counted
for purposes of determining whether there is a quorum and for purposes of
determining the number of shares represented and entitled to vote at the Special
Meeting, will not be voted. A proxy marked "ABSTAIN" will have the effect of a
vote against the proposal. Shares represented by "broker non-votes" (i.e.,
shares held by brokers or nominees which are represented at a meeting but with
respect to which the broker or nominee is not empowered to vote) will be counted
for purposes of determining whether there is a quorum at the Special Meeting.
If the Special Meeting is held, the DeepTech Board is not currently aware
of any business to be acted upon at the Special Meeting other than as described
herein. If, however, other matters are properly brought before the Special
Meeting, or any adjournments or postponements thereof, the persons appointed as
proxies will have discretion to vote or act thereon according to their judgment.
Such adjournments may be for the purpose of soliciting additional proxies.
DeepTech does not currently intend to seek an adjournment of the Special
Meeting.
BROKERS AND NOMINEES
In accordance with rules of the NASD, brokers and nominees are precluded
from exercising their voting discretion with respect to the approval and
adoption of the proposal to approve the Amended Merger Agreement and the Amended
Merger and thus, absent specific instructions from the beneficial owner of such
shares, are not empowered to vote or give a written consent with respect to such
shares with respect to the approval and adoption of such proposal.
REVOCATION OF WRITTEN CONSENT AND PROXIES
The written consents with respect to the original merger agreement and the
merger contemplated thereby have become effective and accordingly those consents
are irrevocable. Any written consent given pursuant to this solicitation may be
revoked at any time prior to the date on which DeepTech receives written
consents from the holders of record as of the Record Date of a majority of the
outstanding shares of DeepTech Common Stock. Any proxy given pursuant to this
solicitation may be revoked at any time before such proxy is voted. Attendance
at the Special Meeting will not in and of itself constitute a revocation of a
proxy. There are three ways in which DeepTech stockholders may revoke their
proxies relating to the special meeting, if it is held. First, DeepTech
stockholders may submit a written notification stating that such DeepTech
stockholders would like to revoke their proxies. Second, DeepTech stockholders
may complete and submit a new proxy card. DeepTech stockholders choosing either
of these methods should send their notice of revocation or new proxy card to the
person indicated on page 1. As a third method, DeepTech stockholders may attend
the DeepTech special meeting and vote in person. If DeepTech stockholders wish
to vote in person at the DeepTech special meeting after they have submitted
their proxy cards (and have not revoked such proxies), they still must provide a
written notification stating that they would like to revoke their proxies. If
DeepTech stockholders hold their shares in "street name" through a nominee or
broker, they must follow directions received from their broker to cast or change
their votes.
COSTS OF SOLICITATION
The cost of soliciting proxies will be borne by DeepTech. In addition to
the use of the mail, arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxy material to beneficial owners
and DeepTech will, upon request, reimburse them for their reasonable expenses.
To the extent necessary in order to ensure sufficient representation at its
Special Meeting, DeepTech may request by telephone, telegram or in person the
return of proxy cards.
DEEPTECH STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. SEE "THE MERGER AGREEMENT -- DEEPTECH COMMON STOCK ELECTIONS"
REGARDING THE PROCEDURES TO BE FOLLOWED TO MAKE VALID ELECTIONS IN CONNECTION
WITH THE MERGER.
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THE MERGER AGREEMENT
The following summary of the terms of the Merger Agreement is qualified in
its entirety by reference to the Merger Agreement and Amendment No. 1, which are
incorporated by reference herein and attached as Appendices A-1 and A-2 to this
Proxy Statement/Prospectus. Certain defined terms used in the description of the
Merger Agreement and Amendment No. 1 below which are not otherwise defined in
this Proxy Statement/ Prospectus and which are defined in the Merger Agreement
shall have the respective meanings set forth therein.
CERTAIN DEFINITIONS
In the following summary, "Subsidiaries" with respect to any relevant
individual or entity means any other individual or entity that directly or
indirectly is controlled by such relevant individual or entity in question.
"DeepTech Subsidiary" means each Subsidiary of DeepTech other than any member of
the Offshore Group. The term "DeepTech Group" means DeepTech and the DeepTech
Subsidiaries. The term "Offshore Group" means Tatham Offshore, DeepFlex
Production Services, Inc. ("DeepFlex") and their Subsidiaries, other than Tatham
Offshore Development Inc. ("Tatham Development").
GENERAL
The Merger Agreement contemplates the Merger of DeepTech with and into El
Paso, subject to restructuring of the Merger under certain circumstances
described below. The Merger will become effective in accordance with the
Certificate of Merger to be filed with the Secretary of State of the State of
Delaware. It is anticipated that such filing will be made immediately after the
Closing, which Closing, in turn, should occur as soon as practicable after the
last of the conditions precedent to the Merger set forth in the Merger Agreement
has been satisfied or waived. The Merger Agreement contemplates that El Paso
will use its best efforts to have the shares of El Paso Common Stock to be
issued in connection with the Merger approved for listing on the NYSE.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the Effective Time, (a) each issued and outstanding share of DeepTech
Common Stock (excluding shares held in the treasury of DeepTech or shares owned
by El Paso or any of its Subsidiaries) will be converted into the right to
receive, at the election of the holder, (i) a fraction of a share of El Paso
Common Stock, including the associated El Paso Rights, with a value of $14.00
per share, based upon the Average Price of a share of El Paso Common Stock
(provided that, if the Average Price is more than $37.50, the Average Price will
be deemed for this purpose to be $37.50, and if the Average Price is less than
$25.00, the Average Price will be deemed for this purpose to be $25.00); or (ii)
$14.00 in cash, without interest, (b) each share of DeepTech Common Stock owned
by El Paso or any of its Subsidiaries or held in the treasury of DeepTech will
be canceled and retired, (c) each issued and outstanding share of the capital
stock of El Paso will remain outstanding and will represent one validly issued,
nonassessable share of El Paso Common Stock, (d) each outstanding and
unexercised DeepTech Option to purchase shares of DeepTech Common Stock will be
assumed by El Paso and converted into a Substitute Option, or, at the option of
the holder of such DeepTech Option exercisable by written notice to DeepTech
prior to the Effective Time, will be canceled immediately prior to the Effective
Time in exchange for a payment in cash and (e) each Warrant to purchase shares
of DeepTech Common Stock outstanding immediately prior to the Effective Time
will remain outstanding and will thereafter represent the right to receive, upon
exercise of such Warrant, solely the Merger Consideration receivable by a holder
of the number of shares of DeepTech Common Stock for which such Warrant is
exercisable immediately prior to the Merger. For the purpose of determining the
form of Merger Consideration receivable in respect of any Warrant, each Warrant
will be treated in the same manner as any share of DeepTech Common Stock as to
which a Stock Election has been made. El Paso will assume the observance and
performance of the covenants and conditions of and all the obligations and
liabilities under the Warrant Agreements. The calculation of the Average Price
for purposes of determining the Exchange Ratio described above takes into
account the effect of the El Paso two-for-one stock split.
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The Stock Consideration and the Cash Consideration will be adjusted to
reflect any change in the number of shares of DeepTech Common Stock outstanding
on a fully diluted basis between the date of the Merger Agreement and the
Effective Time. The Stock Consideration will also be adjusted to reflect any
changes in the El Paso Common Stock between the date of the Merger Agreement and
the Effective Time by reason of any stock split, stock dividend, subdivision,
reclassification, combination, exchange of El Paso Common Stock or similar
transaction.
The number of shares of El Paso Common Stock to be subject to a Substitute
Option will be determined by multiplying the number of shares of DeepTech Common
Stock subject to the related DeepTech Option by the Exchange Ratio, and the
exercise price with respect thereto will equal the exercise price under the
DeepTech Option divided by the Exchange Ratio. The cash payment for each
Cash-out Option will be equal to the product of (x) the number of shares of
DeepTech Common Stock subject to such Cash-out Option and (y) the excess of the
Cash Consideration over the exercise price per share of DeepTech Common Stock
subject to such Cash-out Option. El Paso will provide to DeepTech at the
Effective Time funds to make the payments pursuant to Cash-out Options
exercised. Such Substitute Option or Cash-out Option will be subject to all of
the other terms and conditions of the DeepTech Option to which it relates. No
DeepTech Option will be accelerated by reason of the Merger to the extent the
DeepTech Board has discretion to make a determination to cause such
acceleration.
As soon as practicable after the Effective Time, El Paso will cause to be
included under a registration statement on Form S-8 of El Paso all shares of El
Paso Common Stock which are subject to Substitute Options and all shares of El
Paso Common Stock which were issued in exchange for DeepTech Common Stock which
constituted performance shares or restricted stock of DeepTech to the extent
such registration is legally required for such El Paso Common Stock to be freely
tradeable by such holder, and will maintain the effectiveness of such
registration statement until all Substitute Options have been exercised, expired
or forfeited.
For a further discussion of the treatment of DeepTech Common Stock options
and other employee benefit plans of DeepTech under the Merger Agreement, see
"INTERESTS OF CERTAIN PERSONS IN THE MERGER."
DEEPTECH COMMON STOCK ELECTIONS
Pursuant to the Merger Agreement, each holder of shares of DeepTech Common
Stock (other than shares that are held in the treasury of DeepTech and shares
owned by El Paso or any of its Subsidiaries) will have the right to submit a
request specifying the number of shares of DeepTech Common Stock which such
holder desires to have converted into the right to receive either (i) the Cash
Consideration or (ii) the Stock Consideration in accordance with the procedures
described below. There is no limit on the number of shares of DeepTech Common
Stock which may be converted into the Cash Consideration or the Stock
Consideration.
(a) Each holder of shares of DeepTech Common Stock may specify in a
request made in accordance with the provisions of the Merger Agreement (an
"Election") (i) the number of such shares which such holder desires to have
converted into the right to receive the Cash Consideration in the Merger
and (ii) the number of such shares which such holder desires to have
converted into the Stock Consideration in the Merger. Each holder of shares
of DeepTech Common Stock may specify, by completion of the box provided
therefor on the Form of Election (as defined in subsection (b) below), that
after giving effect to the El Paso Stock Split (x) in the event the Average
Price is less than $25.00, such share of DeepTech Common Stock will be
converted into the right to receive the Cash Consideration, notwithstanding
such holder's Stock Election, and (y) in the event the Average Price is
greater than $37.50, such share of DeepTech Common Stock will be converted
into the right to receive the Stock Consideration, notwithstanding such
holder's Cash Election. Each share of DeepTech Common Stock as to which no
Election is in effect at the Election Record Date (as defined in subsection
(c) below) or for which an Election has been made but has been revoked or
withdrawn or is otherwise no longer effective will be called a
"Non-Electing Share." Subject to a restructuring of the Merger under
certain circumstances as described in the section, "-- Special Cash Rights;
Restructuring
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of Merger," Non-Electing Shares will be treated for purposes of the Merger
Agreement as if such shares were covered by a Stock Election.
(b) El Paso will prepare a form (the "Form of Election") pursuant to
which each holder of DeepTech Common Stock may make Elections. The Form of
Election will be mailed to stockholders of record of DeepTech on the
earliest practicable date on or after the latest to occur of (i) the
expiration or termination of the waiting period applicable to the
consummation of the Merger under the HSR Act, (ii) the mailing of this
Proxy Statement/Prospectus to stockholders of DeepTech and (iii) the
mailing to stockholders of DeepTech of the prospectus (the "Rights Offering
Prospectuses") of DeepTech and Tatham Offshore with respect to the offering
and sale (the "Rights Offering") of the shares of common and preferred
stock, or units comprising such shares (the "Offshore Shares").
(c) An Election will have been properly made only if the exchange
agent (the "Exchange Agent") has received, by 5:00 p.m., New York City
time, on the date fixed as the deadline for the submission of the Form of
Election (such time on such day being referred to herein as the "Election
Record Date"), a properly completed and signed Form of Election accompanied
by the DeepTech Certificates to which such Form of Election relates (or by
an appropriate guarantee of delivery of such DeepTech Certificates as set
forth in such Form of Election provided such certificates are in fact
delivered by the time set forth in such guarantee of delivery).
(d) Any holder of record of shares of DeepTech Common Stock may at any
time prior to the Election Record Date change such holder's Election by
written notice received by the Exchange Agent at or prior to the Election
Record Date accompanied by a properly completed Form of Election. El Paso
will have the right in its sole discretion to permit changes in Elections
after the Election Record Date.
(e) Any holder of record of shares of DeepTech Common Stock may at any
time prior to the Election Record Date revoke such holder's Election by
written notice received by the Exchange Agent at or prior to the Election
Record Date or by withdrawal prior to the Election Record Date of such
holder's DeepTech Certificates previously deposited with the Exchange
Agent. Any revocation of an Election may be withdrawn by notice of such
withdrawal delivered at or prior to the Election Record Date.
(f) El Paso will have the right to make rules, not inconsistent with
the terms of the Merger Agreement, governing the validity of Forms of
Election, the manner and extent to which Elections are to be taken into
account in making the determinations prescribed by the Merger Agreement
(see "-- Special Cash Rights; Restructuring of Merger"), the issuance and
delivery of certificates for El Paso Common Stock into which shares of
DeepTech Common Stock are converted in the Merger and the payment for
shares of DeepTech Common Stock converted into the right to receive the
Cash Consideration in the Merger.
SPECIAL CASH RIGHTS; RESTRUCTURING OF MERGER
Under the Merger Agreement, if the portion of the aggregate consideration
paid or deemed paid with respect to the DeepTech Common Stock pursuant to the
Merger (the "Aggregate Merger Consideration") which will be paid or deemed paid
other than in the form of El Paso Common Stock (which will be deemed to include,
without limitation, cash paid upon the acquisition by El Paso or any of its
Subsidiaries of DeepTech Common Stock, warrants or options to purchase DeepTech
Common Stock, whether pursuant to the Merger, the Stockholder Agreements or
otherwise, the fair market value of the rights ("Rights") issued in the Rights
Offering, any net Rights Offering proceeds in excess of $75 million (the "Excess
Proceeds") distributed to Tatham Offshore and cash paid in lieu of fractional
shares) (the "Aggregate Cash Consideration") will exceed 50% of the Aggregate
Merger Consideration (the "Tax-Free Merger Maximum Cash Consideration"), no
share of DeepTech Common Stock will be converted into the right to receive the
Stock Consideration in the Merger unless (i) a valid Stock Election is in effect
with respect to such share of DeepTech Common Stock at the Election Record Date
and (ii) such Stock Election expressly specifies, by completion of the box
provided therefor on the Form of Election, that such share of DeepTech Common
Stock will be converted into the right to receive the Stock Consideration in the
Merger notwithstanding that
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the receipt of El Paso Common Stock in the Merger will be taxable to the holder
of such share of DeepTech Common Stock.
If the Aggregate Cash Consideration exceeds the Tax-Free Merger Maximum
Cash Consideration, the Merger Agreement provides that, without any further
action by the Board of Directors or stockholders of DeepTech or El Paso, the
Merger will be restructured as a merger of Merger Sub with and into DeepTech.
Such restructuring will not alter any of the material terms of the Merger,
except as described under "CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER."
In addition, El Paso has the right under the Merger Agreement, without any
further action by the Board of Directors or stockholders of DeepTech or El Paso,
to restructure the Merger as a merger of DeepTech with and into Merger Sub. Such
restructuring will not alter any of the material terms of the Merger.
EFFECTIVE TIME OF THE MERGER
Subject to the terms and conditions of the Merger Agreement, the Merger
will become effective at the date and time when the properly executed
Certificate of Merger is accepted for record by the Secretary of State of the
State of Delaware which Certificate of Merger will be filed as soon as
practicable following fulfillment of the conditions precedent of the Merger
Agreement. See "-- Conditions Precedent."
CORPORATE ORGANIZATION AND GOVERNANCE
Certificate of Incorporation. At the Effective Time, the Restated
Certificate of Incorporation of El Paso, as in effect immediately prior to the
Effective Time, will be the Certificate of Incorporation of El Paso after the
Merger (the "Surviving Corporation") until thereafter changed or amended as
provided therein or by applicable law. The Merger Agreement provides, however,
that if the Aggregate Cash Consideration exceeds the Tax-Free Merger Maximum
Cash Consideration, the Merger will be restructured as a merger of Merger Sub
with and into DeepTech (the "Alternative Taxable Merger"), and the Certificate
of Incorporation of Deeptech will be amended as set forth in the Merger
Agreement. The Merger Agreement provides further that, at the option of El Paso,
the Merger will be restructured as a merger of DeepTech with and into Merger Sub
(the "Alternative Tax-Free Merger"), and, at the Effective Time, the Certificate
of Incorporation of Merger Sub as in effect immediately prior to the Effective
Time will be the Certificate of Incorporation of DeepTech after the Merger.
By-laws. At the Effective Time, the By-laws of El Paso, as in effect
immediately prior to the Effective Time, will be the By-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or in the
Certificate of Incorporation or by applicable law. If the Merger is restructured
as either the Alternative Taxable Merger or the Alternative Tax-Free Merger, at
the Effective Time, the By-laws of Merger Sub, as in effect immediately prior to
the Effective Time, will be the By-laws of DeepTech or Merger Sub, as the case
may be, after the Merger until thereafter changed or amended as provided therein
or in the Certificate of Incorporation or by applicable law.
Board of Directors. The directors of El Paso immediately prior to the
Effective Time will be the directors of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified. If the Merger is restructured as either the
Alternative Taxable Merger or the Alternative Tax-Free Merger, the directors of
Merger Sub at the Effective Time will be the directors of DeepTech or Merger
Sub, as the case may be, after the Merger until the earlier of their resignation
or removal or until their respective successors are duly elected and qualified,
as the case may be.
EXCHANGE OF SHARES
Prior to the Effective Time, El Paso will select an Exchange Agent, which
will be El Paso's Transfer Agent or such other person or persons reasonably
satisfactory to DeepTech, to act as Exchange Agent for the Merger. As soon as
practicable after the Effective Time, El Paso will distribute to each holder of
shares of DeepTech Common Stock converted into the right to receive the Cash
Consideration or the Stock Consideration pursuant to the Merger Agreement, and
cash in consideration of fractional shares, upon
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surrender to the Exchange Agent (to the extent not previously surrendered with a
Form of Election) of one or more DeepTech Certificates for cancellation, a check
for the amount of cash to which such holder is entitled under the Merger
Agreement and certificates representing the shares of El Paso Common Stock to
which such holder is entitled under the Merger Agreement. Holders of unexchanged
shares of DeepTech Common Stock will not be entitled to receive any dividends or
other distributions payable by El Paso until their DeepTech Certificates are
surrendered for exchange as provided in the Merger Agreement. Upon surrender,
however, such holders of certificates for El Paso Common Stock issued in
exchange therefor will receive accumulated dividends and distributions without
interest, together with cash in lieu of fractional shares. Holders of
unexchanged shares of DeepTech Common Stock will have no further claim upon the
Exchange Agent six months after the Effective Time or for such longer time as El
Paso determines and will thereafter look only to El Paso and the Surviving
Corporation for payment in respect of his/her shares of DeepTech Common Stock.
Fractional shares of El Paso Common Stock will not be issued to holders of
DeepTech Common Stock. For each fractional share of El Paso Common Stock that
would otherwise be issued, the holder will receive, in lieu thereof, cash
adjustments from El Paso in respect of any fractional share of El Paso Common
Stock that could otherwise be issuable, and the amount of such cash adjustment
shall be equal to the product of such fractional amount and the Average Price.
DISSENTING SHARES
Any shares of DeepTech Common Stock outstanding immediately prior to the
Effective Time and held by a holder who (i) has not executed a written consent
in favor of the Merger, (ii) is required by the terms of the Merger Agreement to
accept consideration for shares of DeepTech Common Stock owned by such holder
other than in the form of El Paso Common Stock and cash in lieu of fractional
shares, and (iii) has demanded appraisal for such shares of DeepTech Common
Stock in accordance with the Delaware General Corporation Law (the "DGCL") (the
"Dissenting Shares") will not be converted into a right to receive the Merger
Consideration, unless such holder fails to perfect or withdraws or otherwise
loses its right to appraisal or it is determined that such holder does not have
appraisal rights in accordance with the DGCL. If, after the Effective Time, such
holder fails to perfect or withdraws or loses its right to appraisal, or if it
is determined that such holder does not have an appraisal right, such shares of
DeepTech Common Stock will be treated as if they had been converted as of the
Effective Time into a right to receive in exchange for each share of DeepTech
Common Stock the Merger Consideration. DeepTech will give El Paso prompt notice
of any demands received by the DeepTech for appraisal of any shares of DeepTech
Common Stock, and El Paso will have the right to control all negotiations and
proceedings with respect to such demands except as required by applicable law.
DeepTech will not, except with the prior written consent of El Paso, make any
payment with respect to, or settle or offer to settle, any such demands.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of El
Paso and DeepTech, relating, among other things, to the following: (i) their
incorporation, existence, good standing, corporate power and similar corporate
matters; (ii) their capitalization; (iii) the incorporation, existence, good
standing, corporate power and similar corporate matters with respect to
subsidiaries; (iv) their authorization, execution, delivery and performance and
the enforceability of the Merger Agreement and related agreements; (v) the
absence of conflicts, violations and defaults under their certificate or
articles of incorporation and by-laws and certain other agreements and
documents; (vi) the documents and reports filed with the Commission and the
accuracy and completeness of the information contained therein; (vii) the
absence of certain material changes or events since September 30, 1997; (viii)
pending or threatened investigations or litigation; (viii) compliance with laws,
ordinances and regulations; (ix) tax matters relating to the qualification of
the Merger as a reorganization within the meaning of the Internal Revenue Code
of 1986, as amended (the "Code"); and (x) their status under the Public Utility
Holding Company Act of 1935, as amended.
El Paso made additional representations and warranties as to the approval
of the Merger and related transactions by the El Paso Board and its
determination that the Merger is fair to and in the best interests of El Paso
and its stockholders and made joint representations and warranties with Merger
Sub as to the
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incorporation, existence, good standing, capitalization, corporate power and
similar corporate matters, authorization, execution, delivery and performance
and the enforceability of the Merger Agreement and related agreements with
respect to Merger Sub.
DeepTech made additional representations and warranties as to (i) the
approval of the Merger and related transactions by DeepTech Board, its
determination that the Merger is fair to and in the best interests of DeepTech
and its stockholders; and its approval of the written consent (the "Consent") of
the holders of a majority of the shares of DeepTech outstanding as of the record
date in accordance with the DGCL for the purposes of Article VIII of the
DeepTech Charter; (ii) employee benefit plans; (iii) certain additional tax
matters; (iv) compliance with worker safety and environmental laws; (v) the
receipt of a fairness opinion from its financial advisor; and (vi) certain
matters relating to the Offshore Group. Except as described in selected sections
of the Merger Agreement, no representations or warranties delivered by DeepTech
in the Merger Agreement will apply to any member of the Offshore Group and its
related assets, businesses, operations or information.
All representations and warranties of El Paso and DeepTech expire at the
Effective Time, or if sooner, the termination of the Merger Agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
DeepTech has agreed that prior to the Effective Time, except as
contemplated by the DeepTech Disclosure Schedule, it will, and will cause each
of the DeepTech Subsidiaries to, (i) carry on its business in the usual, regular
and ordinary course in substantially the same manner as conducted prior to the
Merger Agreement, use its reasonable efforts to preserve intact its present
business organizations and preserve its relationships with customers, suppliers
and others having business dealings with it to the end that its goodwill and
on-going businesses will be unimpaired at the Effective Time, and (ii) prepare
and timely file all Tax Returns and amendments required to be filed by any of
DeepTech and the DeepTech Subsidiaries prior to the Effective Time and pay all
Taxes relating to such Tax Returns before they become delinquent.
DeepTech has also agreed that, except as otherwise expressly permitted or
contemplated by the Merger Agreement, related Agreements or the DeepTech
Disclosure Schedule, it will not, and will not permit any of the DeepTech
Subsidiaries to, without the prior written consent of El Paso, (i) declare, set
aside, authorize or pay any dividend or other distribution payable in cash,
stock or property (other than (x) dividends and other distributions by direct or
indirect wholly owned Subsidiaries, (y) regular quarterly cash dividends by
Leviathan, Leviathan Gas Pipeline Company ("LGPC") and Leviathan Holdings
Company ("Holdings") declared and paid in amounts and at times consistent with
past practice and (z) the distribution of Tatham Offshore capital stock to the
holders of DeepTech Common Stock in accordance with the terms of the
Contribution and Distribution Agreement among DeepTech, DeepFlex, El Paso and
Tatham Offshore, dated February 27, 1998 (the "Contribution Agreement"), and the
Tax Sharing Agreement to be entered into among DeepTech, Tatham Offshore and
DeepFlex; (ii) other than in the case of any direct or indirect wholly owned
DeepTech Subsidiary, split, combine or reclassify its outstanding stock or issue
or authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or (iii) redeem,
purchase or otherwise acquire any shares of DeepTech Common Stock or any of its
Subsidiaries or any other securities or any other securities thereof and any
rights, warrants or options to acquire any such shares or other securities
(other than as required by the Indenture dated as of March 21, 1994 between
DeepTech and the Bank of New York, successor in interest to the First Interstate
Bank of Texas, N.A. and the related loan and security documents (collectively,
the "DeepTech Indenture"), the DeepTech's Senior Subordinated Promissory Note
dated January 23, 1997 payable to Hare & Co. (the "Subordinated Note"), or the
transactions contemplated by the Contribution Agreement; (iii) subject to
certain exceptions, issue, deliver, sell, pledge, dispose of or otherwise
encumber any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire any such shares, voting securities, equity equivalent or
convertible securities, other than the issuance of shares of DeepTech Common
Stock upon the exercise of DeepTech Options (whether or not presently
exercisable) outstanding on the date of the Merger Agreement or upon the
exercise of Warrants outstanding on the date of the Merger Agreement, in each
case in accordance with their current terms; (iv) amend its articles or
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certificate of incorporation or by-laws or other comparable organizational
documents; (v) acquire or agree to acquire (1) by merging or consolidating with,
or by purchasing a substantial equity interest in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof or (2) any assets, except for transactions not
exceeding $100,000 individually or $1,000,000 in the aggregate; (vi) except for
Permitted Encumbrances or as required by contracts and agreements set forth in
the DeepTech Disclosure Schedule, sell, lease, license, mortgage or otherwise
encumber or subject to any lien, charge or encumbrance or otherwise dispose of,
or agree to sell, lease, license, mortgage or otherwise encumber or subject to
any lien, charge or encumbrance or otherwise dispose of, any of its assets,
other than transactions that are in the ordinary course of business consistent
with past practice and not material to DeepTech and the DeepTech Subsidiaries
taken as a whole; (vii) incur any indebtedness for borrowed money, guarantee any
such indebtedness, issue or sell any debt securities or warrants or other rights
to acquire any debt securities, guarantee any debt securities or make any loans,
advances or capital contributions to, or other investments in, any other person,
or enter into any arrangement having the economic effect of any of the
foregoing, other than indebtedness incurred in the ordinary course of business
consistent with past practice which is prepayable at any time without premium or
penalty; (viii) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structure or ownership of
DeepTech or any DeepTech Subsidiary other than as contemplated by the Merger
Agreement and related agreements; (ix) except as required under any collective
bargaining agreement, enter into any new (or amend any existing) employee
benefit plan of DeepTech or any new (or amend any existing) employment,
severance or consulting agreement, grant any general increase in the
compensation of officers or employees (including any such increase pursuant to
any bonus, pension, profit-sharing or other plan or commitment) or grant any
increase in the compensation payable or to become payable to any officer or
employee, except in any of the foregoing cases in accordance with pre-existing
contractual provisions or in the ordinary course of business consistent with
past practice except as required to comply with applicable law and except as
provided in the provisions relating to employee matters (see " -- Employee
Matters"); (x) take any action with respect to accounting policies or procedures
for tax or accounting purposes (other than actions required to be taken by tax
laws or generally accepted accounting principles) or make or change any election
with respect to taxes (except that DeepTech can elect to forgo the carryback of
certain net operating losses); (xi) except as disclosed to El Paso or for
maintenance capital expenditures in the ordinary course of business consistent
with past practice or capital expenditures to repair or replace casualty losses,
make or agree to make any new capital expenditure or expenditures in excess of
$100,000 individually or $1,000,000 in the aggregate; (xii) 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 consistent with past practice
or in accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements (or
the notes thereto) of DeepTech included in the DeepTech Group SEC Reports or
incurred in the ordinary course of business consistent with past practice or as
required by law; (xiii) settle or compromise any material federal, state, local
or foreign tax liability; (xiv) except as expressly provided in the Merger
Agreement, enter into, amend, terminate or waive any provision of, any agreement
or arrangement with any Related Party or enter into any transaction with any
Related Party; (xv) take any action which would prevent the Merger from
constituting a reorganization within the meaning of Section 368(a) of the Code;
or (xvi) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing;
Notwithstanding the foregoing, (i) DeepTech has the right to take all such
actions it reasonably deems necessary or appropriate to cause LGPC, Leviathan
and applicable Subsidiaries of Leviathan to perform their obligations under
contracts to which they are parties, (ii) LGPC and its Subsidiaries may take
such actions as they reasonably deem necessary or appropriate by reason of any
capital calls or equity issuances by any entities (partnerships, limited
liability companies or other joint ventures) in which Leviathan or Subsidiaries
of Leviathan own an interest as of the date of the Merger Agreement in order to
maintain their proportionate equity interest in such entities and (iii) to the
extent that DeepTech and the DeepTech Subsidiaries are required to take any
action or are precluded from taking any action with respect to Viosca Knoll
Gathering Company pursuant to any provision of the Merger Agreement and El Paso
declines a request by DeepTech to waive the restrictions in the Merger Agreement
with respect to any such action, El Paso will be deemed to
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have waived any and all fiduciary duties and obligations owed to El Paso or any
Subsidiary thereof, in its capacity as a partner in Viosca Knoll Gathering
Company, in connection with any such action by DeepTech, VK Deepwater Gathering
Company, L.L.C., or any other DeepTech Subsidiaries.
ADDITIONAL AGREEMENTS
The Merger Agreement contains certain covenants and agreements of El Paso
and DeepTech customary for transactions such as those contemplated by the Merger
Agreement. These relate to, among other things, (i) DeepTech allowing El Paso
access, during normal business hours, to its properties, books, contracts,
commitments and records, documents filed pursuant to requirements of the
Commission and such other information to which El Paso may reasonably request
access, subject to existing confidentiality obligations; (ii) the preparation of
the Registration Statement and this Information Statement/Prospectus; (iii)
DeepTech delivering an affiliate letter from each of its affiliates in the form
set forth in Exhibit B to the Merger Agreement, relating to compliance with the
Securities Act; (iv) listing of the El Paso Common Stock to be issued pursuant
to the Merger by El Paso on the NYSE, upon official notice of issuance; (v)
certain employee matters; (vi) filing of such notifications as are required to
be filed under the HSR Act; (vii) using commercially reasonable efforts to
consummate and make effective the transactions contemplated by the Merger
Agreement, including the use of commercially reasonable efforts to obtain all
necessary waivers, consents and approvals, to effect all necessary registrations
and filings, to lift any injunction to the Merger, to work diligently in
cooperation with the other party in connection with the consummation of any
repurchase offer or consent solicitation required pursuant to the DeepTech
Indenture or the Subordinated Note as a consequence of the Merger, related
transactions and the obtaining of the consent of the holders of the notes issued
pursuant to the DeepTech Indenture and the Subordinated Note to the amendments
described in Appendix A to the Merger Agreement, to obtain waivers from holders
of applicable Options and Warrants with respect to any antidilution adjustment,
if any, in connection with the Contribution (as defined below) and the Rights
Offering in exchange for a proportionate share of the Tatham Offshore stock, to
the extent deemed desirable by DeepTech, and to otherwise promptly satisfy the
conditions set forth in the Merger Agreement; (viii) the taking of any further
action necessary or desirable to carry out the purposes of the Merger Agreement
by the officers and/or directors of El Paso and DeepTech; (ix) the conduct of
business by El Paso in a manner which would not jeopardize the characterization
of the Merger as a reorganization within the meaning of Section 368(a) of the
Code; (x) DeepTech regularly conferring with El Paso on operational matters;
(xi) advising the other party orally and in writing of any change or event that
has had, or could reasonably be expected to have, a Material Adverse Effect on
such party and providing copies of all filings made by such party with the
Commission or other Governmental Entities in connection with the Merger
Agreement and other transactions contemplated thereby; and (xii) each party
keeping all information received pursuant to the Merger Agreement confidential
in accordance with the confidentiality provisions of the offer letter executed
December 19, 1997 between El Paso and DeepTech.
DeepTech has also agreed, prior to the Closing, (i) to contribute to Tatham
Offshore all of the outstanding shares of capital stock of Deepflex owned by
DeepTech (the "Contribution"); (ii) to distribute pro rata to the holders of
DeepTech Common Stock Rights to purchase all of the Offshore Shares owned or to
be acquired by DeepTech in Tatham Offshore as provided in the Contribution
Agreement; (iii) that DeepTech and Tatham Offshore will also execute and deliver
the Tax Sharing Agreement attached as Exhibit D to the Merger Agreement
immediately prior to the Contribution and will execute and deliver such other
definitive documentation necessary to effectuate the Contribution and the Rights
Offering and document the contractual relationship between Tatham Offshore and
DeepTech (collectively, the "Offshore Documentation") as El Paso, DeepTech and
Tatham Offshore will in reasonable good faith mutually agree on; (iv) that
DeepTech will cause Tatham Offshore to execute and deliver the Offshore
Documentation; (v) that DeepTech and Tatham Offshore will not amend, modify or
waive any provisions of the Contribution Agreement or the Tax Sharing Agreement
without the consent of El Paso; (vi) that DeepTech will, and will cause Tatham
Offshore, promptly to prepare and to file with the Commission as soon as
practical and in no event later than March 31, 1998, a registration statement
under the Securities Act, with respect to the Offshore Shares issuable or
deliverable upon exercise of the Rights (the "Rights Offering Registration
Statements"), a portion of which will also serve as the Rights Offering
Prospectuses; (vii) that DeepTech will,
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and will cause Tatham Offshore to, use all reasonable efforts (and El Paso and
DeepTech agree to cooperate with Offshore) to have the Rights Offering
Registration Statements declared effective by the Commission as promptly as
practical after the filing thereof, and to mail to stockholders of DeepTech, in
connection with the Contribution and the Rights Offering, the Rights Offering
Prospectuses; (viii) that DeepTech will, and will cause Tatham Offshore to,
perform its obligations required to be performed prior to the Effective Time
under the Contribution Agreement, the Offshore Documentation, the Redemption
Agreement and any other agreements executed in connection with the Merger
Agreement.
DeepTech has also agreed that, between the date of the Merger Agreement and
the Closing, except as contemplated by the Merger Agreement and the related
agreements, (i) DeepTech and the DeepTech Subsidiaries will not invest, loan,
pay or otherwise advance or contribute any funds or property to any member of
the Offshore Group or pay any Taxes (as defined in the Tax Sharing Agreement)
relating to the assets, business or operations of any member of the Offshore
Group or forgive or capitalize any amounts owed by any member of the Offshore
Group to DeepTech or any of the DeepTech Subsidiaries, (ii) immediately prior to
the Effective Time, DeepTech will cause the members of the Offshore Group to
(and the members of the Offshore Group will) pay in cash all amounts owed by
them to DeepTech or any of the DeepTech Subsidiaries (except (x) if the
transactions contemplated by the Redemption Agreement are consummated, the
management fees under the First Amended and Restated Management Agreement dated
November 10, 1993 between Offshore and DeepTech will be reduced by 50% effective
retroactively to January 1, 1998, (y) management fees under the Management
Agreement dated November 10, 1993 between DeepTech and DeepFlex, dated January
19, 1995, as amended, that accrue from December 19, 1997 through the Closing,
will be contributed or forgiven at or prior to the Closing, and (z) as otherwise
provided in the Contribution Agreement) and (iii) immediately prior to the
Effective Time, DeepTech will cause the members of the Offshore Group to (and
the members of the Offshore Group will) reimburse DeepTech for any payments of
Taxes made by DeepTech or any DeepTech Subsidiaries after January 1, 1998 and
prior to the Effective Time which relate to the assets, business or operations
of any member of the Offshore Group.
El Paso has executed a Waiver, dated March 31, 1998, a Waiver, dated April
3, 1998 and a Waiver dated April 8, 1998, allowing DeepTech not to comply with
the covenant which requires DeepTech to file the Rights Offering Registration
Statement by March 31, 1998, provided that DeepTech files the Rights Offering
Registration Statement with the Commission no later than April 10, 1998.
EMPLOYEE MATTERS
As of the Effective Time, certain employees of DeepTech and each DeepTech
Subsidiary listed in the DeepTech Disclosure Schedule will continue employment
with the Surviving Corporation and its Subsidiaries, respectively, in the same
positions and at the same level of wages and/or salary and without having
incurred a termination of employment or separation from service; provided,
however, except as may be specifically required by applicable law or any
contract, neither the Surviving Corporation and its Subsidiaries, on the one
hand, nor any employee, on the other hand, will be obligated to continue any
employment relationship or any specific terms of employment for any specific
period of time. DeepTech has agreed to make certain severance payments to
terminated employees as provided in the Contribution Agreement. At the request
of El Paso, DeepTech will terminate immediately prior to the Effective Time any
employee of DeepTech and the DeepTech Subsidiaries listed in Section 5.5(b) of
the DeepTech Disclosure Schedule. As of the Effective Time, El Paso will be the
sponsor of the employee benefit plans of DeepTech sponsored by DeepTech
immediately prior to the Effective Time, and El Paso will, and will cause its
Subsidiaries to, satisfy all obligations and liabilities under such employee
benefit plans of DeepTech; provided, however, that, except as set forth in the
Merger Agreement and the DeepTech Disclosure Schedule, El Paso and its
Subsidiaries will have the right on or after the Effective Time to amend, modify
or terminate any employee benefit plans of DeepTech. To the extent any employee
benefit plan, program or policy of El Paso or its affiliates is made available
to any person who is an employee of DeepTech or any of the DeepTech Subsidiaries
immediately prior to the Effective Time: (i) service with DeepTech and the
DeepTech Subsidiaries by any employee prior to the Effective Time will be
credited for eligibility and vesting purposes and for purposes of qualifying for
any additional benefits tied to periods of service (such as higher rates of
matching contributions and eligibility for
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early retirement) under such plan, program or policy, but not for benefit
accrual purposes; and (ii) with respect to any welfare benefit plans to which
such employees may become eligible, El Paso will cause such plans to provide
credit for any co-payments or deductibles by such employees and waive all
pre-existing condition exclusions and waiting periods, other than limitations or
waiting periods that have not been satisfied under any welfare plans maintained
by DeepTech and the DeepTech Subsidiaries for their employees prior to the
Effective Time. At the reasonable request of El Paso, DeepTech will amend,
modify or terminate any of the employee benefit plans of DeepTech at or
immediately prior to the Effective Time (whichever El Paso may request) and will
take such other steps as El Paso may reasonably request to facilitate the
administration after the Effective Time of the compensation and benefit plans,
programs and arrangements of the Surviving Corporation.
INDEMNIFICATION
From and after the Effective Date, El Paso will indemnify, defend and hold
harmless the officers, directors and employees of DeepTech and the DeepTech
Subsidiaries who were such at any time prior to the Effective Time (the
"Indemnified Parties") from and against all losses, expenses, claims, damages or
liabilities arising out of the transactions contemplated by the Merger Agreement
to the fullest extent permitted or required under applicable law, and the
Indemnified Parties will be advanced expenses subject to a customary
reimbursement agreement. All rights to indemnification existing in favor of the
directors, officers or employees of DeepTech and the DeepTech Subsidiaries as
provided in DeepTech's charter or by-laws, as in effect as of the date of the
Merger Agreement, with respect to matters occurring through the Effective Time,
will survive the Merger and will continue in full force and effect thereafter.
El Paso will maintain in effect for not less than six years after the Effective
Time the current policies of directors' and officers' liability insurance
maintained by DeepTech with respect to matters occurring on or prior to the
Effective Time. The Merger Agreement further provides that El Paso may
substitute therefor policies of at least the same coverage (with carriers
comparable to DeepTech's existing carriers) containing terms and conditions
which are no less advantageous to the Indemnified Parties, that El Paso will not
be required in order to maintain or procure such coverage to pay an annual
premium in excess of 150% of the current annual premium paid by DeepTech for its
existing coverage (the "Cap") and that if equivalent coverage cannot be
obtained, or can be obtained only by paying an annual premium in excess of the
Cap, El Paso will only be required to obtain as much coverage as can be obtained
by paying an annual premium equal to the Cap.
In the event that any action, suit, proceeding or investigation relating to
the Merger Agreement or to the transactions contemplated by the Merger Agreement
is commenced, whether before or after the Effective Time, El Paso, DeepTech and
Merger Sub agree to cooperate and use their respective reasonable efforts to
vigorously defend against and respond thereto. Any Indemnified Party, upon
learning of any claim, action, suit, proceeding or investigation for which such
party may seek indemnification under the Merger Agreement, will promptly notify
El Paso.
NO SHOP
DeepTech has agreed in the Merger Agreement (i) that neither it nor any of
its subsidiaries will, and it will direct and use its best efforts to cause its
officers, directors, employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
of its subsidiaries) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its stockholders)
with respect to a merger, acquisition, consolidation or similar transaction,
involving, or any purchase of all or any significant portion of the assets or
any equity securities of, DeepTech and the DeepTech Subsidiaries, taken as a
whole (any such proposal or offer being hereinafter referred to as an
"Alternative Proposal"), or engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
person relating to an Alternative Proposal, or release any third party from any
obligations under any existing standstill agreement or arrangement, or enter
into any agreement with respect to an Alternative Proposal, or otherwise
facilitate any effort or attempt to make or implement an Alternative Proposal;
(ii) that it will immediately cease and cause to be terminated any existing
activities, discussions or
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negotiations with any parties conducted theretofore with respect to any of the
foregoing, and it will take the necessary steps to inform the individuals or
entities referred to above of the obligations undertaken as set forth above; and
(iii) that it will notify the other party immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, it.
The Merger Agreement provides that, prior to the date of execution of the
Consent (the "Consent Date"), DeepTech may, directly or indirectly, furnish
information and access to, and may participate in discussions and negotiate
with, any person, if such person has submitted a written proposal to the Board
of Directors of DeepTech relating to an Alternative Proposal which the Board of
Directors of DeepTech believes, after consultation with its financial advisor,
is superior from a financial point of view to the Merger and the Board of
Directors of DeepTech determines in its good faith judgment that it is required
to take such action to comply with the Board of Directors' fiduciary duty
imposed by law (a "Superior Proposal"). The Board of Directors of DeepTech will
provide a copy of any such written proposal to El Paso immediately after receipt
thereof and thereafter keep El Paso promptly advised of any development with
respect thereto and any revision of the terms of such Superior Proposal.
The Merger Agreement provides that the foregoing does not (x) permit
DeepTech to terminate the Merger Agreement, (y) permit DeepTech or any DeepTech
Subsidiary to enter into any agreement with respect to an Alternative Proposal
during the term of the Merger Agreement (it being agreed that during the term of
the Merger Agreement, neither DeepTech nor any DeepTech Subsidiary may enter
into any agreement with any person that provides for, or in any way facilitates,
an Alternative Proposal (other than a confidentiality agreement in customary
form)), or (z) affect any other obligation of DeepTech under the Merger
Agreement.
CONDITIONS PRECEDENT
The obligations of El Paso, DeepTech and Merger Sub to effect the Merger
are subject, among other things, to the fulfillment, or, where permissible,
waiver, of certain conditions, including without limitation: (i) the expiration
or termination of any waiting period applicable to the consummation of the
Merger under the HSR Act; (ii) the effectiveness of the Registration Statement
and the absence of a stop order suspending such effectiveness; (iii) there not
having been issued or in effect any preliminary or permanent injunction or order
by any federal or state court in the United States of competent jurisdiction
prohibiting the consummation of the Merger; (iv) the listing on the NYSE,
subject only to official notice of issuance, of the shares of El Paso Common
Stock to be issued pursuant to the Merger; (v) if applicable, DeepTech having
received an opinion of Fried, Frank, Harris, Shriver & Jacobson ("Fried Frank"),
counsel to El Paso, relating to certain tax matters; (vi) the Contribution and
the Rights Offering as provided in the Merger Agreement having occurred
(including the effectiveness of the Rights Offering Registration Statements and
the consummation of the transactions contemplated therein) and the Offshore
Documentation having been executed and delivered and being in full force and
effect; and (vii) the holders of notes issued pursuant to the DeepTech Indenture
and the Subordinated Note having consented to the transactions related to the
Contribution and the Rights Offering and the holders of notes issued pursuant to
the DeepTech Indenture and the Subordinated Note having consented to the
amendments thereto as provided in the Merger Agreement. If such note holders
elect to exercise their rights under the repurchase offer related to the
transactions contemplated by the Merger Agreement and the related agreements, El
Paso will finance DeepTech's repurchase thereof concurrently with the Closing or
the consummation of such repurchase offer, if later. Although the condition that
DeepTech receive a tax opinion from Fried, Frank may be waived, DeepTech does
not presently intend to waive such condition. However, in the event such
condition is waived, DeepTech will re-circulate the Proxy Statement/Prospectus
to disclose the waiver of such condition and all other related material
disclosure, including risks to its stockholders.
The obligation of DeepTech to effect the Merger is also subject to the
fulfillment of certain additional conditions, including (i) the accuracy of the
representations and warranties of El Paso and Merger Sub and the performance in
all material respects of the obligations and covenants of El Paso and Merger Sub
under the Merger Agreement and the receipt of a certificate of an executive
officer of El Paso to such effect; (ii) the receipt of all consents, waivers,
approvals, authorizations or orders required and the making of all filings
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required for the consummation of the transactions contemplated by the Merger
Agreement, except for those the failure to obtain which would not and would not
reasonably be expected to adversely affect the Closing; and (iii) El Paso having
complied in all material respects with its obligations to be performed prior to
the Effective Time under the agreements pursuant to which El Paso will acquire
the Subsidiaries Securities (the "Subsidiaries Agreements").
The obligation of El Paso to effect the Merger is also subject to the
fulfillment of certain additional conditions, including (i) the accuracy of the
representations and warranties of DeepTech and the performance in all material
respects of the obligations and covenants of DeepTech under the Merger Agreement
(except as permitted by the Merger Agreement) and the receipt of a certificate
of an executive officer of DeepTech to such effect; (ii) the receipt of the
consent or approval of each non-governmental third party whose consent or
approval will be required in connection with the transactions contemplated by
the Merger Agreement under any agreement or instrument of DeepTech and the
DeepTech Subsidiaries, except those the failure to obtain which, individually or
in the aggregate, would not be expected, in the reasonable opinion of El Paso,
to have a Material Adverse Effect on DeepTech or to have a material adverse
effect upon the consummation of the transactions contemplated by the Merger
Agreement, (iii) the absence of pending litigation by any domestic governmental
entity (x) challenging the acquisition by El Paso of any shares of DeepTech
Common Stock, seeking to restrain or prohibit the consummation of the Merger or
seeking to obtain from El Paso or DeepTech any damages that are material in
relation to DeepTech and the DeepTech Subsidiaries taken as a whole, (y) seeking
to prohibit or limit the ownership, operation or control by DeepTech, El Paso or
any of their respective Subsidiaries of any portion of the business or assets of
DeepTech or El Paso and their respective Subsidiaries, or to compel DeepTech or
El Paso and their respective Subsidiaries to dispose of or hold separate any
portion of the combined business or assets of DeepTech or El Paso and their
respective Subsidiaries, as a result of the Merger, which in either case, is
material in relation to DeepTech and the DeepTech Subsidiaries taken as a whole,
or (z) seeking to impose limitations on the ability of El Paso to acquire or
hold, or exercise full rights of ownership of, any shares of DeepTech Common
Stock, and (iv) each party selling Subsidiaries Securities pursuant to the
Subsidiaries Agreements having complied in all material respects with its
obligations to be performed prior to the Effective Time under the Subsidiaries
Agreements.
Prior to the Effective Time, the parties to the Merger Agreement may (i)
extend the time for the performance of any of the obligations or other acts of
the other parties thereto, (ii) waive any inaccuracies in the representations
and warranties contained therein or in any documents delivered pursuant thereto
and (iii) waive compliance with any of the agreements or conditions contained
therein.
TERMINATION, AMENDMENT AND WAIVER
Either party may terminate the Merger Agreement if (i) there has been a
breach of representations, warranties, covenants or agreements by the other
party, which breach would result in the condition relating to the accuracy of
the representations, warranties, covenants and agreements of such party not
being satisfied and such breach has not been cured within ten business days
following receipt of notice of such breach by the breaching party; (ii) a
permanent order, decree, ruling or other act of a court or other competent
authority restraining or preventing the consummation of the Merger becoming
final and non-appealable; or (iii) the Merger has not been consummated on or
before June 30, 1998, unless the failure to consummate the Merger is the result
of a material breach of any covenant or agreement contained in the Merger
Agreement by the party seeking to terminate the Merger Agreement which has not
been cured within ten business days following receipt by the breaching party of
notice of such breach from the non-breaching party; provided that, at the option
of El Paso, exercisable by notice in writing to DeepTech at any time on or after
June 30, 1998, the earliest date on which the Merger Agreement may be terminated
thereunder will be extended to September 30, 1998; and provided, further, that
El Paso will have the right to exercise such option only if in the exercise
notice El Paso agrees that it will permanently waive and be deemed to have
waived all of its conditions to Closing except for the following: (x) the
conditions described in subsections (i)-(vi) of the first paragraph and
subsection (iv) of the third paragraph of "-- Conditions Precedent" above (other
than, in the case of the condition in subsection (iv) of the third paragraph,
with respect to the Subsidiaries Agreements executed by parties who are not
employees of DeepTech), (y) the condition described in subsection (i) of the
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second paragraph of "-- Conditions Precedent" above with respect to covenants
and agreements, and (z) the condition described in subsection (i) of the second
paragraph of "-- Conditions Precedent" above with respect to representations and
warranties of DeepTech only to the extent El Paso has given at least five days
notice of its non binding intent to exercise El Paso's right to extend and
either (i) DeepTech has not delivered an officer's certificate with respect to
the accuracy of DeepTech's representations and warranties as required by the
Merger Agreement or (ii) the officer's certificate was not, to DeepTech's
knowledge, true and correct.
In addition, prior to the Consent Date, DeepTech has the right to terminate
the Merger Agreement if the DeepTech Board has received a Superior Proposal
which the DeepTech Board has resolved to accept. Concurrently with, and as a
condition to the validity of, any such purported termination, DeepTech is
required to pay to El Paso the sum of $20,000,000 in cash; provided that upon
the tender of such $20,000,000 payment by DeepTech, El Paso will be deemed to
have waived any and all claims El Paso may have at law or in equity against
DeepTech, its Subsidiaries or their respective officers, directors or employees
arising out or relating to the Merger Agreement or related agreements; provided,
further, that El Paso will not be deemed to have waived any claim it may have at
law or in equity against a third party for tortious interference with contract
arising out of or relating to any Alternative Proposal. After the Consent Date,
DeepTech will have no ability to terminate the Merger Agreement if a Superior
Proposal is made. The provisions described in this paragraph were negotiated by
the Independent Committee of DeepTech.
The Merger Agreement may also be terminated prior to the Effective Time by
the mutual consent of DeepTech and El Paso.
If the Merger Agreement is terminated by reason of a willful breach by a
party of its representations, warranties, covenants or agreements, in addition
to other remedies available to the non-breaching party, the breaching party will
be required to reimburse the non-breaching party for all substantiated
out-of-pocket costs and expenses incurred by the non-breaching party in
connection with the Merger Agreement and the transactions contemplated thereby,
up to an aggregate of $5 million.
The provisions in the Merger Agreement relating to, among other things,
confidentiality, the effect of termination and abandonment, termination upon a
Superior Proposal, non-survival of representations and warranties, disclosure
schedules, governing law, enforcement and assignment will survive the
termination of the Merger Agreement.
FEES AND EXPENSES
Whether or not the Merger is consummated, except as otherwise provided in
the Merger Agreement, all costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated by the Merger Agreement will
be paid by the party incurring such expenses, whether or not the Merger is
consummated, except that (a) the filing fee in connection with the HSR Act
filing, (b) the filing fees in connection with the filing of the Registration
Statement and this Proxy Statement/Prospectus with the Commission and (c) the
expenses of printing and mailing the Registration Statement and this Proxy
Statement/Prospectus, will be shared equally by DeepTech and El Paso.
AMENDMENT NO. 1
Amendment No. 1 was executed as of June 16, 1998 among El Paso, DeepTech,
El Paso Acquisition Company and El Paso Energy. The purpose of Amendment No. 1
is to add El Paso Energy as a party to the Merger Agreement, to provide for the
issuance of El Paso Energy common stock in the Merger and to provide for the
Amended Merger if the holding company reorganization occurs prior to the
Effective Time. Except as described above, the terms of the Merger are
substantially unchanged from the terms of the Original Merger Agreement.
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THE CONTRIBUTION AGREEMENT
The following summary of the terms of the Contribution Agreement is
qualified in its entirety by reference to the Contribution Agreement, which is
incorporated by reference herein and attached as Appendix B to this Proxy
Statement/Prospectus. Certain defined terms used in the description of the
Contribution Agreement below which are not otherwise defined in this Proxy
Statement/Prospectus and which are defined in the Contribution Agreement shall
have the respective meanings set forth therein.
This Proxy Statement/Prospectus does not constitute a prospectus with
respect to the Rights Offering (as defined below) or the shares of capital stock
of Tatham Offshore which may be acquired upon exercise of the Rights (as defined
below). The Rights Offering is being made pursuant to a separate registration
statement of Tatham Offshore and neither El Paso nor DeepTech makes any
recommendation to holders of Rights as to whether they should exercise or sell
any Rights or assumes any responsibility for the accuracy or completeness of
information relating to Tatham Offshore, the Rights Offering or the Rights.
THE RIGHTS OFFERING
The Contribution and Distribution Agreement, dated February 27, 1998, by
and among Tatham Offshore, DeepTech, DeepFlex, and El Paso, sets forth the
mechanics of a rights offering (the "Rights Offering") pursuant to which
DeepTech will distribute, pro rata to the holders of DeepTech Common Stock,
rights (the "Rights") to purchase all of the common and/or preferred stock of
Tatham Offshore owned by DeepTech in the Rights Offering and the transfer of
DeepFlex and, at Tatham Offshore's option, either (but not both of) the FPS
Laffit Pincay or the FPS Bill Shoemaker (the "Rigs"), to Tatham Offshore (the
"Rig Distribution"). Pursuant to the Contribution Agreement, DeepTech will
effect the Rights Offering. DeepTech will retain the first $75 million of net
proceeds of the Rights Offering (the "Initial Proceeds") and to the extent any
underlying Tatham Offshore shares of preferred and common stock (the "Underlying
Shares") remain unpurchased by Tatham Brothers under the Standby Agreement (as
defined herein), Tatham Offshore will purchase such shares for cash at the
subscription price of $3.25 (the "Subscription Price") and DeepTech will
contribute such amount to Tatham Offshore, except for amounts necessary to
satisfy certain estimated tax payment obligations of Tatham Offshore or DeepFlex
(the "Estimated Tax Amount"), to the extent Tatham Offshore has not previously
paid them. The Initial Proceeds and the Estimated Tax Amount will be held in
escrow pursuant to an escrow agreement between the parties. Accordingly, to the
extent the Rights holders and Tatham Brothers purchase Underlying Shares in the
Rights Offering which generate net proceeds to DeepTech in excess of $75
million, the net proceeds of such purchases will be for the benefit of Tatham
Offshore and will be used for general corporate purposes. See "THE STANDBY
AGREEMENT AND THE PURCHASE COMMITMENT AGREEMENT -- The Standby Agreement;
Repayment Agreement."
THE CONTRIBUTION
Under the Contribution Agreement, at least seven days prior to the date of
the distribution (the "Distribution Date") of the Rights to the holders of
record on the record date ("Record Date") of the DeepTech Common Stock: (i)
Tatham Offshore will convey its interest in Tatham Development and irrevocably
terminate and cancel certain oil and gas reversionary rights in exchange for $8
million of the DeepFlex Note; (ii) DeepFlex will deliver to DeepTech all of the
shares of Common Stock and Series A 12% Convertible Exchangeable Preferred Stock
of Tatham Offshore owned by DeepFlex in satisfaction of $12 million of the
DeepFlex Note; (iii) the remaining balance of approximately $61.4 million of the
DeepFlex Note will be contributed to the capital of DeepFlex; and (iv) DeepTech
will dispose of its offshore contract drilling services business by contributing
all of the outstanding shares of the capital stock of DeepFlex (the "DeepFlex
Shares") to Tatham Offshore.
CONDITIONS TO THE CONTRIBUTION AND RIGHTS OFFERING
The Contribution Agreement establishes certain preconditions to the
consummation of both the Contribution and the Rights Offering. The Contribution
and the completion of the Rights Offering will be
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subject to the satisfaction or waiver by DeepTech and Tatham Offshore of the
following conditions: (i) the Contribution and the Rights Offering being in
compliance with applicable federal and state securities laws and any applicable
NASDAQ regulations and the registration statements relating to the Rights
Offering having been declared effective and no stop order being in effect; (ii)
there being no injunction or order in effect which prevents the consummation of
the Merger; and (iii) in the case of the Rights Offering only, the net proceeds
actually received and retained by DeepTech are not less than $75 million and the
Estimated Tax Amount having been paid by Tatham Offshore or retained by DeepTech
out of the proceeds in excess of $75 million, or such amounts having been
deposited in escrow in accordance with the Contribution Agreement.
OPTIONAL RIG DISTRIBUTION
Prior to the Contribution, Tatham Offshore has the option to require
DeepTech to cause RIGCO North America, L.L.C. ("RIGCO"), the current owner of
the Rigs and a wholly owned subsidiary of DeepFlex, to distribute to FPS III,
Inc. and/or FPS V, Inc., each a wholly-owned subsidiary of DeepFlex and parent
of RIGCO, either the FPS Laffit Pincay or the FPS Bill Shoemaker; provided,
however, that this distribution will occur only if the taxable gain realized by
RIGCO on the distribution is no more than $48 million.
INDEMNIFICATION
The Contribution Agreement also sets forth certain indemnification terms
among the parties. Under the Contribution Agreement, from and after the
Effective Time, Tatham Offshore will indemnify El Paso and its Subsidiaries and
the officers, directors and employees of each such entity (the "El Paso
Indemnified Group") against all losses, expenses, claims, damages and
liabilities (other than income tax liabilities, which are the subject of the Tax
Sharing Agreement) to which El Paso may be or become subject that relate to (i)
the assets, business, operations, debts or liabilities of DeepFlex, Tatham
Offshore or its subsidiaries (other than Tatham Development) (collectively, the
Tatham Offshore Group"), whether arising prior to, concurrent with or after the
Contribution or the Rights Offering, (ii) the failure to obtain all necessary
third party consents to the Contribution or the Rights Offering (other than the
failure to obtain all necessary consents under a certain Indenture and Senior
Subordinated Promissory Note of DeepTech in connection with the Contribution and
the Rights Offering, or the failure to obtain any other necessary third party
consents as to which Tatham Offshore will notify El Paso to the extent the
failure to obtain the consent is a result of El Paso's election to unreasonably
withhold or delay its consent under the Merger Agreement (the "Third Party
Consents")), or (iii) any filing by any member of the Tatham Offshore Group
under the Securities Act or the Exchange Act (including, without limitation,
this Proxy Statement/Prospectus), or any information relating to the Tatham
Offshore Group contained in any filing made by any member of the DeepTech Group,
in each case whether made prior to or concurrent with the Effective Time. The
"DeepTech Group" includes DeepTech and its subsidiaries other than the Tatham
Offshore Group.
From and after the Effective Time, El Paso will indemnify, defend and hold
the Tatham Offshore Group and the officers, directors and employees thereof (the
"Offshore Indemnified Group") harmless from and against all losses, expenses,
claims, damages and liabilities (other than income tax liabilities) to which
such group may be or become subject that relate to (i) the assets, business,
operations, debt, or liabilities of the DeepTech Group, whether arising prior
to, concurrent with, or after the Contribution or the Rights Offering, (ii) the
failure to obtain the Third Party Consents, or (iii) any filing by any member of
the DeepTech Group (other than to the extent a filing by a member of the
DeepTech Group contained or contains information relating to the Tatham Offshore
Group) under the Securities Act or the Exchange Act, whether made prior to or
concurrent with the Effective Time.
INTERCOMPANY ACCOUNTS
In addition to the foregoing, the Contribution Agreement prohibits certain
intercompany transactions except as listed below. Pursuant to the Contribution
Agreement, the Merger Agreement and other related agreements, between the date
of the Contribution Agreement and the Effective Time, no member of the DeepTech
Group may invest, loan, pay or otherwise advance or contribute any funds or
property (other than the accrual of (i) amounts payable under that certain First
Restated Management Agreement dated
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November 10, 1993 between Tatham Offshore and DeepTech (the "Management
Agreement"), as amended, and (ii) interest on indebtedness outstanding on the
date of the Contribution Agreement under the DeepFlex Note) to any member of the
Tatham Offshore Group or pay any taxes relating to the assets, business or
operations of any member of the Tatham Offshore Group or forgive or capitalize
any amounts owed by any member of the Tatham Offshore Group to any member of the
DeepTech Group. Except as contemplated by the Contribution Agreement, the Merger
Agreement and the related agreements, immediately prior to the Effective Time,
the members of the Tatham Offshore Group will (i) pay in cash all amounts owed
by them to any member of the DeepTech Group (except that (x) amounts outstanding
under the Management Agreement which relate to DeepFlex will be contributed to
Tatham Offshore or forgiven, (y) if the transactions contemplated by the
Redemption Agreement are consummated, the management fee payable by Tatham
Offshore will be reduced by 50%, effective retroactively to January 1, 1998, and
(z) except as described above with respect to the DeepFlex Note) and (ii)
reimburse DeepTech for any payments of taxes made by DeepTech after January 1,
1998 and prior to the Effective Time which relate to the assets, business or
operations of any member of the Tatham Offshore Group. Any amounts owing by the
DeepTech Group to the Tatham Offshore Group will be offset against amounts
otherwise owed to DeepTech as part of the DeepFlex Note. Other than the Tax
Sharing Agreement, the Contribution Agreement and certain other agreements
contemplated by the Contribution Agreement, all intercompany agreements and
arrangements between any member of the Tatham Offshore Group and any member of
the DeepTech Group will terminate as of the Effective Time.
THE STANDBY AGREEMENT AND THE PURCHASE COMMITMENT AGREEMENT
THE STANDBY AGREEMENT; REPAYMENT AGREEMENT
The Standby Agreement (the "Standby Agreement"), dated as of February 27,
1998, was executed in connection with the Merger Transactions and is by and
among Tatham Offshore, DeepTech, Thomas P. Tatham, Tatham Brothers and El Paso.
Pursuant to the Standby Agreement, to the extent that any Underlying Shares are
not subscribed for by holders of DeepTech Common Stock in the Rights Offering,
Tatham Brothers has committed to purchase in a conditional subscription, at a
Subscription Price of $3.25 for the Underlying Shares purchasable under each
Right, such number of unsubscribed Underlying Shares in the Rights Offering as
will result in DeepTech receiving net proceeds from the Rights Offering of not
less than $75 million (the "Standby Commitment"). In addition, Tatham Brothers
has the right to purchase any Underlying Shares which DeepTech holds after the
Rights Offering and the conditional subscription at the Subscription Price. Mr.
Tatham has unconditionally guaranteed Tatham Brothers' performance of the
Standby Commitment, which guarantee is backed by a letter of credit from
NationsBank, N.A. In consideration of Mr. Tatham's guarantee of the Standby
Commitment, under the terms of a Repayment Agreement between Mr. Tatham and
Tatham Brothers, dated February 27, 1998, (i) Tatham Brothers granted to Mr.
Tatham an option to purchase up to a one-third membership interest in Tatham
Brothers for $1,000 through the issuance of new membership units and (ii) Mr.
Tatham has the right, but not the obligation, to lend to Tatham Brothers all
sums necessary for Tatham Brothers to fulfill its obligations under the Standby
Commitment.
THE PURCHASE COMMITMENT AGREEMENT
Pursuant to the Purchase Commitment Agreement, dated as of February 27,
1998 by and between Tatham Brothers and Tatham Offshore, in consideration of the
Standby Commitment, Tatham Offshore will pay Tatham Brothers a fee equal to the
product of (i) 23,076,923 and (ii) the Fee Multiplier. The "Fee Multiplier"
means, with respect to the date of the closing of the Rights Offering, (a) if
prior to July 1, 1998, $0.25, (b) if on or after July 1, 1998 through July 31,
1998, $0.275, (c) if on or after August 1, 1998 through August 31, 1998, $0.30
or (d) if on or after September 1, 1998, $0.325. Such fee is payable by Tatham
Offshore in cash, or at its election in shares of common stock of Tatham
Offshore. In connection with the Standby Commitment, Tatham Offshore has agreed
to grant Tatham Brothers certain registration rights with
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respect to such Underlying Shares, including three demand registrations and
unlimited piggyback registration rights for five years.
THE TAX SHARING AGREEMENT
The Tax Sharing Agreement (the "Tax Sharing Agreement") to be executed in
connection with the Merger and related transactions by and among Tatham
Offshore, DeepTech and DeepFlex, establishes the manner in which the parties
will allocate the responsibilities, liabilities and benefits relating to or
affecting the payment of federal, state, local or foreign income and other
taxes, licenses and fees ("Taxes") following the date the Contribution is
effected.
Under the Tax Sharing Agreement, the parties will be responsible for the
payment of various Taxes either arising from the Merger and related transactions
or regular business operations. Tatham Offshore will pay (i) all Taxes
attributable to Tatham Offshore and its Subsidiaries, including under certain
circumstances, Taxes arising from the Rig Distribution, (ii) Taxes of Tatham
Development for periods prior to the transfer by Tatham Offshore of the
outstanding shares of Tatham Development to DeepTech pursuant to the
Contribution Agreement, and (iii) Taxes of DeepTech attributable to the
Contribution and the Rights Offering (but not to the extent such Taxes exceed
the sum of $7 million and any Taxes attributable to the value of Tatham Offshore
being in excess of a notional amount to be determined according to a formula set
forth in the Tax Sharing Agreement). DeepTech will pay all other Taxes
attributable to DeepTech other than those described in the preceding sentence.
Both Tatham Offshore and DeepFlex will cooperate with DeepTech in the filing of
any consolidated Tax return covering the Taxes to be paid by DeepTech.
The Tax Sharing Agreement provides for the allocation of any net operating
losses and other available Tax attributes. Pursuant to the Tax Sharing
Agreement, the net operating losses and other Tax attributes of DeepTech are
allocated first to offset income of DeepTech (other than income arising from the
Rights Offering and the Contribution), second to offset operating income of
DeepFlex (for the period ending June 30, 1998 and (if different) the period
ending on the date the Contribution is effected), third to offset gain DeepTech
may recognize on the Contribution and the Rights Offering, and fourth to offset
RIGCO's gain of DeepFlex on the Rig Distribution. Under the Tax Sharing
Agreement, El Paso will pay Tatham Offshore for the benefit of any Tax savings
resulting from the use of any remaining losses of DeepTech which are carried
forward to periods after the Effective Time.
Finally, if a Rig Distribution occurs, both Tatham Offshore and DeepTech
(or El Paso as successor to DeepTech) are required to provide the other party
with letters of credit in the amount of $7 million to secure certain of their
payment obligations under the Tax Sharing Agreement. The letters of credit are
to expire after five years (but may be extended for an additional three years
under certain circumstances described in the Tax Sharing Agreement).
THE REDEMPTION AGREEMENT
The Redemption Agreement (the "Redemption Agreement"), dated as of February
27, 1998, is by and between Tatham Offshore and Flextrend Development Company,
L.L.C. ("Flextrend"), a subsidiary of Leviathan. The Redemption Agreement
provides for an exchange of certain of Tatham Offshore's oil and gas properties
for 7,500 shares of Tatham Offshore's 9% Senior Convertible Preferred Stock, par
value $0.01 per share (the "Senior Preferred Stock"), owned by Leviathan on the
later of July 1, 1998 or one business day after the closing of the Rights
Offering.
Under the Redemption Agreement, subject to the satisfaction of the
conditions contained in the Redemption Agreement, Tatham Offshore will convey to
Leviathan all of Tatham Offshore's right, title and interest in Ship Shoal Block
331, West Delta Block 35, Viosca Knoll Blocks 772, 773, 774, 817, 818 and 861
and Ewing Bank Blocks 871, 914, 915 and 916 (the "Properties"). In exchange for
the Properties, Leviathan will (i) convey the Senior Preferred Stock to Tatham
Offshore and (ii) deem satisfied all of the accrued and unpaid dividends on the
shares of the Senior Preferred Stock due to Leviathan as of the date of the
exchange.
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Leviathan will be entitled to all revenues and will assume all of the costs,
obligations and liabilities of the Properties that arise on and after January 1,
1998.
STOCKHOLDER AGREEMENTS
Pursuant to the Stockholder Agreements (the "Stockholder Agreements"),
dated February 27, 1998, between El Paso and each of Thomas P. Tatham, Charles
M. Darling IV, Donald V. Weir, Grant E. Sims, Lehman Brothers Holdings, Inc. and
DLJ Capital Corp. (each, a "Stockholder"), each Stockholder has agreed, among
other things, (a) to vote all voting securities ("Voting Securities") of
DeepTech owned by such Stockholder in favor of the Original Merger; (b) not to
vote any Voting Securities in favor of any action or agreement which would
result in a breach in any material respect of any material covenant,
representation or warranty or any other obligation of DeepTech under the
Original Merger Agreement; and (c) vote all Voting Securities against any action
or agreement the primary or a substantial purpose of which would be to
materially impede, interfere with or attempt to discourage the Original Merger.
Each Stockholder has signed a written consent (the "Consent") approving the
Original Merger and has agreed not to revoke the Consent before the Original
Merger Agreement is terminated.
Because shares of El Paso Common Stock received by certain Stockholders who
executed the Consent may be deemed to be "restricted securities" under the
Securities Act, El Paso has agreed to file and keep continuously effective
pursuant to the Securities Act a shelf registration statement, for a period of
one year from the Effective Time, to permit the sale or other disposition of any
shares of El Paso Common Stock that have been acquired by the Stockholders.
The Stockholder Agreements also provide that El Paso will purchase any
interests in Leviathan Holdings Company, Offshore Gas Marketing, Inc. and
Offshore Gas Processors, Inc. owned by each Stockholder. See "PURCHASE OF
MINORITY INTERESTS."
PURCHASE OF MINORITY INTERESTS
Under the Stockholder Agreements between El Paso and each of Thomas P.
Tatham, Donald V. Weir, Charles M. Darling IV and Grant E. Sims, and the Stock
Purchase Agreements between El Paso and each of John H. Gray, James H. Lytal,
Donald A. Sanders, Ben T. Morris, Michael T. Willis and Donald V. Weir, these
stockholders have agreed to sell all of their common stock and other interests
in Leviathan Holdings Company, Offshore Gas Marketing, Inc. and Offshore Gas
Processors, Inc. to El Paso concurrently with the closing of the Merger for an
aggregate purchase price of $55 million, of which more than $54 million
represents the purchase price for the minority interests in Leviathan Holdings
Company.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Mr. Thomas P. Tatham, the Chief Executive Officer and Chairman of the Board
of DeepTech, has executed a Standby Agreement with Tatham Offshore, Tatham
Brothers L.L.C. ("Tatham Brothers") and other parties pursuant to which Mr.
Tatham will guarantee the standby underwriting commitment obligations of the
standby purchaser, Tatham Brothers, in connection with the Rights Offering. In
consideration for his guarantee of the obligations of Tatham Brothers, Mr.
Tatham will receive an option to purchase a one-third equity interest in Tatham
Brothers. At the time of the execution of the Standby Agreement, Mr. Tatham was,
and he still is, the President of Tatham Brothers. In exchange for its
commitment to underwrite the Rights Offering, Tatham Brothers will receive (i) a
commitment fee of between $5,769,230 and $7,500,000 and (ii) certain
registration rights with respect to the underlying shares, including three
demand registrations and unlimited piggyback registration rights for five years.
Mr. Tatham is, and will remain, a part of the management team at Tatham Offshore
after the Merger. See "THE STANDBY AGREEMENT AND THE PURCHASE COMMITMENT
AGREEMENT."
Messrs. Weir, Gray, Tatham, Lytal, Sims and Darling, who are all officers
and/or directors of DeepTech or its subsidiaries, have agreed to sell their
interests in Leviathan Holdings Company, Offshore Gas Marketing
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Inc. and Offshore Gas Processors, Inc. to El Paso for an aggregate of
approximately $52 million. See "PURCHASE OF MINORITY INTERESTS."
In considering the recommendations of the Independent Committee and the
DeepTech Board regarding the Merger, DeepTech stockholders should be aware that
certain DeepTech officers and directors have employment agreements, interests
under benefit plans or other arrangements that provide them with interests in
the Merger and related transactions that are different from, and in addition to,
the interests of DeepTech stockholders generally. All of the options to purchase
shares of DeepTech granted pursuant to DeepTech's Amended Equity Incentive Plan,
and all of the unit rights granted pursuant to Leviathan's Unit Rights
Appreciation Plan (which unit rights may, in the discretion of Leviathan at the
time of grant, be either an option to purchase preference units of Leviathan or
a right to receive cash equal to the appreciation in the underlying preference
units from the date of grant through the date of exercise), shall vest upon the
closing of the Merger to the extent unvested on such date.
On April 1, 1998, El Paso entered into five-year employment agreements with
Messrs. Sims and Lytal to serve as Chief Executive Officer and President,
respectively, of Leviathan upon and following the Effective Time. The agreements
will become effective upon the closing of the Merger and will supersede the
prior employment agreements with DeepTech.
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The income tax discussion set forth in this section is based upon the
Internal Revenue Code, as amended, applicable Treasury Regulations thereunder
and administrative rulings and judicial authority as of the date hereof. All of
the foregoing are subject to change, possibly retroactively, and any such change
could affect the continuing validity of the discussion. El Paso has received
from Fried, Frank, Harris, Shriver & Jacobson an opinion dated ,
1998, that, based upon and subject to certain assumptions and limitations set
forth therein, this discussion represents such firm's opinion as to the material
federal income tax consequences of the Merger under currently applicable law.
The discussion assumes that DeepTech stockholders hold their shares of DeepTech
Common Stock as a capital asset, and does not address the tax consequences that
may be relevant to a particular stockholder subject to special treatment under
certain federal income tax laws, such as dealers in securities, banks, insurance
companies, tax-exempt organizations, non-United States persons and stockholders
who acquired shares of DeepTech Common Stock pursuant to the exercise of options
or otherwise as compensation or through a tax-qualified retirement plan. The
discussion also does not address any consequences arising under the laws of any
state, locality or foreign jurisdiction. No rulings have been or will be sought
from the Internal Revenue Service with respect to any matters relating to the
Merger. DeepTech stockholders should consult their own tax advisors as to the
particular tax consequences of the Merger to them, including income tax return
reporting requirements and the applicability and effect of foreign, state, local
and other tax laws and the effect of any proposed change in the tax law.
TAX-FREE MERGER
If the Aggregate Cash Consideration (described under "THE MERGER
AGREEMENT -- Special Cash Rights; Restructuring of Merger") does not exceed the
Tax-Free Merger Maximum Cash Consideration (described under "THE MERGER
AGREEMENT -- Special Cash Rights; Restructuring of Merger"), the parties intend
the Merger to qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"). In such event, it
is a condition to the Merger that DeepTech and El Paso receive an opinion of
Fried, Frank, Harris, Shriver & Jacobson that the Merger will qualify as a
tax-free reorganization within the meaning of Section 368(a) of the Code.
Assuming the Merger qualifies as a reorganization, the Merger will have the
principal federal income tax consequences as set forth below.
Holders of DeepTech Common Stock -- General. As discussed below, the
federal income tax consequences of the Merger to a DeepTech stockholder
depend on whether such stockholder receives only cash, only shares of El
Paso Common Stock, or some combination thereof, in exchange for such
stockholder's shares of DeepTech Common Stock, as well as for any shares of
DeepTech Common Stock
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that such stockholder constructively owns, and may further depend on
whether such stockholder actually or constructively owns any shares of El
Paso Common Stock. See "-- Additional Considerations."
Only Cash Received. Except as described below (see "-- Additional
Considerations"), a DeepTech stockholder that receives solely cash in the
Merger in exchange for such stockholder's shares of DeepTech Common Stock
generally will recognize capital gain or loss measured by the difference
between the amount of cash received and the tax basis of the shares of
DeepTech Common Stock exchanged therefor. Gain or loss must be calculated
separately for each block of DeepTech Common Stock held by a stockholder.
Shares of DeepTech Common Stock that were acquired at the same time in a
single transaction will be considered a separate "block."
Only El Paso Common Stock Received. Except as discussed below with
respect to cash received in lieu of a fractional share of El Paso Common
Stock, a stockholder of DeepTech that receives only shares of El Paso
Common Stock in the exchange for such stockholder's shares of DeepTech
Common Stock will not recognize gain or loss as a result of receiving
shares of El Paso Common Stock in the Merger. Accordingly, (i) the tax
basis of the shares of El Paso Common Stock received in the Merger will be
the same as the tax basis of the shares of DeepTech Common Stock exchanged
therefor in the Merger (adjusted, as discussed below, with respect to
fractional shares) and (ii) the holding period of the El Paso Common Stock
received will include the holding period of shares of DeepTech Common Stock
exchanged therefor.
Cash and Shares of El Paso Common Stock Received. Except as discussed
below (see "-- Additional Considerations") and with respect to cash
received in lieu of a fractional share of El Paso Common Stock, a DeepTech
stockholder that receives both cash and El Paso Common Stock in the Merger
in exchange for DeepTech Common Stock will recognize capital gain, if any,
but not loss in such exchange. The amount of gain, if any, recognized must
be computed separately with respect to each block of DeepTech Common Stock
surrendered in the Merger. With respect to each block, gain will be
recognized in an amount equal to the lesser of (i) the amount of gain
realized (i.e., the excess of the amount of cash and the fair market value
of DeepTech Common Stock received that is allocable to such block over the
tax basis of such block) and (ii) the amount of cash received that is
allocable to such block. For purposes of such calculation, the aggregate
amount of cash and El Paso Common Stock received by a stockholder generally
will be allocated proportionally among the shares of DeepTech Common Stock
surrendered in exchange therefor pursuant to the Merger. Such gain will be
capital gain except as discussed below (see "-- Additional
Considerations").
The tax basis of the shares of El Paso Common Stock received will be
the same as the tax basis of the shares of DeepTech Common Stock exchanged,
decreased by the basis of any fractional share interest for which cash is
received in the Merger, and further decreased by the amount of cash
received (other than the cash received for a fractional share interest),
and increased by the amount of gain recognized on the exchange (including
any portion that is treated as a dividend). The holding period of the
shares of El Paso Common Stock received will include the holding period of
the shares of DeepTech Common Stock exchanged therefor.
Additional Considerations. In unusual circumstances, a DeepTech
stockholder that (i) receives cash in the Merger and (ii) either
constructively owns shares of DeepTech Common Stock that are exchanged for
shares of El Paso Common Stock in the Merger, or actually or constructively
owns shares of El Paso Common Stock after the Merger (other than shares of
El Paso Common Stock received in the Merger), will be required to treat any
gain recognized as dividend income (rather than capital gain, if any) up to
the amount of cash received in the Merger if the receipt of cash by such
stockholder has the effect of a distribution of a dividend. However, in the
case of a DeepTech stockholder that received solely cash in the Merger, the
amount of any such dividend will not be limited to the amount of such
stockholder's gain. Whether the receipt of cash has the effect of the
distribution of a dividend will depend upon the stockholder's particular
circumstances. The Internal Revenue Service has indicated in published
rulings that a distribution that results in any actual reduction in
interest of a small minority stockholder in a publicly held corporation
generally will not constitute a dividend if the stockholder exercises no
control
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with respect to corporate affairs. For these purposes, a stockholder is
treated as owning the stock owned by certain family members, stock subject
to an option to acquire such stock, stock owned by certain estates and
trusts of which the stockholder is a beneficiary and stock owned by certain
affiliated entities. Because of the complexity of these rules, each holder
of DeepTech Common Stock who receives either solely cash or a combination
of cash and El Paso Common Stock in the Merger, and who believes these
rules may apply to him or her, is particularly urged to contact his or her
own tax advisor.
Fractional Shares. If a holder of shares of DeepTech Common Stock
receives cash in lieu of a fractional share of El Paso Common Stock in the
Merger, such cash amount will be treated as received in exchange for a
fractional share of El Paso Common Stock. Gain or loss recognized as a
result of that exchange will be equal to the cash amount received for the
fractional share of El Paso Common Stock reduced by the proportion of the
holder's tax basis in shares of DeepTech Common Stock exchanged and
allocable to the fractional share of El Paso Common Stock.
The above-mentioned tax opinion of Fried, Frank, Harris, Shriver & Jacobson
as to the qualification of the Merger as a tax-free reorganization within the
meaning of Section 368(a) of the Code will be based on certain assumptions and
upon representations contained in certificates signed by appropriate officers of
DeepTech and El Paso. The tax opinion cannot be relied upon if any of such
factual assumptions is, or later becomes, inaccurate. No ruling from the
Internal Revenue Service concerning the tax consequences of the Merger has been
requested, and the tax opinion will not be binding upon the Internal Revenue
Service or the courts. If the Merger is consummated, and it is later determined
that the Merger did not qualify as a tax-free reorganization, a stockholder of
DeepTech will be taxed in the manner described below under "-- Taxable Merger."
TAXABLE MERGER
If the Aggregate Cash Consideration exceeds the Tax-Free Merger Maximum
Cash Consideration, the Merger will be restructured as described under "THE
MERGER AGREEMENT -- Special Cash Rights; Restructuring of Merger," and it will
be a taxable transaction to the holders of DeepTech Common Stock. A DeepTech
stockholder will recognize taxable gain or loss equal to the difference between
the fair market value of all property (cash and/or El Paso Common Stock)
received in the Merger and the stockholders adjusted tax basis in the DeepTech
Common Stock exchanged therefor. Such gain or loss will be a capital gain or
loss, provided that the DeepTech Common Stock is held by such stockholder as a
capital asset at the Effective Time. Gain or loss must be computed separately
with respect to each block of DeepTech Common Stock exchanged in the Merger. A
DeepTech stockholder who receives shares of El Paso Common Stock in the Merger
will hold such shares at a basis equal to the fair market value of such shares
at the Effective Time, and the holding period with respect to such shares will
begin to run at the Effective Time.
WITHHOLDING
Any cash payments to which a DeepTech stockholder or other payee is
entitled pursuant to the Merger will be subject to backup withholding at a rate
of 31% unless either (i) the stockholder or other payee provides its taxpayer
identification number (social security number or employer identification number)
and certifies that such number is correct or (ii) an exemption from backup
withholding applies under the applicable law and regulations.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO.
THUS, STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING
REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER
APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
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COMPARISON OF THE RIGHTS OF HOLDERS OF EL PASO COMMON
STOCK AND DEEPTECH COMMON STOCK
GENERAL
As a result of the Merger, holders of DeepTech Common Stock will become
holders of El Paso Common Stock and the rights of all such former DeepTech
stockholders thereafter will be governed by the Restated Certificate of
Incorporation of El Paso (the "El Paso Charter"), the By-laws of El Paso (the
"El Paso Bylaws"), and the DGCL. The rights of the holders of DeepTech Common
Stock presently are governed by the First Amended and Restated Certificate of
Incorporation of DeepTech (the "DeepTech Charter"), the First Amended and
Restated Bylaws of DeepTech (the "DeepTech Bylaws") and the DGCL. The following
summary, which does not purport to be a complete statement of the general
differences among the rights of the stockholders of El Paso and DeepTech, sets
forth certain differences between the El Paso Charter and the DeepTech Charter
(as presently in effect) and between the El Paso By-laws and DeepTech Bylaws (as
presently in effect, except as otherwise indicated). This summary is qualified
in its entirety by reference to the full text of each of such documents and the
DGCL. For information as to how such documents may be obtained, see "AVAILABLE
INFORMATION."
The charter, by-laws and capitalization of El Paso Energy will be
substantially identical to El Paso's. The description of the El Paso Charter,
the El Paso By-laws and the El Paso capitalization contained herein would be
applicable to the Charter, by-laws and capitalization of El Paso Energy.
AUTHORIZED CAPITAL STOCK
El Paso. The total authorized capital stock of El Paso consists of
275,000,000 shares of El Paso Common Stock, par value $3.00 per share, and
25,000,000 shares of preferred stock, par value $0.01 per share. El Paso has
designated 1,375,000 shares of preferred stock as Series A Junior Participating
Preferred Stock, par value $.01 per share (the "El Paso Series A Junior
Preferred Stock"), for its stockholder rights plan, none of which is
outstanding. See "-- Shareholder Rights Plan."
DeepTech. The total number of authorized shares of capital stock of
DeepTech is 110,000,000 shares of stock, consisting of 100,000,000 shares of
DeepTech Common Stock, and 10,000,000 shares of DeepTech Preferred Stock, par
value $0.01 per share (the "DeepTech Preferred Stock").
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not have preemptive rights unless such
rights are specifically granted in the certificate of incorporation. The El Paso
Charter denies preemptive rights to its stockholders and the DeepTech Charter
does not grant any preemptive rights to its stockholders.
VOTING RIGHTS
Under the DGCL, unless otherwise provided in the certificate of
incorporation and subject to other qualifications of the DGCL, each stockholder
is entitled to one vote for each share of capital stock held.
El Paso. Each holder of any class or series of El Paso stock is entitled
to one vote for each share having voting power with respect to each matter upon
which a vote is being taken, except as provided in the El Paso Charter. The El
Paso Charter provides that holders of El Paso Series A Junior Preferred Stock
are entitled to 100 votes per share on all matters submitted to a vote of the
stockholders of El Paso, subject to adjustment.
In addition, the El Paso Charter provides that holders of preferred stock
of El Paso, including holders of El Paso Series A Junior Preferred Stock, shall
have the right to vote separately as a class to elect two directors of El Paso
during any period that dividends on such stock are in arrears in an amount equal
to six quarterly dividends.
DeepTech. Generally, holders of DeepTech Common Stock are entitled to one
vote for each share held at all meetings of stockholders.
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DIVIDENDS
The DGCL provides that the directors of a corporation, subject to
restrictions contained in its certificate of incorporation, may declare and pay
dividends on the shares of its capital stock either (i) out of surplus or (ii)
if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year, unless the corporation's
capital is less than the amount of capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets.
El Paso. The El Paso By-laws provide that, except as otherwise provided by
statute or by the El Paso Charter, the El Paso Board may declare dividends upon
the shares of its capital stock either (i) out of its surplus or (ii) if there
is no surplus, out of its net profits for the fiscal year, whenever, and in such
amounts as, in its opinion it is advisable. The El Paso Charter requires that
dividends be paid on El Paso Series A Junior Preferred Stock in preference to
the holders of El Paso Common Stock or any other junior stock of El Paso.
The El Paso Charter provides that, whenever dividends or distributions
payable on El Paso Series A Junior Preferred Stock are in arrears, and until
such dividends and distributions are paid in full, El Paso shall not (i) declare
or pay dividends and distributions on, redeem, purchase or otherwise acquire any
shares of stock ranking junior to or on a parity with El Paso Series A Junior
Preferred Stock, as the case may be, with certain exceptions, or (ii) purchase
or otherwise acquire shares of El Paso Series A Junior Preferred Stock, with
certain exceptions.
DeepTech. The DeepTech Bylaws provide that dividends on the capital stock
of the corporation, paid in cash, property, or securities of the Corporation and
as may be limited by applicable law and applicable provisions of the Certificate
of Incorporation (if any), may be declared by the DeepTech Board at any regular
or special meeting.
REDEMPTION
The DGCL provides that the stock of any class or series may be made
redeemable by the corporation at its option or at the option of the holders of
such stock, subject to certain limitations imposed by the DGCL, including the
requirements that (i) the corporation have outstanding shares of at least one
class or series of stock with full voting power which shall not be subject to
redemption, (ii) redemption must be made in accordance with the certificate of
incorporation, and (iii) the redemption not occur when the capital of the
corporation is impaired and not cause an impairment to the capital of the
corporation, with certain exceptions.
El Paso. The El Paso Charter states that shares of El Paso Series A Junior
Preferred Stock shall not be redeemable.
DeepTech. The DeepTech Charter does not provide for redemption of stock;
therefore, the provisions of the DGCL apply.
LIQUIDATION
El Paso. The El Paso Charter provides that, upon liquidation, dissolution
or winding up of the company, no distribution shall be made to the holders of
shares of stock ranking junior to El Paso Series A Junior Preferred Stock until
holders of El Paso Series A Junior Preferred Stock have received the required
liquidation preference. Additionally, holders of El Paso Series A Junior
Preferred Stock shall receive a pro rata portion of any remaining assets to be
distributed.
DeepTech. The DeepTech Charter does not include a liquidation provision.
SIZE OF THE BOARD OF DIRECTORS
El Paso. The El Paso By-laws provide for the number of directors to be not
less than one and permit the El Paso Board to fix the number of directors by a
vote of a majority of the directors then in office. The El Paso Board currently
consists of seven directors.
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DeepTech. The DeepTech Bylaws provide for the number of directors to be
not less one and permit the DeepTech Board by to fix the number of directors.
The DeepTech Board currently consists of eleven directors, including one outside
advisory director.
ELECTION AND CLASSIFICATION OF THE BOARD OF DIRECTORS
El Paso. The entire El Paso Board is elected by the stockholders of El
Paso at each annual meeting of stockholders for a term of one year. As discussed
in "-- Voting Rights," in certain circumstances holders of preferred stock of El
Paso are entitled to elect two directors to the El Paso Board.
DeepTech. The DeepTech Board is elected by the stockholders of DeepTech at
a stockholders meeting as provided in the DeepTech Charter and Bylaws. Each
director holds office until his successor has been duly elected and qualified or
until death, resignation or removal from office.
CUMULATIVE VOTING
The DGCL permits a certificate of incorporation to provide for cumulative
voting in the election of directors. Neither the El Paso Charter nor the
DeepTech Charter permits cumulative voting.
REMOVAL OF DIRECTORS; FILLING VACANCIES
The DGCL provides that any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, unless the corporation has a
classified board or has cumulative voting. Unless otherwise provided in the
certificate of incorporation or bylaws, vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director.
El Paso. The El Paso By-laws provide that any director of El Paso may be
removed, with or without cause, at any special meeting of the stockholders
called for that purpose, by the affirmative vote of the holders of a majority of
shares of El Paso entitled to vote for the election of such director, and the
vacancy in the El Paso Board caused by any such removal may be filled by the
stockholders at such a meeting. The ability of the stockholders of El Paso to
remove directors, however, is limited because the stockholders cannot call a
special meeting and no action by stockholders of El Paso may be taken by written
consent. Vacancies and newly created directorships may be filled in the manner
set forth in the DGCL.
DeepTech. Except for such additional directors, if any, as are elected by
the holders of the DeepTech Preferred Stock as provided for or fixed pursuant to
the DeepTech Charter, any director may be removed from office only by the
affirmative vote of the holders of 66 2/3% or more of the combined voting power
of the then-outstanding shares of voting stock at a meeting of stockholders
called for that purpose, voting together as a single class.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the DGCL, special meetings of stockholders may be called by the board
of directors or by such persons authorized by the certificate of incorporation
or the bylaws.
El Paso. The El Paso By-laws provide that special meetings of the
stockholders for any purpose may be called only by a majority of the El Paso
Board, the Chairman of the Board, the Chief Executive Officer, the President or
the Vice Chairman of the Board. The effect of this provision is that a
stockholder could not force stockholder consideration of a proposal over the
opposition of the El Paso Board, the Chairman of the Board, the Chief Executive
Officer, the President or the Vice Chairman of the Board by calling a special
meeting of stockholders prior to the time the El Paso Board of Directors, the
Chairman, the Chief Executive Officer, the President or the Vice Chairman
believes such consideration to be appropriate.
DeepTech. The DeepTech Bylaws provide that special meetings of
stockholders may be called only by (i) the Chairman of the Board or (ii) the
Board pursuant to a resolution adopted by a majority of the then-
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authorized number of directors, except in certain circumstances an additional
vote of disinterested members may be required. This provision prevents a
stockholder from forcing stockholder consideration of a proposal at a special
meeting over the opposition of the Chairman of the Board and the DeepTech Board.
STOCKHOLDER ACTION BY WRITTEN CONSENT
The DGCL provides that, unless otherwise provided in the certificate of
incorporation, any action of stockholders may be taken without a meeting,
without prior notice and without a vote, if consents in writing, setting forth
the action so taken, are signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
El Paso. The El Paso Charter provides that any action by the stockholders
will be taken at a meeting of stockholders and no action may be taken by written
consent of stockholders entitled to vote on such action. The provisions of the
El Paso Charter prohibiting stockholder action by written consent may have the
effect of delaying consideration of a stockholder proposal until the next annual
meeting of stockholders. These provisions also would prevent the holders of a
majority of the voting power of the El Paso Common Stock from unilaterally using
the written consent procedure to take stockholder action.
DeepTech. The DeepTech Charter provides that no action that is required or
permitted to be taken by the stockholders of DeepTech at any annual or special
meeting of stockholders may be effected by written consent in lieu of a meeting
of stockholders, unless the action to be effected by written consent of
stockholders and the taking of such action by such written consent have
expressly been approved in advance by the board of directors of DeepTech, and in
certain circumstances by the affirmative vote of disinterested directors.
LIMITATION OF LIABILITY OF DIRECTORS
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of the
director's fiduciary duty, except for liability for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) violation of certain provisions of the DGCL relating to
payment of dividends and stock repurchases, (iv) any transaction from which the
director derived an improper personal benefit, or (v) any act or omission prior
to the adoption of such provision. Each of the El Paso Charter and the DeepTech
Charter includes such a provision.
While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of the corporation only if he or she is a director of the corporation
and is acting in his or her capacity as director, and do not apply to officers
of the corporation who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits a corporation to indemnify officers, directors, employees
and agents against amounts paid and expenses incurred in connection with an
action or proceeding to which such person is or is threatened to be made a party
by reason of such position if such person acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action which such person had no
reasonable cause to believe was unlawful. The DGCL provides that a corporation
may advance expenses of defense (upon receipt of an undertaking from any such
officer or director to reimburse the corporation if he is ultimately not
entitled to indemnification) and must reimburse a successful defendant for
expenses, including attorney's fees, actually and reasonably incurred. The DGCL
provides that, in any action brought by or in the right of the corporation,
indemnification may not be made for any claim, issue or matter as to which a
person has been adjudged by a court of competent jurisdiction to be
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liable to the corporation, unless and only to the extent a court determines that
the person is entitled to indemnity for such expenses.
The El Paso By-laws contain substantially similar language. The DeepTech
Bylaws provide for indemnification of directors and officers to the extent
permitted by the DGCL only as authorized in the specific case upon a
determination that indemnification is proper under the circumstances because the
director or officer has met the applicable standard of conduct set forth in the
DeepTech Charter by (i) a majority vote of a quorum of disinterested directors,
(ii) by independent legal counsel or (iii) by the holders of a majority of the
outstanding stock of DeepTech entitled to vote thereon and permit
indemnification of employees or agents to the same extent as provided for
directors and officers.
AMENDMENT OF BYLAWS
The DGCL vests the power to adopt, amend and repeal bylaws in the
stockholders entitled to vote and permits a corporation to confer such power on
its board of directors.
El Paso. The El Paso By-laws may be amended by the affirmative vote of a
majority of the entire El Paso Board, subject to the right of stockholders to
amend bylaws made or amended by the El Paso Board, by the affirmative vote of a
majority of the outstanding shares represented at a stockholder meeting and
entitled to vote thereon.
DeepTech. The DeepTech Bylaws may be amended (i) by the affirmative vote
of at least a majority of the then-authorized number of directors and, under
certain circumstances, by the affirmative vote of at least a majority of
disinterested directors or (ii) by the DeepTech stockholders by the affirmative
vote of the holders of at least 66 2/3% of the combined voting power of the
then-outstanding shares of voting stock, voting together as a single class and,
under certain circumstances, by the affirmative vote of the holders of at least
a majority of the combined voting power of disinterested shares.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The DGCL provides that an amendment to the certificate of incorporation,
after being declared advisable by the board of directors, generally must be
approved by holders of a majority of the outstanding stock of the corporation
entitled to vote thereon, unless the certificate requires a greater percentage.
El Paso. The El Paso Charter contains a provision requiring the
affirmative vote of not less than 51% of all shares entitled to vote in the
election of directors, excluding the stock of any Interested stockholder (as
defined below in " -- Fair Price Provisions" with respect to El Paso), to amend
(i) the "fair price" provisions described below in " -- Fair Price Provisions,"
and (ii) the provision prohibiting action by stockholders by written consent.
These provisions make it more difficult for stockholders to make changes to the
El Paso Charter, including changes designed to facilitate the exercise of
control over El Paso.
DeepTech. The DeepTech Charter provides that, in addition to any
affirmative vote required by applicable law and in addition to any vote of the
holders of any series of DeepTech Preferred Stock provided for or fixed pursuant
to the provisions of the DeepTech Charter, the amendment of any provision of the
DeepTech Charter must be approved by at least a majority of the then-authorized
number of directors and by the affirmative vote of the holders of at least a
majority of the combined voting power of the then-outstanding shares of voting
stock, voting together as a single class. In addition, amendments to the
provisions of the DeepTech Charter relating to definitions, authorized capital
stock, election of directors, meetings of stockholders, stockholder consent,
limitation of liability, business combinations or amendment of corporate
documents must also be approved by the affirmative vote of the holders of at
least 66 2/3% of the combined voting power of the then-outstanding shares of
voting stock, voting together as a single class, and, under certain
circumstances, also by the affirmative vote of the holders of at least a
majority of the combined voting power of disinterested shares (unless such
amendment has been first approved by at least two-thirds of the then-authorized
number of directors and a majority of disinterested directors).
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BUSINESS COMBINATIONS
Under the DGCL, approval by the affirmative vote of the holders of a
majority of the outstanding stock of a corporation entitled to vote is generally
required for a merger or consolidation or sale, lease or exchange of all or
substantially all of the corporation's assets to be consummated. Unless the
corporate charter provides otherwise, no vote of the stockholders of a surviving
corporation is required to approve a merger if (i) the agreement of merger does
not amend in any respect the surviving corporation's charter, (ii) each share of
the corporation's stock outstanding immediately prior to the effective date of
the merger is to remain outstanding, and (iii) the number of shares of the
surviving corporation's common stock to be issued or delivered under the plan of
merger does not exceed 20% of the surviving corporation's common stock
outstanding immediately prior to the effective date of the merger. Neither the
El Paso Charter nor the DeepTech Charter addresses the vote required by
stockholders of a surviving corporation to approve a merger, unless the fair
price provisions described below are applicable.
FAIR PRICE PROVISIONS
El Paso. The El Paso Charter provides that, in addition to any affirmative
vote otherwise required, the affirmative vote of not less than 51% of the
holders of stock entitled to vote in the election of directors, excluding the
stock of an Interested Stockholder (defined below) who is a party to a Business
Combination (defined in the El Paso Charter to include certain transactions,
including a merger, sale of assets and certain recapitalizations), shall be
required for the adoption or authorization of a Business Combination, unless
Disinterested Directors (as defined in the El Paso Charter) determine by a
two-thirds vote that: (i) the Interested Stockholder is the beneficial owner of
not less than 80% of all shares entitled to vote in the election of directors
and has declared its intention to vote in favor of or to approve such Business
Combination; or (ii)(A) the fair market value of the consideration per share to
be received or retained by the holders of each class or series of stock of El
Paso in a Business Combination is equal to or greater than the consideration per
share (including brokerage commissions and soliciting dealer's fees) paid by
such Interested Stockholder in acquiring the largest number of shares of such
class of stock previously acquired in any one transaction or series of related
transactions, whether before or after the Interested Stockholder became an
Interested Stockholder, and (B) the Interested Stockholder shall not have
received the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other financial
assistance provided by El Paso, whether in anticipation of or in connection with
such Business Combination or otherwise.
For the purposes of the above paragraph, an "Interested Stockholder" is a
person other than El Paso who is (1) the beneficial owner of 10% or more of the
stock of El Paso entitled to vote for the election of directors, or (2) an
affiliate of El Paso which (A) at any time within a two-year period prior to the
record date for the vote on a Business Combination was the beneficial owner of
10% or more of the stock entitled to vote in the election of directors, or (B)
at the completion of the Business Combination will be the beneficial owner of
10% or more of such stock.
The "fair price" provision is intended to ensure that all stockholders
receive equal treatment in the event of a tender or exchange offer and to
protect stockholders against certain takeover bids. Notwithstanding the
foregoing, the provision also could have the effect of discouraging a third
party from making a tender or exchange offer for El Paso, even though such an
offer might be beneficial to El Paso and its stockholders.
DeepTech. The DeepTech Charter requires, in addition to any other
affirmative vote required by law, the affirmative vote of 75% or more of the
combined voting power of the then-outstanding shares of voting stock, voting
together as a single class. However, a particular Business Combination will
require only such affirmative vote as is required by law if there are one or
more Continuing Directors (as defined in the DeepTech Charter) then in office
and if such Business Combination has been approved by the DeepTech Board by (i)
the affirmative vote of at least a majority of the then-authorized number of
directors and (ii) the affirmative vote of at least a majority of the Continuing
Directors then in office.
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DELAWARE STATE TAKEOVER LEGISLATION
Section 203 of the DGCL generally prohibits a Delaware corporation from
engaging in a "Business Combination" (defined as a variety of transactions,
including mergers, asset sales, issuance of stock and other transactions
resulting in a financial benefit to the Interested Stockholder) with an
"Interested Stockholder" (defined generally as a person that is the beneficial
owner of 15% or more of a corporation's outstanding voting stock) for a period
of three years following the date that such person became an Interested
Stockholder unless:
(i) prior to the date such person became an Interested Stockholder,
the board of directors of the corporation approved either the Business
Combination or the transaction that resulted in the stockholder's becoming
an Interested Stockholder;
(ii) upon consummation of the transaction that resulted in the
stockholder becoming an Interested Stockholder, the Interested Stockholder
owned at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, excluding stock held by directors who
are also officers of the corporation and employee stock ownership plans
that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
(iii) on or subsequent to the date such person became an Interested
Stockholder, the Business Combination is approved by the board of directors
of the corporation and authorized at a meeting of stockholders, and not by
written consent, by the affirmative vote of the holders of at least 66 2/3%
of the outstanding voting stock of the corporation not owned by the
Interested Stockholder.
Under the DGCL, a corporation may expressly elect not to be governed by
Section 203 of the DGCL in its certificate of incorporation or its bylaws.
DeepTech. In its certificate of incorporation, DeepTech has elected not to
be governed by Section 203 of the DGCL.
SHAREHOLDER RIGHTS PLAN
El Paso. El Paso has adopted the El Paso Rights Agreement that is designed
to protect El Paso stockholders from coercive or unfair takeover tactics. Under
the El Paso Rights Agreement, the El Paso Rights are attached to all El Paso
Common Stock certificates representing shares presently outstanding and the El
Paso Rights will be attached to any new El Paso Common Stock certificates
representing shares then outstanding. One-half of an El Paso Right will be
issued with respect to each share of El Paso Common Stock issued pursuant to the
Merger. Under certain conditions, each El Paso Right may be exercised to
purchase from El Paso one one-hundredth of a share of El Paso Series A Junior
Preferred Stock at a price of $150 per one one-hundredth of a share, subject to
adjustment.
The El Paso Rights are exercisable only if, without the prior consent of
the El Paso Board, a person or group becomes the beneficial owner of 15% or more
of the voting power of all outstanding voting securities of El Paso (any such
person or group, an "Acquiring Person") or commences or announces a tender or
exchange offer which would result in any person or group becoming an Acquiring
Person, or a Transaction (generally defined in the El Paso Rights Agreement as
any merger, consolidation or sale, mortgage or transfer of assets or earning
power or any acquisition which would result in a person becoming an Acquiring
Person) is reasonably expected to become effective or consummated. In the event
that El Paso is the surviving corporation in a merger and the El Paso Common
Stock is not changed or exchanged, or in the event that a person becomes the
beneficial owner of securities having 15% or more of the voting power of all
then outstanding voting securities of El Paso (unless under certain
circumstances deemed to be in the best interests of El Paso and its stockholders
by a majority of the El Paso Board who are not officers of El Paso), then each
El Paso Right not owned by the Acquiring Person will entitle its holder to
receive upon exercise that number of shares of El Paso Common Stock (or in
certain circumstances other equity securities of El Paso with at least the same
economic value as El Paso Common Stock) having a market value of twice the El
Paso Right's then-current exercise price. If, after the El Paso Rights become
exercisable, El Paso is involved in a merger or other business combination
transaction in which the El Paso Common Stock is exchanged or changed, or it
sells
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50% or more of its assets or earning power, in either case with or to an
Interested Stockholder (as defined in the El Paso Rights Agreement) or any other
person in which such Interested Stockholder has an interest or any person acting
on behalf of or in concert with such Interested Stockholder, each El Paso Right
will entitle the holder to purchase, at the El Paso Right's then-current
exercise price, common stock of the acquiring company having a value of twice
the exercise price of the El Paso Right. The El Paso Rights, which have no
voting rights, expire no later than July 7, 2002. The El Paso Rights may be
redeemed by El Paso under certain circumstances prior to their expiration date
at a purchase price of $0.01 per Right. It is possible that the existence of the
El Paso Rights may have the effect of delaying, deterring or preventing a
takeover of El Paso.
If DeepTech stockholders approve the Amended Merger Agreement and the
Amended Merger and the holding company reorganization occurs, El Paso Energy
will enter into a shareholder rights plan (the "El Paso Energy Rights Plan")
with BankBoston, N.A. as rights agent. The El Paso Energy Rights Plan at the
Effective Time will be substantially identical to that of El Paso except that
each share of El Paso Energy common stock will be associated with one preferred
stock purchase right of El Paso Energy.
DeepTech. DeepTech has not adopted a shareholder rights plan.
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THE EXCHANGE RATIO
The chart below sets forth a range of possible Average Prices, the
corresponding Exchange Ratio and the equivalent market value per share of
DeepTech Common Stock (assuming that a share of El Paso Common Stock had a value
equal to the Average Price). The Average Prices set forth below are for
illustrative purposes and are not intended to be an exhaustive list of possible
Average Prices. There can be no assurance that on the date a holder of DeepTech
Common Stock receives shares of El Paso Common Stock that the share of El Paso
Common Stock will have a value equal to, greater than or less than the
equivalent values set forth below.
AVERAGE PRICE, EXCHANGE RATIO AND EQUIVALENT VALUE
<TABLE>
<CAPTION>
AVERAGE
STOCK PRICE* EXCHANGE RATIO EQUIVALENT VALUE
- - ------------ -------------- ----------------
<S> <C> <C>
$18.00 0.5600 $10.08
20.00 0.5600 11.20
22.00 0.5600 12.32
24.00 0.5600 13.44
25.00 0.5600 14.00
26.00 0.5385 14.00
28.00 0.5000 14.00
30.00 0.4667 14.00
31.25 0.4480 14.00
32.00 0.4375 14.00
34.00 0.4118 14.00
36.00 0.3889 14.00
37.50 0.3733 14.00
38.00 0.3733 14.19
40.00 0.3733 14.93
42.00 0.3733 15.68
44.00 0.3733 16.43
</TABLE>
No assurance can be given as to the market prices of El Paso Common Stock
or DeepTech Common Stock at the Effective Time or during the period in which the
Average Price is calculated. Because the Exchange Ratio is based on an average
of the average high and low prices of the El Paso Common Stock for a period
prior to the Effective Time, the market price of the El Paso Common Stock at the
Effective Time may be less than, equal to or greater than the Average Price. In
addition, because the Exchange Ratio becomes fixed if the Average Price is less
than $37.50 or greater than $25.00, the market value of a share of El Paso
Common Stock multiplied by the Exchange Ratio even at the time the Exchange
Ratio is established may be more or less than $14.00. There can be no assurance
that the market value of the El Paso Common Stock that holders of DeepTech
Common Stock will receive upon consummation of the Merger will not vary
significantly from the market value of the shares of El Paso Common Stock that
holders of DeepTech Common Stock would receive if the Merger was consummated and
holders of DeepTech Common Stock received shares of El Paso Common Stock on the
date of this Proxy Statement/Prospectus or on the Election Record Date.
Holders of DeepTech Common Stock may call 1-800- at any time
between the date of this Proxy Statement/Prospectus and the Election Record Date
to hear a pre-recorded message indicating the Average Price and the Exchange
Ratio if each were calculated on the date of the call.
- - ---------------
* Adjusted to give effect to a two-for-one stock split in the form of a 100
percent stock dividend distributed on April 1, 1998 to holders of record of El
Paso Common Stock on March 13, 1998.
80
<PAGE> 85
MARKET PRICE AND DIVIDEND INFORMATION
The El Paso Common Stock is listed and traded on the NYSE and the DeepTech
Stock is listed and traded on the NASDAQ. The following table sets forth the
high and low trading prices per share of each of the El Paso Common Stock and
the DeepTech Common Stock on the NYSE and the NASDAQ, respectively, for the
periods indicated as reported in published financial sources and the dividends
paid per share for such periods:
<TABLE>
<CAPTION>
EL PASO COMMON EL PASO DEEPTECH DEEPTECH
STOCK PRICES* DIVIDENDS STOCK PRICES DIVIDENDS
---------------- DECLARED -------------- DECLARED
CALENDAR QUARTER HIGH LOW PER SHARE* HIGH LOW PER SHARE
---------------- ------ ------- ---------- ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter.......................... $19 1/16 $14 5/16 $0.17375 $6 5/8 $4 1/8 --
Second Quarter......................... 19 1/2 17 1/8 0.17375 6 1/8 4 1/2 --
Third Quarter.......................... 22 15/16 18 7/8 0.17375 8 5 3/8 --
Fourth Quarter......................... 26 5/8 22 0.17375 7 3/8 5 3/8 --
1997
First Quarter.......................... 28 1/2 24 7/16 0.18250 7 5 3/4 --
Second Quarter......................... 30 5/16 27 1/8 0.18250 8 3/8 6 --
Third Quarter.......................... 30 11/32 26 1/2 0.18250 11 7/8 7 5/8 --
Fourth Quarter......................... 33 3/4 27 11/16 0.18250 14 1/8 10 --
1998
First Quarter.......................... 35 5/8 31 1/8 0.19125 14 3/8 10 1/8 --
Second Quarter (through , 1998)...
</TABLE>
On February 26, 1998, the last full trading day prior to the first public
announcement of the execution of the Merger Agreement, the reported high and low
sale prices per share and closing price per share of El Paso Common Stock and
DeepTech Common Stock on the NYSE and the NASDAQ, respectively, were as follows:
<TABLE>
<CAPTION>
FEBRUARY 26, 1998
-----------------------
HIGH LOW CLOSE
----- ----- ------
<S> <C> <C> <C>
El Paso*................................................. $33 3/4 $33 1/4 $33 1/2
DeepTech................................................. 13 1/8 12 3/8 12 7/8
</TABLE>
On , 1998, the last full trading day prior to the date of this
Proxy Statement/Prospectus, the reported high and low sale prices per share and
closing price per share of El Paso Common Stock and DeepTech Common Stock on the
NYSE and the NASDAQ, respectively, were as follows:
<TABLE>
<CAPTION>
1998
---------------------
HIGH LOW CLOSE
---- ---- -----
<S> <C> <C> <C>
El Paso..................................................... $ $ $
DeepTech....................................................
</TABLE>
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR SHARES OF EL
PASO COMMON STOCK AND DEEPTECH COMMON STOCK.
- - ---------------
* Adjusted to give retroactive effect to a two-for-one stock split effected in
the form of a 100 percent stock dividend distributed on April 1, 1998 to
holders of record of El Paso Common Stock on March 13, 1998.
81
<PAGE> 86
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF EL PASO
The financial data set forth below have been derived from the financial
statements of El Paso for each of the five fiscal years ended December 31, 1997
and the unaudited three-month periods ended March 31, 1998 and March 31, 1997.
The financial statements for each of the five fiscal years for the period ended
December 31, 1997 have been audited by Coopers & Lybrand L.L.P., independent
accountants. The consolidated financial data set forth below as of and for each
of the three-month periods ended March 31, 1998 and 1997 were derived from the
unaudited condensed financial statements of El Paso and its consolidated
subsidiaries. In the opinion of El Paso's management, the summary consolidated
financial data of El Paso as of and for the three-month periods ended March 31,
1998 and 1997, include all adjusting entries (consisting only of normal
recurring adjustments) necessary to present fairly the information set forth
therein. The results of operations for the three-month period ended March 31,
1998 should not be regarded as indicative of the results that may be expected
for the full year. This information should be read in conjunction with the
historical financial statements and notes thereto contained in the El Paso
Annual Report on Form 10-K for the year ended December 31, 1997 and the El Paso
Quarterly Report on Form 10-Q for the three-month period ended March 31, 1998,
which are incorporated by reference herein. See "AVAILABLE INFORMATION" and
"INCORPORATION OF DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
FIRST QUARTER
ENDED MARCH 31,
(UNAUDITED) YEAR ENDED DECEMBER 31,
--------------- --------------------------------------------
1998 1997 1997 1996(A) 1995(A) 1994 1993
------ ------ ------ ------- ------- ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIO)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results Data:
Operating revenues..................... $1,619 $1,831 $5,638 $3,012 $1,038 $ 870 $ 909
Depreciation, depletion and
amortization........................ 65 67 236 101 72 65 54
Litigation special charge.............. -- -- -- -- -- 15 --
Employee separation and asset
impairment charge................... -- -- -- 99 -- -- --
Operating income....................... 141 139 521 170 212 222 229
Income before income taxes and minority
interest............................ 99 87 340 65 133 148 151
Income tax expense..................... 35 34 129 25 48 58 59
Minority interest...................... 6 6 25 2 -- -- --
Net income available to common stock... 58 47 186 38 85 90 92
Basic earnings per common share(b)..... 0.50 0.43 1.64 .53 1.24 1.23 1.23
Diluted earnings per common share(b)... 0.48 0.42 1.59 .52 1.24 1.23 1.23
Cash dividends declared per share of
common stock(b)..................... .19 .18 .73 .70 .66 .61 .55
Basic average common shares
outstanding(b)...................... 115.9 111.2 114.0 72.3 69.0 73.3 74.4
Diluted average common shares
outstanding(b)...................... 121.7 113.2 117.4 73.2 69.0 73.3 74.4
Ratio of earnings to combined fixed
charges and preferred stock dividend
requirements........................ 2.36 2.35 2.26 1.59 2.51 2.87 3.04
Financial Position Data:
Total assets........................... $9,591 $8,746 $9,532 $8,843 $2,535 $2,332 $2,270
Short-term debt (including current
maturities of long-term debt)....... 751 541 885 841 285 114 7
Long-term debt......................... 2,115 2,194 2,119 2,215 772 779 796
Minority interest...................... 365 340 365 335 -- -- --
Stockholders' equity................... 2,017 1,833 1,959 1,638 712 710 708
</TABLE>
- - ---------------
(a) Reflects the acquisitions in September 1995 of Eastex Energy Inc., December
1995 of Premier Gas Company, June 1996 of Cornerstone Natural Gas, Inc.,
and December 1996 of El Paso Tennessee Pipeline Co.
(b) All common share and per share amounts have been adjusted to give
retroactive effect to a two-for-one stock split effected in the form of a
100 percent stock dividend distributed on April 1, 1998 to holders of
record of El Paso Common Stock on March 13, 1998.
82
<PAGE> 87
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF DEEPTECH
The selected historical consolidated financial data set forth below at and
for each of the nine months ended March 31, 1998 and 1997, for each of the three
fiscal years ended June 30, 1997, 1996 and 1995 and at June 30, 1997 and 1996
were derived from the consolidated financial statements and notes thereto that
are incorporated by reference in this Proxy Statement/Prospectus. The
consolidated financial data at June 30, 1994 and 1993 and for the years then
ended and at June 30, 1995 were derived from DeepTech's historical consolidated
financial statements.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, YEAR ENDED JUNE 30,
------------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results Data:
Operating revenue............ $111,161 $107,384 $134,117 $ 55,434 $ 25,440 $ 33,443 $ 17,367
Operating expenses, excluding
losses of equity
investees................. 91,611 96,008 127,259 48,196 21,483 25,193 13,882
Losses of equity investees... 2,410 244 17,736 1,859 13,909 2,355 --
Net income (loss)............ 1,581 3,297 (19,834) 3,642 (8,428) 26,588 (4,299)
Net income (loss)
attributable to common
shareholders.............. 1,581 3,297 (19,834) 3,642 (8,428) 25,988 (4,299)
Weighted average number of
common shares
outstanding............... 20,904 17,713 18,027 16,327 15,315 14,695 14,516
Basic net income (loss) per
common share.............. 0.08 0.19 (1.10) 0.22 (0.55) 1.77 (0.30)
Average number of shares
outstanding assuming
dilution.................. 24,464 20,325 18,027 16,942 15,315 16,609 14,516
Diluted net income (loss) per
common share.............. 0.06 0.16 (1.10) 0.21 (0.55) 1.56 (0.30)
Cash dividends declared per
common share.............. -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, YEAR ENDED JUNE 30,
------------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Position Data:
Total assets................. $234,465 $198,340 $228,218 $156,433 $127,693 $119,229 $ 35,125
Long-term debt............... 96,414 155,460 164,561 97,534 91,381 87,656 15,122
Minority interest in
consolidated
subsidiaries.............. 347 483 344 186 639 422 5,791
Stockholders' equity
(deficit)................. 37,378 23,204 5,539 12,282 2,382 8,911 (18,529)
</TABLE>
83
<PAGE> 88
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
The unaudited pro forma condensed consolidated financial statements at and
for the three months ended March 31, 1998 and for the twelve months ended
December 31, 1997 have been prepared based on the historical consolidated
balance sheet and statements of operations of DeepTech. The historical balance
sheet and statement of operations were adjusted to give effect to the
transactions identified below (the "Transactions"). The balance sheet was
adjusted by giving effect to the Transactions as if they had occurred on March
31, 1998. The statements of operations for the three months ended March 31, 1998
and for the twelve months ended December 31, 1997 were adjusted by giving effect
to the Transactions as if they had occurred on January 1, 1998 and January 1,
1997, respectively.
As previously described, at the Effective Time, DeepTech's assets will
consist of its Leviathan interests, certain oil and gas properties and cash and,
accordingly, the company being acquired by El Paso in the Merger will not retain
any ownership interest in DeepFlex or Tatham Offshore. The unaudited pro forma
condensed consolidated financial statements included herein are presented in
order to reflect the pro forma impact of the disposition prior to the Merger of
DeepTech's interests in DeepFlex and Tatham Offshore.
DeepTech is a diversified energy company currently engaged, through its
operating subsidiaries, Tatham Offshore, Leviathan, DeepFlex and certain joint
ventures, in offshore contract drilling services and the acquisition,
development, production, processing, gathering, transportation and marketing of,
and the exploration for, oil and gas located offshore the United States in the
Gulf of Mexico (the "Gulf") and offshore eastern Canada. Tatham Offshore is
currently engaged in the exploration and production activities in the flextrend
and deepwater areas of the Gulf and is pursuing energy related opportunities in
eastern Canada, including the development of offshore pipeline infrastructure.
DeepFlex, currently a wholly-owned subsidiary of DeepTech, through its
subsidiaries, focuses on the acquisition and deployment of semisubmersible
drilling rigs for contract drilling services. DeepFlex owns and operates two
semisubmersible drilling rigs, the FPS Bill Shoemaker and the FPS Laffit Pincay.
The pro forma financial information gives effect to the following
Transactions:
(1) The El Paso Board and the DeepTech Board and a majority of
DeepTech stockholders have approved entering into a definitive Merger
Agreement. DeepTech will offer all of its equity ownership in Tatham
Offshore (28,073,450 shares of common stock and 4,670,957 shares of Series
A 12% Preferred Stock ("Series A Preferred Stock")) to the stockholders of
DeepTech in the Rights Offering. This equity includes the 406,783 shares of
Tatham Offshore common stock and 4,670,957 shares of Tatham Offshore Series
A Preferred Stock DeepFlex conveyed to DeepTech in March 1998 as
satisfaction of $12 million of the amount DeepFlex owes to DeepTech under
an intercompany line of credit. DeepTech will retain $75 million of the net
proceeds from the Rights Offering and will contribute the balance (other
than amounts necessary to satisfy certain tax payment obligations of Tatham
Offshore, if any) to Tatham Offshore.
(2) Additionally, DeepTech will contribute to the capital of DeepFlex
all of its remaining amounts due from DeepFlex under the intercompany line
of credit except for $8.0 million discussed in (3) below, prior to
contributing all of the outstanding shares of capital stock of DeepFlex to
Tatham Offshore.
(3) Further, DeepTech will sell $8.0 million of debt due to it by
DeepFlex under an intercompany line of credit in exchange for (i) all of
the outstanding shares of capital stock of Tatham Development which owns
leases covering Ewing Bank Block 958, 959, 1002 and 1003 located in the
Gulf and (ii) the cancellation of revisionary interests in certain oil and
gas properties owned by Leviathan.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of DeepTech's consolidated financial condition or results
of operations that might have occurred had the Transactions been completed at
the beginning of the period or as of the date specified, and do not purport to
indicate DeepTech's consolidated financial position or results of operations for
any future period or at any future date. The unaudited pro forma condensed
consolidated financial statements should be read in the context of the related
historical consolidated financial statements and notes thereto that are
incorporated by reference in this Proxy Statement/Prospectus.
84
<PAGE> 89
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................ $ 39,911 $ (580)(c) $114,331(j)
75,000(g)
Accounts receivable................................. 13,733 (7,441)(c) 6,292
Other current assets................................ 501 (165)(c) 336
-------- --------- --------
Total current assets............................. 54,145 66,814 120,959
-------- --------- --------
Intercompany line of credit with DeepFlex............. --(a) 72,974(c) --
(64,974)(e)
(8,000)(f)
Property and equipment, net........................... 128,698 (128,493)(c) 8,605
8,400(f)
Equity investment..................................... 32,831 11,500(b) --
64,974(e)
(75,000)(g)
(34,305)(i)
Deferred income taxes................................. 13,023 5,036(d) 3,137
(14,922)(h)
Debt issue costs, net and other....................... 5,768 (1,157)(c) 4,611
-------- --------- --------
Total assets................................ $234,465 $ (97,153) $137,312
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 16,121 $ (4,077)(c) $ 8,797
(3,247)(d)
Notes payable....................................... 64,841 (64,841)(c) --
-------- --------- --------
Total current liabilities........................ 80,962 (72,165) 8,797
Long-term debt........................................ 96,414 -- 96,414
Cash distributions of equity investees in excess of
investment and accumulated equity earnings.......... 19,042 19,042
Other noncurrent liabilities.......................... 322 400(f) 722
-------- --------- --------
Total liabilities........................... 196,740 (71,765) 124,975
-------- --------- --------
Minority interests in consolidated subsidiaries....... 347 (250)(c) 97
-------- --------- --------
Stockholders' equity:
Common stock........................................ 249 249(j)
Additional paid-in capital.......................... 60,850 (2)(c) 60,848(j)
Accumulated deficit................................. (23,721) 11,500(b) (48,857)
4,308(c)
8,283(d)
(14,922)(h)
(34,305)(i)
-------- --------- --------
37,378 (25,138) 12,240
-------- --------- --------
Total liabilities and stockholders'
equity.................................... $234,465 $ (97,153) $137,312
======== ========= ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
85
<PAGE> 90
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Oil and gas sales.................................. $12,165 $ -- $12,165
Drilling services.................................. 16,485 (16,485)(a) --
------- -------- -------
28,650 (16,485) 12,165
------- -------- -------
Costs and expenses:
Oil and gas purchases.............................. 12,035 -- 12,035
Operating expenses................................. 7,815 (7,815)(a) --
Losses of equity investees......................... 1,963 (1,398)(b) 565
Depreciation and amortization...................... 1,334 (1,318)(a) 16
General and administrative expenses................ 2,900 (875)(a) 2,025
------- -------- -------
26,047 (11,406) 14,641
------- -------- -------
Operating income (loss).............................. 2,603 (5,079) (2,476)
Interest and other income............................ 373 (21)(a) 328
(24)(b)
Interest and other financing costs................... (5,625) 2,477(a) (3,148)
------- -------- -------
Loss before minority interests and income taxes...... (2,649) (2,647) (5,296)
Minority interests in consolidated subsidiaries...... 52 -- 52
------- -------- -------
Loss before income taxes............................. (2,597) (2,647) (5,244)
Income tax (benefit) expense......................... (896) (1,367)(a) (1,796)
467(b)
------- -------- -------
Net loss............................................. $(1,701) $ (1,747) $(3,448)
======= ======== =======
Weighted average number of shares.................... 22,473 22,473
------- -------
Basic and diluted net loss per common share.......... $ (0.08) $ (0.15)
======= =======
</TABLE>
The accompanying notes are an integral part of this financial statement.
86
<PAGE> 91
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ---------
<S> <C> <C> <C>
Revenue:
Oil and gas sales................................. $106,879 $ -- $106,879
Drilling services................................. 44,793 (44,793)(a) --
-------- -------- --------
151,672 (44,793) 106,879
-------- -------- --------
Costs and expenses:
Oil and gas purchases............................. 105,955 -- 105,955
Operating expenses................................ 23,089 (23,089)(a) --
Losses of equity investees........................ 18,893 (894)(a) 343
(17,656)(b)
Depreciation and amortization..................... 3,790 (3,412)(a) 378
General and administrative expenses............... 2,907 (2,876)(a) 31
-------- -------- --------
154,634 (47,927) 106,707
-------- -------- --------
Operating (loss) income............................. (2,962) 3,134 172
Loss on investments................................. (12,049) 11,539(a) (510)
Interest and other income........................... 6,950 (846)(a) 817
(5,287)(b)
Interest and other financing costs.................. (17,796) 5,162(a) (12,634)
-------- -------- --------
(Loss) income before minority interests and income
taxes............................................. (25,857) 13,702 (12,155)
Minority interests in consolidated subsidiaries..... (1,009) -- (1,009)
-------- -------- --------
(Loss) income before income taxes................... (26,866) 13,702 (13,164)
Income tax (benefit) expense........................ (8,681) 453(a) (4,023)
4,205(b)
-------- -------- --------
Net (loss) income................................... $(18,185) $ 9,044 $ (9,141)
======== ======== ========
Weighted average number of common shares
outstanding....................................... 19,466 19,466
======== ========
Basic and diluted net loss per common share......... $ (0.93) $ (0.47)
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
87
<PAGE> 92
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements have
been prepared to reflect the Transactions described on page 73 and the
application of the adjustments to the historical amounts as described below. The
exchange transaction amounts were based on negotiated values as determined by
DeepTech and El Paso and were generally accounted for in the pro forma financial
information at net book value since the parties were under the common control of
DeepTech.
BALANCE SHEET
(a) At March 31, 1998, the historical balance owed to DeepTech by DeepFlex
under an intercompany line of credit totaled $72,974,000 which includes
the results of the conveyance by DeepFlex of all of its ownership equity
in Tatham Offshore (406,783 shares of common stock and 4,670,957 shares
of Series A Preferred Stock) as satisfaction of $12.0 million of debt
owed to DeepTech by DeepFlex under an intercompany line of credit. The
value of the stock conveyance was based on DeepFlex's historical cost of
such stocks plus any accrued and unpaid dividends. This intercompany
balance is eliminated in the historical consolidated balance sheets of
DeepTech as of March 31, 1998. See (c) below.
(b) To reverse the elimination of the gain recorded by DeepFlex in March
1998 pursuant to the transaction described in (a) above as DeepFlex had
reserved the book value of its equity ownership of Tatham Offshore in
June 1997 based on the circumstances surrounding Tatham Offshore's
operations at such time.
(c) To record DeepTech's contribution of all of the outstanding shares of
capital stock of DeepFlex to Tatham Offshore. DeepFlex's historical
balances relating to its offshore contract drilling services business
included in the March 31, 1998 historical consolidated results is as
follows (in thousands):
<TABLE>
<S> <C>
Cash.................................................. $ 580
Accounts receivable................................... 7,441
Other current assets.................................. 165
Property and equipment, net........................... 128,493
Intercompany line of credit payable to DeepTech....... (72,974)
Debt issue costs, net................................. 1,157
Accounts payable...................................... (4,077)
Notes payable......................................... (64,841)
Minority interest liability........................... (250)
Accumulated deficit................................... 4,308
Additional paid-in capital............................ (2)
--------
$ --
--------
</TABLE>
(d) To reverse consolidated deferred income tax balances that relate to
the operations of DeepFlex as follows (in thousands):
<TABLE>
<S> <C>
Deferred income taxes payable......................... $ 5,036
Current estimated tax refund.......................... 3,247
--------
$ 8,283
========
</TABLE>
(e) To record DeepTech's contribution to the capital of DeepFlex of all of
the amounts due from DeepFlex under the intercompany line of credit
except for $8.0 million discussed in (f) below.
(f) To record the sale by DeepTech of $8.0 million of debt due to it by
DeepFlex under an intercompany line of credit in exchange for all of the
outstanding shares of capital stock of Tatham
88
<PAGE> 93
Development and the cancellation of reversionary interests in certain
oil and gas properties owned by Leviathan.
(g) To record net proceeds from the Rights Offering.
(h) To reverse the deferred tax asset of $14.9 million included in the
March 31, 1998 historical consolidated DeepTech amounts related to
DeepTech's investment in Tatham Offshore.
(i) To record a loss on the sale of the investment in Tatham Offshore as
a result of the Rights Offering.
<TABLE>
<S> <C>
Basis (includes the historical March 31, 1998 balance
of $32.8 million plus the results of adjustments (b)
and (e))............................................. $109,305
Proceeds (see adjustment (g))......................... (75,000)
--------
Loss.................................................. $ 34,305
========
</TABLE>
(j) From April 1, 1998 through May 31, 1998, options and warrants
totaling 637,988 have been exercised to purchase an equivalent number of
shares of DeepTech common stock at an average price of $4.47 per share
resulting in $2.9 million of additional cash and equity. As of June 1,
1998, DeepTech had outstanding warrants and options to acquire 3,733,550
shares of common stock at prices ranging from $4.00 per share to $13.50
per share (or an average price of $5.11 per share) resulting in
potential proceeds of $19.1 million.
STATEMENT OF OPERATIONS
(a) To reverse historical results of operations related to the assets and
liabilities of DeepFlex contributed by DeepTech to Tatham Offshore as if
such events had occurred at the beginning of the period.
(b) To reverse historical results of operations related to DeepTech's
investment in Tatham Offshore.
89
<PAGE> 94
EXPERTS
The consolidated financial statements of El Paso as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
have been incorporated by reference herein and in the Registration Statement in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of (i) each of DeepTech and Leviathan
Gas Pipeline Company as of June 30, 1997 and 1996 and for each of the three
years in the period ended June 30, 1997, (ii) Leviathan as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
and (iii) Viosca Knoll Gathering Company as of December 31, 1997 and 1996 and
for each of the two years in the period ended December 31, 1997, have been
incorporated by reference herein and in the Registration Statement in reliance
on the reports of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
The financial statements of High Island Offshore System as of December 31,
1997 and 1996 and for each of the two years in the period ended December 31,
1997 incorporated in this Informational Statement/Prospectus by reference from
Leviathan's Annual Report on Form 10-K for the year ended December 31, 1997 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of Poseidon Oil Pipeline Company, L.L.C. as of
December 31, 1997 and 1996 and for the year ended December 31, 1997 and the
period from inception (February 14, 1996) through December 31, 1996 have been
incorporated by reference herein and in the Registration Statement from
Leviathan's Annual Report on Form 10-K for the year ended December 31, 1997 in
reliance on the report of Arthur Andersen LLP, independent public accountants,
given upon the authority of such firm as experts in accounting and auditing.
The oil and gas reserves data, as of June 30, 1997, of Leviathan and Tatham
Offshore have been incorporated by reference herein and in the Registration
Statement from DeepTech's Annual Report on Form 10-K/A for the year ended June
30, 1997 in reliance on the reports, Tatham Offshore, Inc., Estimated Net
Reserves and Income Data Attributable to Certain Leasehold and Royalty
Interests, dated as of June 30, 1997, of Ryder Scott Company Petroleum Engineers
and the reserve report of Netherland, Sewell & Associates, Inc., each, an
independent petroleum engineering consulting firm, given upon the authority of
such firms as experts in petroleum engineering.
The oil and gas reserves data, as of December 31, 1997, of Leviathan have
been incorporated by reference herein and in the Registration Statement from
DeepTech's Annual Report on Form 10-K/A for the year ended June 30, 1997 and
from Leviathan's Annual Report on Form 10-K for the year ended December 31, 1997
in reliance on the reserve report of Netherland, Sewell & Associates, Inc., an
independent petroleum engineering consulting firm, given upon the authority of
such firm as experts in petroleum engineering.
LEGAL MATTERS
The validity of the El Paso Common Stock to be issued by El Paso pursuant
to the Merger will be passed upon by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations). Certain tax matters will be
passed upon by Fried, Frank, Harris, Shriver & Jacobson.
STOCKHOLDER PROPOSALS
If the Merger is not consummated in accordance with the Merger Agreement,
DeepTech will consider including a stockholder's proposal for action at its 1998
Annual Meeting of stockholders in the proxy material to be mailed to its
stockholders in connection with such meeting if such proposal is received at the
principal office of DeepTech no later than , 1998.
90
<PAGE> 95
APPENDIX A-1
AGREEMENT AND PLAN OF MERGER
AMONG
EL PASO NATURAL GAS COMPANY,
EL PASO ACQUISITION COMPANY
AND
DEEPTECH INTERNATIONAL INC.
DATED AS OF FEBRUARY 27, 1998
<PAGE> 96
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I THE MERGER........................................................... A-1
Section 1.1 The Merger.................................................. A-1
Section 1.2 Effective Time.............................................. A-1
Section 1.3 Effects of the Merger....................................... A-1
Section 1.4 Charter and By-laws; Directors.............................. A-1
Section 1.5 Conversion of Securities.................................... A-2
Section 1.6 Company Common Stock Elections.............................. A-3
Section 1.7 Special Cash Rights; Restructuring of Merger................ A-5
Section 1.8 Parent to Make Cash and Certificates Available; Transfer
Taxes; Withholding........................................ A-5
Section 1.9 Dividends, Fractional Shares, etc........................... A-6
Section 1.10 Closing..................................................... A-7
Section 1.11 Transfer Taxes.............................................. A-7
Section 1.12 Restructuring............................................... A-7
Section 1.13 Alternative Restructuring................................... A-8
Section 1.14 Guarantee................................................... A-9
Section 1.15 Dissenting Shares........................................... A-9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT............................ A-9
Section 2.1 Organization and Qualification.............................. A-9
Section 2.2 Capitalization.............................................. A-10
Section 2.3 Subsidiaries................................................ A-10
Section 2.4 Authority Relative to this Agreement........................ A-10
Section 2.5 Reports and Financial Statements............................ A-11
Section 2.6 Absence of Certain Changes or Events........................ A-11
Section 2.7 Litigation.................................................. A-11
Section 2.8 Compliance with Applicable Laws............................. A-12
Section 2.9 Tax Matters................................................. A-12
Section 2.10 Parent Action............................................... A-12
Section 2.11 Public Utility.............................................. A-12
Section 2.12 Representations and Warranties Regarding Merger Sub......... A-12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................... A-13
Section 3.1 Organization and Qualification.............................. A-13
Section 3.2 Capitalization.............................................. A-13
Section 3.3 Subsidiaries................................................ A-13
Section 3.4 Authority Relative to this Agreement........................ A-14
Section 3.5 Reports and Financial Statements............................ A-15
Section 3.6 Absence of Certain Changes or Events........................ A-15
Section 3.7 Litigation.................................................. A-16
Section 3.8 Compliance with Applicable Laws............................. A-16
Section 3.9 Tax Matters................................................. A-16
Section 3.10 Employee Benefit Plans...................................... A-16
Section 3.11 Company Action.............................................. A-18
Section 3.12 Taxes....................................................... A-18
Section 3.13 Certain Agreements.......................................... A-19
Section 3.14 Compliance with Worker Safety and Environmental Laws........ A-19
Section 3.15 Financial Advisor........................................... A-20
Section 3.16 Public Utility.............................................. A-20
Section 3.17 Offshore Group.............................................. A-20
</TABLE>
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Section 3.18 Limitation on Company Representations and Warranties........ A-20
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS........................... A-21
Section 4.1 Conduct of Business by the Company Pending the Merger....... A-21
Section 4.2 Partnerships and Joint Ventures............................. A-23
ARTICLE V ADDITIONAL AGREEMENTS................................................ A-23
Section 5.1 Access and Information...................................... A-23
Section 5.2 Registration Statement/Information Statement................ A-24
Section 5.3 Compliance with the Securities Act.......................... A-24
Section 5.4 Stock Exchange Listing...................................... A-25
Section 5.5 Employee Matters............................................ A-25
Section 5.6 Indemnification............................................. A-25
Section 5.7 HSR Act..................................................... A-26
Section 5.8 Additional Agreements....................................... A-26
Section 5.9 No Shop..................................................... A-26
Section 5.10 Advice of Changes; SEC Filings.............................. A-27
Section 5.11 Certain Additional Matters.................................. A-27
Section 5.12 Confidentiality Agreement................................... A-28
ARTICLE VI CONDITIONS PRECEDENT................................................ A-28
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger.................................................... A-28
Section 6.2 Conditions to Obligation of the Company to Effect the
Merger.................................................... A-29
Section 6.3 Conditions to Obligations of Parent to Effect the Merger.... A-29
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................................. A-30
Section 7.1 Termination................................................. A-30
Section 7.2 Effect of Termination....................................... A-31
Section 7.3 Amendment................................................... A-32
Section 7.4 Waiver...................................................... A-32
Section 7.5 Exclusive Remedy for Inaccuracy or Breach of Representation
or Warranty............................................... A-32
ARTICLE VIII GENERAL PROVISIONS................................................ A-32
Section 8.1 Non-Survival of Representations and Warranties.............. A-32
Section 8.2 Disclosure Schedules........................................ A-32
Section 8.3 Notices..................................................... A-32
Section 8.4 Interpretation.............................................. A-33
Section 8.5 Counterparts................................................ A-33
Section 8.6 Entire Agreement; No Third-Party Beneficiaries.............. A-33
Section 8.7 Governing Law............................................... A-33
Section 8.8 Assignment.................................................. A-34
Section 8.9 Severability................................................ A-34
Section 8.10 Enforcement of this Agreement............................... A-34
Exhibit A -- Certificate of Incorporation
Exhibit B -- Affiliate Letter
Exhibit C -- Contribution and Distribution Agreement
Exhibit D -- Tax Sharing Agreement
Exhibit E -- Redemption Agreement
Exhibit F -- Parent Certificate
Exhibit G -- Company Certificate
Appendix A -- Amendments to the Company Indenture
</TABLE>
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INDEX OF DEFINED TERMS
<TABLE>
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TERM SECTION
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<S> <C>
Affiliate................................................... 5.3
Affiliate Letter............................................ 5.3
Aggregate Merger Consideration.............................. 1.7(a)
Aggregate Cash Consideration................................ 1.7(a)
Agreement................................................... Preamble
Alternative Taxable Merger.................................. 1.12(a)
Alternative Tax-Free Merger................................. 1.13(a)
Alternative Proposal........................................ 5.9
Average Price............................................... 1.5(c)(i)
Cap......................................................... 5.6(a)
Cash Consideration.......................................... 1.5(c)(ii)
Cash Election............................................... 1.6(a)
Cash-Out Option............................................. 1.5(d)(i)
Certificate................................................. 1.5(f)
Certificate of Merger....................................... 1.2
Closing..................................................... 1.10
Code........................................................ 1.8(b)
Commission.................................................. 2.5
Company..................................................... Preamble
Company Common Stock........................................ Recitals
Company Disclosure Schedule................................. Article III
Company Employee Benefit Plans.............................. 3.10(a)
Company ERISA Affiliate..................................... 3.10(g)
Company Group SEC Reports................................... 3.5
Company Indenture........................................... 4.1(a)
Company Knowledge........................................... 3.7
Company Material Adverse Effect............................. 3.1
Company Permits............................................. 3.8
Company Preferred Stock..................................... 3.2
Company Stock Plans......................................... 1.5(d)(i)
Company Subsidiary.......................................... 3.1
Consent..................................................... 3.4
Consent Date................................................ 3.4
Contribution................................................ 5.11(a)
Contribution and Distribution Agreement..................... 5.11(a)
Control..................................................... 8.4
Deepflex.................................................... 3.1
Dissenting Shares........................................... 1.15
DGCL........................................................ 1.1
Effective Time.............................................. 1.2
Election.................................................... 1.6(a)
Election Record Date........................................ 1.6(e)
Environmental Laws.......................................... 3.14(a)
ERISA....................................................... 3.10(a)
Excess Proceeds............................................. 1.7(a)
Exchange.................................................... 3.6
Exchange Act................................................ 2.4
Exchange Agent.............................................. 1.6(b)
Exchange Fund............................................... 1.8(a)
Exchange Ratio.............................................. 1.5(c)(i)
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Expenses Fee................................................ 7.2(b)
Form of Election............................................ 1.6(c)
Form S-4.................................................... 5.2
Governmental Entity......................................... 2.4
Holding Company Act......................................... 2.11
Holdings.................................................... 3.6
HSR Act..................................................... 1.6(c)
Information Statement/Prospectus............................ 5.2
Indemnified Parties......................................... 5.6(a)
Leviathan................................................... 3.5
Leviathan Credit Agreement.................................. 4.1(e)
Leviathan Purchase Agreement................................ 5.11(d)
LGPC........................................................ 3.6
Merger...................................................... Recitals
Merger Consideration........................................ 1.5(c)
MSG Entities................................................ 3.1
Merger Sub.................................................. Preamble
Multiemployer Plan.......................................... 3.10(b)
Multiplier.................................................. 1.5(c)(i)
Non-Electing Share.......................................... 1.6(a)
NYSE........................................................ 1.5(c)(i)
Offshore.................................................... 3.1
Offshore Documentation...................................... 5.11(a)
Offshore Group.............................................. 3.1
Offshore Shares............................................. 5.11(a)
Option...................................................... 1.5(d)(i)
Parent...................................................... Preamble
Parent Common Stock......................................... Recitals
Parent Disclosure Schedule.................................. Article II
Parent Knowledge............................................ 2.7
Parent Material Adverse Effect.............................. 2.1
Parent Permits.............................................. 2.8
Parent Preferred Stock...................................... 2.2
Parent Rights............................................... 2.2
Parent SEC Reports.......................................... 2.5
Parent Stock Options........................................ 2.2
Permitted Encumbrances...................................... 4.1(e)
Person...................................................... 3.12(c)
Redemption Agreement........................................ 5.11(b)
Related Agreements.......................................... 2.4
Related Party............................................... 3.13(b)
Restructuring Agreement..................................... 3.6
Rights...................................................... 5.11(a)
Rights Offering............................................. 5.11(a)
Rights Offering Prospectuses................................ 5.11(a)
Rights Offering Registration Statements..................... 5.11(a)
Securities Act.............................................. 2.4
Stock Consideration......................................... 1.5(c)(i)
Stock Election.............................................. 1.6(a)
Stockholder Agreements...................................... 3.11
Subordinated Note........................................... 4.1(a)
</TABLE>
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<TABLE>
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---- -------
<S> <C>
Subsidiaries Agreements..................................... 5.11(c)
Subsidiaries Securities..................................... 5.11(c)
Subsidiary.................................................. 8.4
Substitute Option........................................... 1.5(d)(i)
Superior Proposal........................................... 5.9
Surviving Corporation....................................... 1.1
Tax......................................................... 3.12(a)
Tax Return.................................................. 3.12(a)
Tax Sharing Agreement....................................... 5.11(a)
Tax-Free Merger Maximum Cash Consideration.................. 1.7(a)
Transfer Taxes.............................................. 1.11
Warrant..................................................... 1.5(e)(i)
Warrant Agreements.......................................... 1.5(e)(i)
Worker Safety Laws.......................................... 3.14(a)
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of February 27, 1998 (this
"Agreement"), among El Paso Natural Gas Company, a Delaware corporation
("Parent"), El Paso Acquisition Company, a Delaware corporation ("Merger Sub"),
and DeepTech International Inc., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS the respective Boards of Directors of Parent and the Company have
approved the merger of the Company with and into Parent (the "Merger") or with
or into Merger Sub if the Merger is restructured as provided herein, upon the
terms and subject to the conditions set forth herein, whereby each issued and
outstanding share of Common Stock, par value $0.01 per share, of the Company
("Company Common Stock"), not owned by Parent, the Company or their respective
Subsidiaries (as defined in Section 8.4) will be converted into shares of common
stock, par value $3.00 per share, of Parent ("Parent Common Stock"), and/or
cash;
WHEREAS the respective Boards of Directors of each of Parent and the
Company have determined that the Merger is in furtherance of and consistent with
their respective long-term business strategies and is in the best interest of
their respective stockholders; and
WHEREAS under certain circumstances the Merger may be restructured as
provided herein to merge the Company with or into Merger Sub, and accordingly
the Board of Directors of Merger Sub and Parent as sole stockholder have
approved such merger, upon the terms and subject to the condition set forth
herein.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the Delaware General Corporation Law (the
"DGCL"), the Company shall be merged with and into Parent at the Effective Time
(as defined in Section 1.2). Following the Merger, the separate corporate
existence of the Company shall cease and Parent shall continue as the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of the Company in accordance with the DGCL.
Section 1.2 Effective Time. The Merger shall become effective when the
Certificate of Merger (the "Certificate of Merger"), executed in accordance with
the relevant provisions of the DGCL, is filed with the Secretary of State of the
State of Delaware or such later time which the parties hereto shall have agreed
upon and designated in such filing as the effective time of the Merger. When
used in this Agreement, the term "Effective Time" shall mean the date and time
at which the Certificate of Merger is accepted for record or such later time
established by the Certificate of Merger. The filing of the Certificate of
Merger shall be made on the date of the Closing (as defined in Section 1.10).
Section 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL.
Section 1.4 Charter and By-laws; Directors. (a) At the Effective Time,
the Restated Certificate of Incorporation of Parent, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law. At the Effective Time, the By-laws of Parent, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or in the
Certificate of Incorporation or by applicable law.
(b) The directors of Parent at the Effective Time shall be the directors of
the Surviving Corporation until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
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Section 1.5 Conversion of Securities. As of the Effective Time, by virtue
of the Merger and without any action on the part of Parent, the Company or the
holders of any securities of Parent:
(a) Each issued and outstanding share of Parent Common Stock shall
remain outstanding and shall represent one validly issued, fully paid and
nonassessable share of Parent Common Stock.
(b) All shares of Company Common Stock that are held in the treasury
of the Company and shares of Company Common Stock owned by Parent or any
Subsidiary of Parent shall be canceled and no cash, capital stock of Parent
or other consideration shall be delivered in exchange therefor.
(c) Subject to Sections 1.5(b), 1.6 and 1.7, at the Effective Time
each issued and outstanding share of Company Common Stock shall be
converted into, at the election of the holder thereof, one of the following
(as adjusted pursuant to this Article I, the "Merger Consideration"):
(i) for each such share of Company Common Stock (other than shares
as to which a Cash Election (as defined in Section 1.6(a)) has been
effectively made and not revoked or lost pursuant to Section 1.6, the
right to receive a number of shares of Parent Common Stock, including
the associated Parent Rights (as defined in Section 2.2) (collectively,
the "Stock Consideration") equal to the result (calculated to four
decimal places) obtained by multiplying (x) $14.00 by (y) a fraction,
the numerator of which shall equal 29,291,594.5 and the denominator of
which shall equal the sum of (i) the aggregate number of shares of
Company Common Stock outstanding immediately prior to the Effective Time
and (ii) the aggregate number of shares of Company Common Stock which
could be acquired upon the exercise in full of all options and warrants
to purchase Company Common Stock outstanding immediately prior to the
Effective Time (after giving effect to any anti-dilution adjustments, if
any, applicable to such options and warrants in connection with the
Rights Offering (as defined in Section 5.11(a)) (such fraction is
referred to herein as the "Multiplier"), and dividing the result
(rounded up to the nearest full cent) by the average (calculated to four
decimal places) of the closing sales prices of a share of Parent Common
Stock on the New York Stock Exchange (the "NYSE") Composite Tape, as
reported in The Wall Street Journal, during the ten consecutive trading
days ending on and including the trading day immediately prior to the
Effective Time (the "Average Price") (provided that if the Average Price
is more than $75.00, the Average Price shall be deemed for purposes of
this paragraph to be $75.00, and if the Average Price is less than
$50.00, the Average Price shall be deemed for purposes of this paragraph
to be $50.00) (the "Exchange Ratio"); and
(ii) for each such share of Company Common Stock as to which a Cash
Election has been made, the right to receive an amount in cash, without
interest (the "Cash Consideration"), equal to the result (rounded up to
the nearest full cent) obtained by multiplying (a) $14.00 by (b) the
Multiplier.
(d) (i) Each of the Company's Equity Incentive Plan, as amended, and
Non-Employee Director Stock Option Plan (collectively, the "Company Stock
Plans"), and each outstanding stock option held by any current or former
employee or director (an "Option") thereunder, (A) shall be assumed by
Parent at the Effective Time, and each such Option shall become an option
to purchase a number of shares of Parent Common Stock (a "Substitute
Option") equal to the number of shares of Company Common Stock subject to
such Option multiplied by the Exchange Ratio (rounded to the nearest whole
share, with 0.5 shares being rounded up) or (B) at the option of the holder
of such Option exercisable by written notice to the Company prior to the
Effective Time, shall be cancelled immediately prior to the Effective Time
in exchange for a payment in cash as provided below (a "Cash-out Option").
The per share exercise price for each Substitute Option shall be the
current exercise price per share of Company Common Stock divided by the
Exchange Ratio (rounded up to the nearest full cent), and each Substitute
Option otherwise shall be subject to all of the other terms and conditions
of the original Option to which it relates. The cash payment for each
Cash-out Option shall be equal to the product of (x) the number of shares
of Company Common Stock subject to such Option and (y) the excess of the
Cash Consideration over the exercise price per share of Company Common
Stock subject to such Option. Parent shall provide to the Company at the
Effective Time funds to make the payments provided in the
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preceding sentence. Prior to the Effective Time, the Company shall take
such additional actions as are necessary under applicable law and the
applicable agreements and Company Stock Plans to effect the transactions
contemplated by this paragraph.
(ii) As soon as practicable after the Effective Time, Parent shall
cause to be included under a registration statement on Form S-8 of
Parent all shares of Parent Common Stock which are subject to Substitute
Options and all shares of Parent Common Stock which were issued in
exchange for Company Common Stock which constituted performance shares
or restricted stock of the Company to the extent such registration is
legally required for such Parent Common Stock to be freely tradable by
such holder, and shall maintain the effectiveness of such registration
statement until all Substitute Options have been exercised, expired or
forfeited.
(e) (i) At the Effective Time, each warrant (a "Warrant") to purchase
shares of Company Common Stock outstanding immediately prior to the
Effective Time pursuant to any of the warrant agreements listed in Section
3.2 of the Company Disclosure Schedule (as defined in Article III) (the
"Warrant Agreements") shall remain outstanding and shall thereafter
represent the right to receive, upon exercise of such Warrant, solely the
Merger Consideration receivable by a holder of the number of shares of
Company Common Stock for which such Warrant is exercisable immediately
prior to the Merger. For the purpose of determining the form of Merger
Consideration receivable in respect of any such Warrant, such Warrant shall
be treated in the same manner as any share of Company Common Stock as to
which a Stock Election (as defined in Section 1.6(a)) has been made. Parent
as the Surviving Corporation in the Merger hereby assumes the due and
punctual observance and performance of each and every covenant and
condition of such Warrant Agreement to be performed and observed by the
Company and all the obligations and liabilities thereunder, subject to the
provisions of this paragraph, which, to the extent required by the terms of
any Warrant Agreement, have been deemed appropriate by resolution of the
Board of Directors of the Company.
(ii) Parent shall take all such further actions as may be required
as of or after the Effective Time in order to comply with the
obligations and liabilities of the Company under each Warrant Agreement.
(f) As a result of the Merger and without any action on the part of
the holder thereof, at the Effective Time, all shares of Company Common
Stock shall, pursuant to Section 1.5(c), cease to be outstanding and the
certificates representing such shares shall be canceled and retired and
shall cease to exist, and each holder of such shares of Company Common
Stock shall thereafter cease to have any rights with respect to such shares
of Company Common Stock, except the right to receive, without interest, the
Merger Consideration and cash for fractional shares of Parent Common Stock
in accordance with Section 1.9 upon the surrender of a certificate
representing such shares of Company Common Stock (a "Certificate").
Section 1.6 Company Common Stock Elections. Each holder of shares of
Company Common Stock (other than holders of shares to be canceled as set forth
in Section 1.5(b)) shall have the right to submit a request specifying the
number of shares of Company Common Stock which such holder desires to have
converted into the right to receive either (i) the Cash Consideration or (ii)
the Stock Consideration in accordance with the following procedures:
(a) Each holder of shares of Company Common Stock may specify in a
request made in accordance with the provisions of this Section 1.6 (an
"Election") (i) the number of such shares which such holder desires to have
converted into the right to receive the Cash Consideration in the Merger (a
"Cash Election") and (ii) the number of such shares which such holder
desires to have converted into the Stock Consideration in the Merger (a
"Stock Election"). Each holder of shares of Company Common Stock may
specify, by completion of the box provided therefor on the Form of Election
(as defined in subsection (c) below), that (x) in the event the Average
Price is less than $50.00, such share of Company Common Stock shall be
converted into the right to receive the Cash Consideration, notwithstanding
such holder's Stock Election, and (y) in the event the Average Price is
greater than $75.00, such share of Company Common Stock shall be converted
into the right to receive the Stock
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<PAGE> 104
Consideration, notwithstanding such holder's Cash Election. Each share of
Company Common Stock as to which no Election is in effect at the Election
Record Date (as defined in Section 1.6(e)) or for which an Election has
been made but has been revoked or withdrawn or is otherwise no longer
effective shall be called a "Non-Electing Share." Subject to Section 1.7,
the Non-Electing Shares of each holder of shares of Company Common Stock
shall be treated for purposes of this Agreement as if such shares were
covered by a Stock Election.
(b) Parent shall authorize Parent's Transfer Agent or such other
person as shall be reasonably acceptable to the Company to receive
Elections and to act as Exchange Agent hereunder (the "Exchange Agent").
(c) Parent shall prepare, for use by stockholders of the Company in
surrendering Certificates, a form (the "Form of Election") pursuant to
which each holder of Company Common Stock may make Elections. The Form of
Election shall be mailed to stockholders of record of the Company on the
earliest practicable date on or after the latest to occur of (i) the
expiration or termination of 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"), (ii) the mailing of
the Information Statement/Prospectus (as defined in Section 5.2) to
stockholders of the Company and (iii) the mailing of the Rights Offering
Prospectuses (as defined in Section 5.11(a)) to stockholders of the
Company.
(d) The Company shall use all reasonable efforts to make the Form of
Election available to all persons who become stockholders of record of the
Company during the period between such record date and the Election Record
Date (as defined in Section 1.6(e)).
(e) An Election shall have been properly made only if the Exchange
Agent shall have received, by 5:00 p.m., New York City time, on the
twentieth day following the date of mailing of the Form of Election (such
time on such day being referred to herein as the "Election Record Date"), a
properly completed and signed Form of Election accompanied by the
Certificate or Certificates representing the shares of Company Common Stock
to which such Form of Election relates (or by an appropriate guarantee of
delivery of such Certificate or Certificates as set forth in such Form of
Election from a member of any registered national securities exchange or of
the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or correspondent in the United States,
provided such Certificate or Certificates are in fact delivered by the time
set forth in such guarantee of delivery).
(f) Any holder of record of shares of Company Common Stock may at any
time prior to the Election Record Date change such holder's Election by
written notice received by the Exchange Agent at or prior to the Election
Record Date accompanied by a properly completed Form of Election. Parent
shall have the right in its sole discretion to permit changes in Elections
after the Election Record Date.
(g) Any holder of record of shares of Company Common Stock may at any
time prior to the Election Record Date revoke such holder's Election by
written notice received by the Exchange Agent at or prior to the Election
Record Date or by withdrawal prior to the Election Record Date of such
holder's Certificates previously deposited with the Exchange Agent. Any
revocation of an Election may be withdrawn by notice of such withdrawal
delivered at or prior to the Election Record Date. Any stockholder of the
Company who shall have deposited Certificates with the Exchange Agent shall
have the right to withdraw such Certificates by written notice received by
the Exchange Agent at or prior to the Election Record Date. Parent shall
obtain from the Exchange Agent an agreement to return all Forms of Election
and accompanying Certificates to the stockholders submitting the same in
the event this Agreement shall be terminated in accordance with its terms.
(h) Parent shall have the right to make rules, not inconsistent with
the terms of this Agreement, governing the validity of Forms of Election,
the manner and extent to which Elections are to be taken into account in
making the determinations prescribed by Section 1.7, the issuance and
delivery of certificates for Parent Common Stock into which shares of
Company Common Stock are converted in the Merger
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and the payment for shares of Company Common Stock converted into the right
to receive the Cash Consideration in the Merger.
Section 1.7 Special Cash Rights; Restructuring of Merger. (a)
Notwithstanding any provision of Section 1.5 or 1.6, in the event that the
portion of the aggregate consideration paid or deemed paid with respect to the
Company Common Stock pursuant to the Merger (including the Aggregate Cash
Consideration (as defined below)) (the "Aggregate Merger Consideration") which
shall be paid or deemed paid other than in the form of Parent Common Stock
(which shall be deemed to include, without limitation, cash paid upon the
acquisition by Parent or any of its Subsidiaries of Company Common Stock,
Options or Warrants, whether pursuant to the Merger, the Stockholder Agreements
(as hereinafter defined in Section 3.11) or otherwise, the fair market value of
the Rights (as defined in Section 5.11(a)) distributed to holders of Company
Common Stock pursuant to the Rights Offering, any Excess Proceeds (as defined in
the Contribution and Distribution Agreement) transferred to Tatham Offshore,
Inc. ("Offshore") pursuant to the Contribution and Distribution Agreement (as
defined in Section 5.11(a)), and cash paid in lieu of fractional shares) (the
"Aggregate Cash Consideration") shall exceed 50% of the Aggregate Merger
Consideration (the "Tax-Free Merger Maximum Cash Consideration"), no share of
Company Common Stock shall be converted into the right to receive the Stock
Consideration in the Merger unless (i) a valid Stock Election is in effect with
respect to such share of Company Common Stock at the Election Record Date and
(ii) such Stock Election expressly specifies, by completion of the box provided
therefor on the Form of Election, that such share of Company Common Stock shall
be converted into the right to receive the Stock Consideration in the Merger
notwithstanding that the receipt of Parent Common Stock in the Merger may be
taxable to the holder of such share of Company Common Stock. For the purpose of
determining the Aggregate Merger Consideration and the Tax-Free Merger Maximum
Cash Consideration, a share of Parent Common Stock shall be valued at the lowest
of (x) the closing trading price of a share of Parent Common Stock on the NYSE
Composite Tape on the date of the Effective Time, (y) the median, rounded to
four decimal places, of the high and low trading price of a share of Parent
Common Stock on the NYSE Composite Tape on the date of the Effective Time and
(z) the Average Price.
(b) If the Aggregate Cash Consideration shall exceed the Tax-Free Merger
Maximum Cash Consideration, (i) the Merger shall be restructured as a merger of
Merger Sub with and into the Company, and (ii) without any further action by the
Board of Directors or stockholders of Parent or the Company, the provisions set
forth in Section 1.12 hereof shall be applicable to the Merger.
Section 1.8 Parent to Make Cash and Certificates Available; Transfer Taxes;
Withholding. (a) As soon as practicable after the Effective Time, Parent shall
deposit with the Exchange Agent, in trust for the holders of shares of Company
Common Stock, certificates for shares of Parent Common Stock and cash
representing the Merger Consideration payable pursuant to Sections 1.5, 1.6, 1.7
and 1.9 (such certificates and cash, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund"). The Exchange Agent shall invest any cash included in the
Exchange Fund as directed by Parent, on a daily basis. Any interest or other
income resulting from such investments shall be paid to Parent. As soon as
practicable after the Effective Time, the Exchange Agent shall distribute to
each holder of shares of Company Common Stock converted into the right to
receive the Cash Consideration or the Stock Consideration pursuant to Sections
1.5, 1.6, 1.7 and 1.9, upon surrender to the Exchange Agent (to the extent not
previously surrendered with a Form of Election) of one or more Certificates for
cancellation, a check for the amount of cash to which such holder is entitled
under such sections and certificates representing the shares of Parent Common
Stock to which such holder is entitled under such sections. As soon as
practicable after the Effective Time, the Exchange Agent shall mail to each
holder of record of a Certificate or Certificates whose shares were converted
pursuant to this Article I (other than any holder who previously surrendered all
its Certificates with a Form of Election or pursuant to a guarantee of delivery
set forth in a Form of Election) (A) a letter of transmittal in form reasonably
acceptable to Parent (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon actual delivery
of the Certificates to the Exchange Agent) and (B) instructions for use in
effecting the surrender of the Certificates.
(b) Upon surrender for cancellation to the Exchange Agent of a Certificate,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a
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certificate representing that number of whole shares of Parent Common Stock
issuable and the cash payable to such holder pursuant to Sections 1.5, 1.6, 1.7
and 1.9 of this Agreement. Each share of Parent Common Stock into which a share
of Company Common Stock shall be converted shall be deemed to have been issued
at the Effective Time. If any certificate representing shares of Parent Common
Stock or cash or other property is to be issued or delivered in a name other
than that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such shares of Parent Common Stock in a name other than that of the registered
holder of the Certificate surrendered or shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable. Parent or
the Exchange Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as Parent or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the Internal Revenue Code of 1986, as amended (the "Code"), or under any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by Parent or the Exchange Agent, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Company Common Stock in respect of which such deduction and
withholding was made by Parent or the Exchange Agent.
Section 1.9 Dividends, Fractional Shares, etc. (a) Notwithstanding any
other provisions of this Agreement, no dividends or other distributions declared
after the Effective Time on Parent Common Stock shall be paid with respect to
any shares of Company Common Stock represented by a Certificate, until such
Certificate is surrendered for exchange as provided herein. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the holder of certificates for Parent Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of Parent
Common Stock and not paid, less the amount of any withholding taxes that may be
required thereon, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Parent Common Stock, less the amount of any
withholding taxes that may be required thereon.
(b) At or after the Effective Time, there shall be no transfer on the stock
transfer books of the Company of the shares of Company Common Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates representing any such shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for the Merger Consideration,
if any, deliverable in respect thereof pursuant to this Agreement.
(c) No fractional shares of Parent Common Stock shall be issued pursuant to
the Merger. In lieu of the issuance of any fractional share of Parent Common
Stock pursuant to the Merger, cash adjustments shall be paid to holders in
respect of any fractional share of Parent Common Stock that could otherwise be
issuable, and the amount of such cash adjustment shall be equal to the product
of such fractional amount and the Average Price.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of Parent Common Stock) that remains
unclaimed by the former stockholders of the Company six months after the
Effective Time or for such longer time as Parent shall determine shall be
delivered to Parent. Any former stockholder of the Company who has not
theretofore complied with this Article I shall thereafter look only to the
Surviving Corporation and Parent for payment of the applicable Merger
Consideration, cash in lieu of fractional shares and unpaid dividends and
distributions on Parent Common Stock deliverable in respect of each share of
Company Common Stock such stockholder holds as determined pursuant to this
Agreement, in each case without any interest thereon.
(e) To the fullest extent permitted by law, none of Parent, the Company,
the Surviving Corporation, the Exchange Agent or any other person shall be
liable to any former holder of shares of Company Common
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Stock for any amount properly delivered to a public official pursuant to
applicable or unclaimed property, escheat or similar laws.
(f) In the event that 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 Parent, the
posting by such person of a bond in such reasonable amount as Parent may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificate the applicable Merger Consideration, cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of Parent
Common Stock, as provided in this Section 1.9, deliverable in respect thereof
pursuant to this Agreement.
(g) In the event of any change in the Parent Common Stock between the date
of this Agreement and the Effective Time by reason of any stock split, stock
dividend, subdivision, reclassification, combination, exchange of Parent Common
Stock or the like, the Merger Consideration, the maximum and minimum prices of
the Parent Common Stock used to determine the Average Price, and other terms set
forth in this Agreement shall be appropriately adjusted.
Section 1.10 Closing. The closing of the Merger (the "Closing") and all
actions contemplated by this Agreement to occur at the Closing shall take place
at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1900 Pennzoil
Place, South Tower, 711 Louisiana Street, Suite 1900, Houston, Texas, at 10:00
a.m., local time, on a date to be specified by the parties, which (subject to
fulfillment or waiver of the conditions set forth in Article VI) shall be no
later than the second business day following the day on which the last of the
conditions set forth in Article VI shall have been fulfilled or waived, or at
such other time and place as Parent and the Company shall agree.
Section 1.11 Transfer Taxes. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, applications or other
documents regarding any real property transfer, stamp, recording, documentary or
other taxes and any other fees and similar taxes which become payable in
connection with the Merger other than transfer or other taxes described in
Section 1.8(b) (collectively, "Transfer Taxes"). From and after the Effective
Time, Parent shall pay or cause to be paid, without deduction or withholding
from any amounts payable to the holders of Company Stock, all Transfer Taxes.
Section 1.12 Restructuring. If the Aggregate Cash Consideration exceeds
the Tax-Free Merger Maximum Cash Consideration, Parent, Merger Sub and the
Company agree as follows:
(a) As promptly as practicable after the Election Record Date, the
Merger shall be restructured as provided in this Section 1.12 (the
"Alternative Taxable Merger").
(b) The following provisions shall apply to the Alternative Taxable
Merger:
(i) Section 1.1 of this Agreement shall be deemed to read as
follows:
Section 1.1 The Merger. Upon the terms and subject to the
conditions hereof, and in accordance with the Delaware General
Corporation Law (the "DGCL"), Merger Sub shall be merged with and
into the Company at the Effective Time (as defined in Section 1.2).
Following the Merger, the separate corporate existence of Merger Sub
shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of the Company in accordance
with the DGCL.
(ii) Section 1.4 of this Agreement shall be deemed to read as
follows:
Section 1.4 Charter and By-laws; Directors. (a) At the
Effective Time, the Certificate of Incorporation of the Company shall
be amended to read in its entirety as set forth in Exhibit A. At the
Effective Time, the By-laws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter changed or amended as provided therein
or in the Certificate of Incorporation or by applicable law.
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(b) The directors of Merger Sub at the Effective Time shall be
the directors of the Surviving Corporation until the earlier of their
resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
(iii) The introductory paragraph of Section 1.5 and Section 1.5(a)
of this Agreement shall be deemed to read as follows:
Section 1.5 Conversion of Securities. As of 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 securities of
Parent:
(a) Each issued and outstanding share of common stock of Merger
Sub shall be converted into and become one validly issued, fully paid
and nonassessable share of common stock of the Surviving Corporation.
(iv) All references in this Agreement to the Surviving Corporation
shall be deemed references to the Company as the Surviving Corporation
in the Alternative Taxable Merger.
(v) The condition set forth in Section 6.1(e) of this Agreement
shall not be applicable to the Alternative Taxable Merger.
(vi) References to Parent in Sections 6.2(a) and (b) of this
Agreement shall be deemed to include references to Merger Sub.
Section 1.13 Alternative Restructuring. (a) At the option of Parent,
exercisable by written notice to the Company, the Merger shall be restructured
as provided in this Section 1.13 (the "Alternative Tax-Free Merger"); provided,
however, that if Parent makes such election, Parent shall not be permitted to
assert, and shall be deemed to have waived, each condition to its obligation to
close the Merger, which condition would be satisfied, if such alternative
structure were not used.
(b) The following provisions shall apply to the Alternative Tax-Free
Taxable Merger:
(i) Section 1.1 of this Agreement shall be deemed to read as follows:
Section 1.1 The Merger. Upon the terms and subject to the
conditions hereof, and in accordance with the Delaware General
Corporation Law (the "DGCL"), the Company shall be merged with and into
Merger Sub at the Effective Time (as defined in Section 1.2). Following
the Merger, the separate corporate existence of the Company shall cease
and Merger Sub shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights
and obligations of the Company in accordance with the DGCL.
(ii) Section 1.4 of this Agreement shall be deemed to read as follows:
Section 1.4 Charter and By-laws; Directors. (a) At the Effective
Time, the Certificate of Incorporation of Merger Sub as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation. At the Effective Time, the
By-laws of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the By-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or in the Certificate of
Incorporation or by applicable law.
(b) The directors of Merger Sub at the Effective Time shall be the
directors of the Surviving Corporation until the earlier of their
resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
(iii) The introductory paragraph of Section 1.5 and Section 1.5(a) of
this Agreement shall be deemed to read as follows:
Section 1.5 Conversion of Securities. As of 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 securities of Parent:
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(a) Each issued and outstanding share of common stock of Merger Sub
shall remain outstanding and shall represent one validly issued, fully
paid and nonassessable share of common stock of the Surviving
Corporation.
(iv) All references in this Agreement to the Surviving Corporation
shall be deemed references to Merger Sub as the Surviving Corporation in
the Alternative Tax-Free Merger.
Section 1.14. Guarantee. Parent hereby absolutely and unconditionally
guarantees the performance by Merger Sub of all of its obligations under this
Agreement. The liability of Parent hereunder shall be primary and not as a
surety, and shall not be affected by the bankruptcy of Merger Sub or any failure
or delay by the Company in exercising any right or remedy. Parent hereby waives
notice or demand of performance in the acceptance of its obligations hereunder.
Section 1.15. Dissenting Shares. Notwithstanding Section 1.5(c), if the
Merger is restructured in the form of the Alternative Taxable Merger as provided
in Section 1.12, any shares of Company Common Stock outstanding immediately
prior to the Effective Time and held by a holder who (i) has not executed a
written consent in favor of the Merger, (ii) is required by the terms of this
Agreement to accept consideration for shares of Company Common Stock owned by
such holder other than in the form of Parent Common Stock and cash in lieu of
fractional shares, and (iii) has demanded appraisal for such shares of Company
Common Stock in accordance with the DGCL (the "Dissenting Shares") shall not be
converted into a right to receive the Merger Consideration, unless such holder
fails to perfect or withdraws or otherwise loses its right to appraisal or it is
determined that such holder does not have appraisal rights in accordance with
the DGCL. If, after the Effective Time, such holder fails to perfect or
withdraws or loses its right to appraisal, or if it is determined that such
holder does not have an appraisal right, such shares of Company Common Stock
shall be treated as if they had been converted as of the Effective Time into a
right to receive in exchange for each share of Company Common Stock the Merger
Consideration. The Company shall give Parent prompt notice of any demands
received by the Company for appraisal of any shares of Company Common Stock, and
Parent shall have the right to control all negotiations and proceedings with
respect to such demands except as required by applicable law. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demands.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows (such
representations and warranties (as well as other provisions of this Agreement)
are qualified by the matters identified on a disclosure schedule (the "Parent
Disclosure Schedule") delivered by Parent to the Company prior to execution of
this Agreement):
Section 2.1 Organization and Qualification. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power to carry on its business as it is now being
conducted or currently proposed to be conducted. Parent is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities make such qualification necessary, except where the
failure to be so qualified will not, alone or in the aggregate, have a Parent
Material Adverse Effect. For the purposes of this Agreement, a "Parent Material
Adverse Effect" means any state of facts, event, change or effect which,
individually or in the aggregate, (i) has a material adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities or
results of operations of Parent and its Subsidiaries taken as a whole, other
than effects arising out of or resulting from changes in general economic
conditions, stock or financial market fluctuations, or oil and gas industry
conditions, or (ii) would prevent the consummation of the material transactions
contemplated hereby. Complete and correct copies as of the date hereof of the
Restated Certificate of Incorporation and By-laws of Parent have been delivered
to the Company as part of the Parent Disclosure Schedule.
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Section 2.2 Capitalization. The authorized capital stock of Parent
consists of 100,000,000 shares of Parent Common Stock, and 25,000,000 shares of
Preferred Stock, par value $.01 per share (the "Parent Preferred Stock"). As of
February 26, 1998, (a) 60,773,150 shares of Parent Common Stock were validly
issued and outstanding, fully paid, and nonassessable, (b) no shares of Parent
Preferred Stock were issued and outstanding and (c) 4,284,773 shares of Parent
Common Stock were reserved for issuance pursuant to stock options ("Parent Stock
Options") of Parent. As of the date of this Agreement, there are no bonds,
debentures, notes or other indebtedness issued or outstanding having the right
to vote with Parent's stockholders, whether together or as a separate class, on
any matters on which Parent's stockholders may vote. As of the date of this
Agreement, except for Parent Stock Options and rights ("Parent Rights") issued
pursuant to the Amended and Restated Shareholder Rights Agreement, dated July
23, 1997 between Parent and The First National Bank of Boston, there are no
options, warrants, calls, convertible securities or other rights, agreements or
commitments presently outstanding obligating Parent to issue, deliver or sell
shares of its capital stock, or obligating Parent to grant, extend or enter into
any such option, warrant, call or other such right, agreement or commitment. All
of the shares of Parent Common Stock issuable in accordance with this Agreement
in exchange for Company Common Stock at the Effective Time in accordance with
this Agreement will be, when so issued, duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights and shall be delivered free
and clear of all liens, claims, charges and encumbrances of any kind or nature
whatsoever.
Section 2.3 Subsidiaries. Each Subsidiary of Parent is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization (except where the
failure to be validly existing and in good standing would not be material to the
business of such Subsidiary) and has the corporate or similar power to carry on
its business as it is now being conducted or currently proposed to be conducted.
Each Subsidiary of Parent is duly qualified to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary except where the failure to be so qualified, when taken together with
all such failures, has not had, and would not reasonably be expected to have, a
Parent Material Adverse Effect. Section 2.3 of the Parent Disclosure Schedule
contains, with respect to each Subsidiary of Parent, its name and jurisdiction
of organization and, with respect to each Subsidiary that is not wholly owned,
the percentage of outstanding capital stock or equity capital owned by Parent or
a Subsidiary. All the outstanding shares of capital stock or equity capital of
each Subsidiary of Parent are validly issued, fully paid and nonassessable, and,
to the extent owned by Parent or by a Subsidiary of Parent, are owned free and
clear of any liens, claims or encumbrances. There are no existing options,
warrants, calls, convertible securities or other rights, agreements or
commitments of any character relating to the issued or unissued capital stock or
other securities of any of the Subsidiaries of Parent. Except as set forth in
Parent's Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
Parent does not directly or indirectly own any interest in any other
corporation, partnership, joint venture or other business association or entity
or have any obligation, commitment or undertaking to acquire any such interest.
Section 2.4 Authority Relative to this Agreement. Parent has the
corporate power to enter into this Agreement and each other agreement executed
and delivered in connection with the material transactions contemplated hereby
(the "Related Agreements") to which Parent is a party and to carry out its
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Related Agreements to which Parent is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by Parent's Board of Directors. This Agreement and each Related
Agreement to which Parent is a party constitutes a valid and binding obligation
of Parent enforceable against Parent in accordance with its terms except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought. No other corporate proceedings on the part of Parent are necessary to
authorize this Agreement or any Related Agreement to which Parent is a party and
the transactions contemplated hereby or thereby. Parent is not subject to or
obligated under (i) any charter, by-law, indenture or other loan or credit
document provision or (ii) any other contract, license, franchise, permit,
order, decree, concession, lease, instrument or judgment or any statute, law,
ordinance, rule or regulation applicable to Parent or any of its Subsidiaries or
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their respective properties or assets, which would be breached or violated, or
under which there would be a default (with or without notice or lapse of time,
or both), or under which there would arise a right of termination, cancellation,
modification or acceleration of any obligation, or any right to payment or
compensation, or the loss of a material benefit, by its executing and carrying
out this Agreement or any Related Agreement to which Parent is a party other
than, in the case of clause (ii) only, (A) any breaches, violations, defaults,
terminations, cancellations, modifications, accelerations, rights to payment or
compensation, or losses which, either alone or in the aggregate, have not had,
and would not reasonably be expected to have, a Parent Material Adverse Effect
and (B) the laws and regulations referred to in the next sentence. Except as
required by the HSR Act, the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the corporation, securities or blue sky laws or regulations of the various
states, no filing or registration with, or authorization, consent or approval
of, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (each, a "Governmental
Entity"), is necessary for the consummation by Parent of the Merger or the other
transactions contemplated by this Agreement or any Related Agreement to which
Parent is a party, other than filings, registrations, authorizations, consents
or approvals the failure to make or obtain which has not had, and would not
reasonably be expected to have, a Parent Material Adverse Effect.
Section 2.5 Reports and Financial Statements. Parent has previously
furnished the Company with true and complete copies of its (i) Annual Reports on
Form 10-K for the fiscal years ended December 31, 1995 and December 31, 1996, as
filed with the Securities and Exchange Commission (the "Commission"), (ii)
Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 1997, as filed with the Commission, (iii) proxy statements related
to all meetings of its stockholders (whether annual or special) since December
31, 1995, and (iv) all other reports or registration statements filed by Parent
with the Commission since December 31, 1995, except for preliminary material (in
the case of clauses (iii) and (iv) above) and except for registration statements
on Form S-8 relating to employee benefit plans and annual reports on Form 11-K
with respect to such plans, which are all the documents that Parent was required
to file with the Commission since that date (the documents in clauses (i)
through (iv) being referred to herein collectively as the "Parent SEC Reports").
As of their respective dates, the Parent SEC Reports complied as to form in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the Commission
thereunder applicable to such Parent SEC Reports. As of their respective dates,
the Parent SEC Reports 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 therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim financial statements of Parent included in the Parent SEC
Reports comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission with
respect thereto. The financial statements included in the Parent SEC Reports
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto); present fairly, in all material respects, the financial position
of Parent and its Subsidiaries as at the dates thereof and the results of their
operations and cash flows for the periods then ended subject, in the case of the
unaudited interim financial statements, to normal year-end adjustments, any
other adjustments described therein and the fact that certain information and
notes have been condensed or omitted in accordance with the Exchange Act and the
rules promulgated thereunder; and are in all material respects in accordance
with the books of account and records of Parent and its Subsidiaries.
Section 2.6 Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Reports filed and delivered to the Company prior to the date of
this Agreement, since September 30, 1997, there has not been any transaction,
commitment, dispute or other event or condition (financial or otherwise) of any
character (whether or not in the ordinary course of business) which, alone or in
the aggregate, has had, or would reasonably be expected to have, a Parent
Material Adverse Effect.
Section 2.7 Litigation. Except as disclosed in the Parent SEC Reports
filed prior to the date of this Agreement, there is no suit, action or
proceeding to which Parent or any of its Subsidiaries is a party pending or, to
the actual knowledge of the individuals listed in Section 2.7 of the Parent
Disclosure Schedule ("Parent
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Knowledge"), threatened against Parent or any of its Subsidiaries which, alone
or in the aggregate, has had or would reasonably be expected to have, a Parent
Material Adverse Effect, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against Parent or any
of its Subsidiaries which, alone or in the aggregate, has had, or would
reasonably be expected to have, any such Parent Material Adverse Effect.
Section 2.8 Compliance with Applicable Laws. Parent and each of its
Subsidiaries holds all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary or appropriate for the
operation of its respective business, except for such permits, licenses,
variances, exemptions, orders and approvals the failure to hold which, alone or
in the aggregate, has not had, and would not reasonably be expected to have, a
Parent Material Adverse Effect (the "Parent Permits"). Parent and each of its
Subsidiaries is in compliance with the terms of the Parent Permits, except for
any failure to comply which, alone or in the aggregate, has not had, and would
not reasonably be expected to have, a Parent Material Adverse Effect. Except as
disclosed in the Parent SEC Reports filed and delivered to the Company prior to
the date of this Agreement, the businesses of Parent and its Subsidiaries are
not being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for possible violations which, alone or in the
aggregate, have not had, and would not reasonably be expected to have, a Parent
Material Adverse Effect.
Section 2.9 Tax Matters. To the Parent Knowledge, Parent has not taken
any action which would prevent the Merger from constituting a reorganization
within the meaning of Section 368(a) of the Code.
Section 2.10 Parent Action. The Board of Directors of Parent (at a
meeting duly called and held) has by the requisite vote of all directors present
(a) determined that the Merger is advisable and fair to and in the best
interests of Parent and its stockholders and (b) approved the Merger and the
transactions contemplated thereby in accordance with the DGCL and Parent's
Restated Certificate of Incorporation.
Section 2.11 Public Utility. Parent is not a "holding company," a
"subsidiary company" of a "holding company," an affiliate of a "holding
company," or a "public utility company," as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended (the "Holding Company Act").
Section 2.12 Representations and Warranties Regarding Merger Sub. Parent
and Merger Sub jointly and severally represent and warrant to the Company as
follows:
(A) Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Merger Sub has
not engaged in any business since it was incorporated other than in
connection with its organization and the transactions contemplated by this
Agreement.
(B) The authorized capital stock of Merger Sub consists of 1,000
shares of common stock, par value $.01 per share, all of which are validly
issued and outstanding, fully paid and nonassessable and are directly owned
by Parent free and clear of all liens, claims and encumbrances.
(C) Merger Sub has the corporate power to enter into this Agreement
and to carry out its obligations hereunder. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by the Board of Directors and sole stockholder of
Merger Sub. This Agreement constitutes a valid and binding obligation of
Merger Sub enforceable against Merger Sub in accordance with its terms
except as enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought. No other corporate proceedings on the
part of Merger Sub are necessary to authorize this Agreement and the
transactions contemplated hereby. Except as required by the HSR Act, the
Securities Act (as defined in Section 2.4), the Exchange Act (as defined in
Section 2.4) and the corporation, securities or blue sky laws or
regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any Governmental Entity (as defined
in Section 2.4) is necessary for the consummation by Merger Sub of the
Merger or the transactions contemplated by this Agreement, other than
filings, registrations, authoriza-
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tions, consents or approvals the failure to make or obtain which would not
prevent the consummation of the transactions contemplated this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent as follows (such
representations and warranties (as well as other provisions of this Agreement)
are qualified by the matters identified on a disclosure schedule (the "Company
Disclosure Schedule") delivered by the Company to Parent prior to execution of
this Agreement):
Section 3.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power to carry on its business as it is
now being conducted or currently proposed to be conducted. The Company is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified will not, alone or in the aggregate, have a
Company Material Adverse Effect. For the purposes of this Agreement, a "Company
Material Adverse Effect" means any state of facts, event, change or effect
which, individually or in the aggregate, (i) has a material adverse effect on
the business, properties, assets, condition (financial or otherwise),
liabilities or results of operations of the Company and the Company Subsidiaries
(as defined below) taken as a whole, other than effects arising out of or
resulting from changes in general economic conditions, stock or financial market
fluctuations, or oil and gas industry conditions, or (ii) would prevent the
consummation of the material transactions contemplated hereby. Complete and
correct copies as of the date hereof of the Certificate of Incorporation and
By-laws of the Company have been delivered to Parent as part of the Company
Disclosure Schedule. The term "Company Subsidiary" shall mean each Subsidiary of
the Company other than any member of the Offshore Group. The term "Offshore
Group" means Offshore, DeepFlex Production Services, Inc. ("Deepflex") and their
Subsidiaries, other than Tatham Offshore Development, Inc. The term "MSG
Entities" shall mean Deepflex and its Subsidiaries.
Section 3.2 Capitalization. The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock and 10,000,000 shares of
Preferred Stock, $.01 par value (the "Company Preferred Stock"). As of February
27, 1998, 24,708,807 shares of Company Common Stock were validly issued and
outstanding, fully paid and nonassessable, and no shares of Company Preferred
Stock were issued and outstanding. As of the date of this Agreement, there are
no bonds, debentures, notes or other indebtedness issued or outstanding having
the right to vote with Company's stockholders, whether together or as a separate
class, on any matters on which the Company's stockholders may vote. As of the
date of this Agreement, except for (a) Options issued pursuant to the Company
Stock Plans which are listed in Section 3.2 of the Company Disclosure Schedule
(which contains the name of the Option holder, the date of grant, the exercise
price, the vesting and expiration dates and the number of shares of Company
Common Stock covered by each such Option) and (b) Warrants issued pursuant to
the Warrant Agreements listed in Section 3.2 of the Company Disclosure Schedule
(which contains the name of the Warrantholder, the exercise price, the
expiration dates and the number of shares of Company Common Stock covered by
each such Warrant), such options and warrants covering not in excess of
4,582,787.5 shares of Company Common Stock, there are no options, warrants,
calls, convertible securities or other rights, agreements or commitments
presently outstanding obligating the Company to issue, deliver or sell shares of
its capital stock or debt securities, or obligating the Company to grant, extend
or enter into any such option, warrant, call or other such right, agreement or
commitment. After the Effective Time, except for obligations in respect of the
Options and Warrants, the Surviving Corporation will have no obligation to
issue, transfer or sell any shares of stock of the Company or the Surviving
Corporation pursuant to any Company Employee Benefit Plan (as defined in Section
3.10).
Section 3.3 Subsidiaries. Each Company Subsidiary is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization (except where the
failure to be validly existing and in good standing would not be material to the
business of such Company
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Subsidiary) and has the corporate or similar power to carry on its business as
it is now being conducted or currently proposed to be conducted. Each Company
Subsidiary is duly qualified to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary except where the
failure to be so qualified, when taken together with all such failures, has not
had, and would not reasonably be expected to have, a Company Material Adverse
Effect. Section 3.3 of the Company Disclosure Schedule contains, with respect to
each Company Subsidiary, its name and jurisdiction of organization and, with
respect to each Company Subsidiary that is not wholly owned, the number of
issued and outstanding shares of capital stock or equity capital and the number
of shares of capital stock or equity capital owned by the Company or a Company
Subsidiary. Except as set forth in Section 3.3 of the Company Disclosure
Schedule, all the outstanding shares of capital stock or equity capital of each
Company Subsidiary are validly issued, fully paid and nonassessable, and those
owned by the Company or by a Company Subsidiary are owned free and clear of any
liens, claims or encumbrances. There are no existing options, warrants, calls,
convertible securities or other rights, agreements or commitments of any
character relating to the issued or unissued capital stock or other securities
of any of the Subsidiaries of the Company. Except as set forth in Section 3.3 of
the Company Disclosure Schedule, the Company does not directly or indirectly own
any interest in any other corporation, partnership, joint venture or other
business association or entity or have any obligation, commitment or undertaking
to acquire any such interest.
Section 3.4 Authority Relative to this Agreement. The Company and its
Subsidiaries have the corporate power to enter into this Agreement and each
Related Agreement to which the Company or any of its Subsidiaries is a party and
to carry out their obligations hereunder and thereunder. The execution and
delivery of this Agreement and each Related Agreement to which the Company or
any of its Subsidiaries is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of the Company or the Board of Directors and, if required, the
stockholders of the relevant Subsidiary, and this Agreement and the Merger have
been duly authorized by the written consent (the "Consent") of the holders of a
majority of the shares of the Company outstanding as of the record date therefor
determined in accordance with Section 228 of the DGCL (the "Consent Date"). This
Agreement and each Related Agreement to which the Company or any of its
Subsidiaries is a party constitutes a valid and binding obligation of the
Company or such Subsidiary enforceable against the Company or such Subsidiary in
accordance with its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought. No other corporate proceedings on the part
of the Company or any of its Subsidiaries are necessary to authorize this
Agreement or any Related Agreement to which the Company or any of its
Subsidiaries is a party and the transactions contemplated hereby or thereby.
Except as set forth in Section 3.4 of the Company Disclosure Schedule, neither
the Company nor any of its Subsidiaries is subject to or obligated under (i) any
charter, by-law, indenture or other loan or credit document or (ii) any other
contract (other than Options and Warrants set forth in Section 3.2 of the
Company Disclosure Schedule), license, franchise, permit, order, decree,
concession, lease, instrument or judgment or any statute, law, ordinance, rule
or regulation applicable to the Company or any of its Subsidiaries or their
respective properties or assets which would be breached or violated, or under
which there would be a default (with or without notice or lapse of time, or
both), or under which there would arise a right of termination, cancellation,
modification or acceleration of any obligation, or any right to payment or
compensation, or the loss of a material benefit, by its executing and carrying
out this Agreement or any Related Agreement to which the Company or any of its
Subsidiaries is a party, other than, in the case of clause (ii) only, (A) any
breaches, violations, defaults, terminations, cancellations, modifications,
accelerations, rights to payment or compensation, or losses which, either alone
or in the aggregate, have not had, and would not reasonably be expected to have,
a Company Material Adverse Effect and (B) the laws and regulations referred to
in the next sentence. Except as required by the HSR Act, the Securities Act, the
Exchange Act, and the corporation, securities or blue sky laws or regulations of
the various states, no filing or registration with, or authorization, consent or
approval of, any Governmental Entity is necessary for the consummation by the
Company and its Subsidiaries of the Merger or the other transactions
contemplated by this Agreement or any Related Agreement to which the Company or
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any of its Subsidiaries is a party, other than filings, registrations,
authorizations, consents or approvals the failure to make or obtain which has
not had, and would not reasonably be expected to have, a Company Material
Adverse Effect.
Section 3.5 Reports and Financial Statements. The Company has previously
furnished Parent with true and complete copies, for each of the Company and
Leviathan Gas Pipeline Partners, L.P. ("Leviathan"), of its (i) Annual Reports
on Form 10-K for the fiscal years ended June 30, 1996 and June 30, 1997 (in the
case of the Company) and for the fiscal years ended December 31, 1996 and
December 31, 1995 (in the case of Leviathan), in each case, as filed with the
Commission, (ii) Quarterly Report on Form 10-Q for the quarters ended September
30, 1997 and December 31, 1997, as filed with the Commission, (iii) proxy
statements related to all meetings of its stockholders or to the extent
applicable, limited partners (whether annual or special) since December 31, 1995
and (iv) all other reports or registration statements filed by the Company or
Leviathan with the Commission since June 30, 1996 (in the case of the Company)
and since December 31, 1995 (in the case of Leviathan), except for preliminary
material (in the case of clauses (iii) and (iv) above) and except for
registration statements on Form S-8 relating to employee benefit plans and
annual reports on Form 11-K with respect to such plans, which are all the
documents that the Company or Leviathan were required to file with the
Commission since that date (the documents in clauses (i) through (iv) being
referred to herein collectively as the "Company Group SEC Reports"). As of their
respective dates, the Company Group SEC Reports complied as to form in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the Commission
thereunder applicable to such Company Group SEC Reports. As of their respective
dates, the Company Group SEC Reports 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 therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of the Company or
Leviathan, as the case may be, included in the Company Group SEC Reports comply
as to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the Commission with respect thereto.
The financial statements included in the Company Group SEC Reports have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto);
present fairly, in all material respects, the financial position of the Company
or Leviathan, and their respective Subsidiaries, as the case may be, as at the
dates thereof and the results of their operations and cash flows for the periods
then ended subject, in the case of the unaudited interim financial statements,
to normal year-end adjustments and any other adjustments described therein and
the fact that certain information and notes have been condensed or omitted in
accordance with the Exchange Act and the rules promulgated thereunder; and are
in all material respects in accordance with the books of account and records of
the Company or Leviathan and their respective Subsidiaries.
Section 3.6 Absence of Certain Changes or Events. Except as disclosed in
the Company Group SEC Reports filed and delivered to Parent prior to the date of
this Agreement or in Section 3.6 of the Company Disclosure Schedule, since
December 31, 1997, the Company and the Company Subsidiaries have operated their
respective businesses in the ordinary course of business consistent with past
practice and there has not been (i) any transaction, commitment, dispute or
other event or condition (financial or otherwise) of any character (whether or
not in the ordinary course of business) which, alone or in the aggregate, has
had, or would reasonably be expected to have, a Company Material Adverse Effect;
(ii) any damage, destruction or loss, whether or not covered by insurance, which
has had, or would reasonably be expected to have, a Company Material Adverse
Effect; (iii) any declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock or property) with respect to the capital
stock of the Company or any of the Company Subsidiaries (other than (x)
dividends or distributions between the Company and wholly owned Company
Subsidiaries, (y) regular quarterly cash dividends by Leviathan, Leviathan Gas
Pipeline Company ("LGPC") and Leviathan Holdings Company ("Holdings") declared
and paid in amounts (including any increases thereof) and at times consistent
with past practice and (z) the distribution of Offshore capital stock to the
Company and the holders of Company Common Stock in accordance with the terms of
the Contribution and Distribution Agreement and the Tax Sharing Agreement (each
as defined in Section 5.11(a)); (iv) any material change in the Company's
accounting principles, practices or methods;
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(v) any repurchase or redemption with respect to its capital stock; (vi) any
stock split, combination or reclassification of any of the Company's capital
stock or the issuance or authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for, shares of the Company's stock;
(vii) any grant of or any amendment (other than (A) to accelerate vesting or (B)
to waive an anti-dilution adjustment in connection with the Contribution and the
Rights Offering (as defined in Section 5.11(a)) in exchange for a proportionate
number of shares of Offshore capital stock) of the terms of any warrant or
option to purchase shares of capital stock of the Company other than pursuant to
the Company Option Plans; (viii) any granting by the Company or any of the
Company Subsidiaries to any director, officer or employee of the Company or any
of the Company Subsidiaries of (A) any increase in compensation (other than in
the case of employees in the ordinary course of business consistent with past
practice), (B) any increase in severance or termination pay, or (C) acceleration
of compensation or benefits; (ix) any entry by the Company or any of the Company
Subsidiaries into any employment, severance, bonus or termination agreement with
any director, officer or employee of the Company or any of the Company
Subsidiaries; or (x) any agreement (whether or not in writing), arrangement or
understanding to do any of the foregoing. The Company has exercised the option
under the Restructuring Option Agreement dated September 22, 1997, between the
Company and Offshore (the "Restructuring Agreement"), to exchange the
$60,000,000 Subordinated Convertible Promissory Note of Offshore held by the
Company for 26,666,667 shares of common stock of Offshore (the "Exchange").
Section 3.7 Litigation. Except as disclosed in the Company Group SEC
Reports filed and delivered to Parent prior to the date of this Agreement, there
is no suit, action or proceeding to which the Company or any Company Subsidiary
is a party pending or, to the actual knowledge of Thomas P. Tatham, Charles M.
Darling IV, Donald V. Weir, Grant E. Sims, John H. Gray or Kenneth H. Hamilton
("Company Knowledge"), threatened against the Company or any of its Subsidiaries
which, alone or in the aggregate, has had or would reasonably be expected to
have, a Company Material Adverse Effect, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company or any of the Company Subsidiaries which, alone or in the
aggregate, has had, or would reasonably be expected to have, any such Company
Material Adverse Effect.
Section 3.8 Compliance with Applicable Laws. The Company and each of the
Company Subsidiaries holds all permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities necessary or appropriate for the
operation of its respective business, except for such permits, licenses,
variances, exemptions, orders and approvals the failure to hold which, alone or
in the aggregate, has not had, and would not reasonably be expected to have a
Company Material Adverse Effect (the "Company Permits"). The Company and each of
the Company Subsidiaries is in compliance in all material respects with the
terms of the Company Permits. Except as disclosed in the Company Group SEC
Reports filed and delivered to Parent prior to the date of this Agreement, the
businesses of the Company and the Company Subsidiaries are not being conducted
in violation of any law, ordinance or regulation of any Governmental Entity,
except for possible violations which alone or in the aggregate have not had, and
would not reasonably be expected to have, a Company Material Adverse Effect. To
the Company Knowledge, during the past five years, none of the Company's or any
of the Company Subsidiaries' officers, employees or agents, nor any other person
acting on behalf of any of them or the Company or any of the Company
Subsidiaries, has, directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, supplier, governmental employee or other person
in violation of any law, ordinance or regulation of any Governmental Entity,
including, without limitation, the Foreign Corrupt Practices Act, except for
violations or penalties which could not reasonably be expected to cost the
Company more than $500,000 individually or in the aggregate.
Section 3.9 Tax Matters. To the Company Knowledge, the Company has not
taken any action which would prevent the Merger from constituting a
reorganization within the meaning of Section 368(a) of the Code.
Section 3.10 Employee Benefit Plans. (a) Section 3.10(a) of the Company
Disclosure Schedule hereto sets forth a list of all "employee benefit plans," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and all other material employee benefit or compensation
arrangements, including, without limitation, any such arrangements providing
severance pay, sick leave, vacation pay, salary continuation for disability,
retirement benefits, deferred compensation, bonus
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pay, incentive pay, stock options (including those held by directors, employees,
and consultants), hospitalization insurance, medical insurance, life insurance,
scholarships or tuition reimbursements, that are maintained by the Company, any
Company Subsidiary or any Company ERISA Affiliate (as defined in Section
3.10(g)) or to which the Company, any Company Subsidiary or any Company ERISA
Affiliate is obligated to contribute thereunder for current or former directors,
employees, independent contractors, consultants and leased employees of the
Company, any Company Subsidiary or any Company ERISA Affiliate (the "Company
Employee Benefit Plans").
(b) None of the Company Employee Benefit Plans is a "multiemployer plan,"
as defined in Section 4001(a)(3) of ERISA (a "Multiemployer Plan"), and neither
the Company nor any Company ERISA Affiliate presently maintains or has
maintained such a plan.
(c) Except as provided in Part 6 of Title I of ERISA, the Company does not
maintain or contribute to any plan or arrangement which provides or has any
liability to provide life insurance or medical or other employee welfare
benefits to any employee or former employee upon his retirement or termination
of employment, and the Company has never represented, promised or contracted
(whether in oral or written form) to any employee or former employee that such
benefits would be provided.
(d) Except as provided in the Options and Warrants, the execution of, and
performance of the transactions contemplated in, this Agreement will not, either
alone or upon the occurrence of subsequent events, result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee. The only severance agreements or
severance policies applicable to the Company or the Company Subsidiaries in the
event of a change of control of the Company are the agreements and policies
specifically referred to in Section 3.10(d) of the Company Disclosure Schedule.
Except as disclosed in Section 3.10(d) of the Company Disclosure Schedule, no
payment or benefit which will or may be made by the Company, Parent or any of
their Subsidiaries or affiliates with respect to any employee of the Company or
any Company Subsidiary will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(e) Each Company Employee Benefit Plan that is intended to qualify under
Section 401 of the Code, and each trust maintained pursuant thereto, has been
determined to be exempt from federal income taxation under Section 501 of the
Code by the IRS, and, to the Company's knowledge, nothing has occurred with
respect to the operation or organization of any such Company Employee Benefit
Plan that would cause the loss of such qualification or exemption or the
imposition of any material liability, penalty or tax under ERISA or the Code.
With respect to any Company Employee Benefit Plan or other employee benefit plan
which is a "defined benefit plan" within the meaning of Section 3(35) of ERISA,
(i) the Company has not incurred and is not reasonably likely to incur any
liability under Title IV of ERISA (other than for the payment of premiums, all
of which have been paid when due), (ii) the Company has not incurred any
accumulated funding deficiency within the meaning of Section 412 of the Code and
has not applied for or obtained a waiver of any minimum funding standard or an
extension of any amortization period under Section 412 of the Code, (iii) no
"reportable event" (as such term is defined in Section 4043 of ERISA but
excluding any event for which the provision for 30-day notice to the Pension
Benefit Guaranty Corporation has been waived by regulation) has occurred or is
expected to occur and (iv) since December 31, 1996, no material adverse change
in the financial condition of any such plan has occurred.
(f) (i) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Company Employee Benefit Plans to any funds or trusts established thereunder
or in connection therewith have been made by the due date thereof, (ii) the
Company has complied in all material respects with any notice, reporting and
documentation requirements of ERISA and the Code, (iii) there are no pending
actions, claims or lawsuits which have been asserted, instituted or, to the
Company's knowledge, threatened, in connection with the Company Employee Benefit
Plans, and (iv) the Company Employee Benefit Plans have been maintained, in all
material respects, in accordance with their terms and with all provisions of
ERISA and the Code (including rules and regulations thereunder) and other
applicable federal and state laws and regulations.
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(g) Section 3.10(g) of the Company Disclosure Schedule sets forth a
complete list of all amounts outstanding relating to bonuses payable to
employees and any obligation to pay bonuses to employees relating to the
Company's performance, the employee's performance or the transactions
contemplated hereby.
For purposes of this Agreement, "Company ERISA Affiliate" means any
business or entity which is a member of the same "controlled group of
corporations," under "common control" or an "affiliated service group" with the
Company within the meanings of Sections 414(b), (c) or (m) of the Code, or
required to be aggregated with the Company under Section 414(o) of the Code, or
is under "common control" with the Company, within the meaning of Section
4001(a)(14) of ERISA, or any regulations promulgated or proposed under any of
the foregoing Sections.
Section 3.11 Company Action. The Board of Directors of the Company (at a
meeting duly called and held) has by the requisite vote of all directors present
(a) determined that the Merger is advisable and fair to and in the best
interests of the Company and its stockholders, (b) approved the Merger and the
transactions contemplated by this Agreement and the Stockholder Agreements dated
the date hereof between Parent and each of Thomas P. Tatham, Donald V. Weir,
Charles M. Darling IV, Grant E. Sims, Lehman Brothers Holdings, Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, as custodian, and DLJ Capital Corp.
(collectively, the "Stockholder Agreements") and the transactions contemplated
thereby in accordance with the DGCL and the Company's Certificate of
Incorporation, and (c) approved the Consent for the purposes of Article VIII of
the Company's Certificate of Incorporation. The Company is not subject to
Section 203 of the DGCL.
Section 3.12 Taxes. (a) The term "Tax" as used herein means any federal,
state, local, or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code sec. 59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not. The term "Tax Return" as used herein means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof. All citations to the Code, or the Treasury Regulations
promulgated thereunder, shall include any amendments or any substitute or
successor provisions thereto. Leviathan has been validly characterized as a
partnership for Tax purposes at all times throughout its existence.
(b) Each of the Company and the Company Subsidiaries has filed all material
Tax Returns required to be filed by any of them and has paid (or the Company has
paid on its behalf), or has set up an adequate reserve for the payment of, all
Taxes required to be paid in respect of the periods covered by such Tax Returns.
The information contained in such Tax returns is true, complete and accurate in
all material respects. Neither the Company nor any Company Subsidiary is
delinquent in the payment of any material Tax, assessment or governmental
charge. No material deficiencies for any Taxes have been proposed, asserted or
assessed against the Company or any of the Company Subsidiaries that have not
been finally settled or paid in full, and no requests for waivers of the time to
assess any such Tax are pending. None of the Company and the Company
Subsidiaries is obligated, or is reasonably expected to be obligated, to make
any payments, or is a party to any agreement that on account of the transactions
contemplated by this Agreement would obligate it, or reasonably be expected to
obligate it, to make any payments that will not be deductible under Section 280G
of the Code. Each of the Company and the Company Subsidiaries has withheld and
paid all material Taxes required to be withheld and paid and has complied with
all information and backup withholding requirements, including maintaining all
necessary records in connection with amounts paid or owing to any employee,
creditor, independent contractor or other third party.
(c) Except as set forth in Section 3.12(c) of the Company Disclosure
Schedule, none of Company or the Company Subsidiaries has, since December 31,
1994, been a member of an affiliated group, within the meaning of Code sec.
1504, filing a consolidated income Tax Return other than a group the common
parent of which is the Company. None of the Company and its Subsidiaries has any
material liability for the Taxes of any Person other than the Company and its
Subsidiaries (A) under Reg. sec.1.1502-6 (or any similar provision
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of state, local, or foreign law), (B) as a transferee or successor, (C) by
contract, or (D) otherwise. For this purpose, "Person" shall mean an individual,
a partnership, a corporation, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, or a governmental entity.
(d) Section 3.12(d) of the Company Disclosure Schedule sets forth the
following information as of December 31, 1997 (as well as on an estimated pro
forma basis as of the Effective Time giving effect to the consummation of the
transactions contemplated hereby): (A) the Tax basis of the Company and each
Company Subsidiary in its assets; (B) the Tax basis of the stockholder(s) of the
MSG Entities in the stock of each such entity (or the amount of any excess loss
account, as that term is defined in Reg. sec. 1.1502-19); (C) the amount of any
net operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the Company or any
Company Subsidiary; and (D) the amount of any deferred gain or loss allocable to
the Company or any Company Subsidiary arising out of any deferred intercompany
transaction, as that term is defined in Reg. sec. 1.1502-13.
Section 3.13 Certain Agreements. (a) Neither the Company nor any of the
Company Subsidiaries is in default (or would be in default with notice or lapse
of time, or both) under any indenture, note, credit agreement, loan document,
lease, license, concession or other agreement including, but not limited to, any
Company Employee Benefit Plan, whether or not such default has been waived,
which default, alone or in the aggregate with other such defaults, has had, or
would reasonably be expected to have, a Company Material Adverse Effect.
(b) Section 3.13(b) of the Company Disclosure Schedule describes all
contracts, agreements and transactions, involving consideration of more than
$100,000 for any individual contract, agreement or transaction or series of
related contracts, agreements or transactions, between the Company or any of the
Company Subsidiaries, on the one hand, and any Related Party (as defined below),
on the other hand, which are currently in effect or which were in effect or were
consummated at any time on or after January 1, 1995 and sets forth all current
balances payable to or receivable from such Related Party related thereto as of
the date of this Agreement. For the purpose of this Agreement, "Related Party"
means (i) any officer or director of the Company, Offshore or Leviathan or any
of their respective Subsidiaries, (ii) any spouse, former spouse, child, parent,
parent of a spouse, sibling or grandchild of any of the persons listed in clause
(i), (iii) any Affiliate (as defined in Section 5.3) of any of the persons
listed in clauses (i) and (ii) (other than the Company or any Company
Subsidiary), and (iv) any member of the Offshore Group.
Section 3.14 Compliance with Worker Safety and Environmental Laws. (a)
The properties, assets and operations of the Company and the Company
Subsidiaries and their predecessors are and have been in compliance with all
applicable federal, state, local, and foreign laws, rules and regulations,
orders, decrees, common law, judgments, permits and licenses relating to public
and worker health and safety (collectively, "Worker Safety Laws") and the
protection, regulation and clean-up of the indoor and outdoor environment and
activities or conditions related thereto, including, without limitation, those
relating to the generation, handling, disposal, transportation or release of
hazardous or toxic materials, substances, wastes, pollutants and contaminants
including, without limitation, asbestos, petroleum, radon and polychlorinated
biphenyls (collectively, "Environmental Laws"), except for any violations that,
individually or in the aggregate, have not had, and would not reasonably be
expected to have, a Company Material Adverse Effect. With respect to such
properties, assets and operations, including any previously owned, leased or
operated properties, assets or operations, there are no past, present or
reasonably anticipated future events, conditions, circumstances, activities,
practices, incidents, actions or plans of the Company or any of the Company
Subsidiaries and their predecessors that may interfere with or prevent
compliance or continued compliance with applicable Worker Safety Laws and
Environmental Laws, other than any such interference or prevention that,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Company Material Adverse Effect.
(b) The Company and the Company Subsidiaries and their predecessors have
not caused or permitted any property, asset, operation, including any previously
owned property, asset or operation, to use, generate, manufacture, refine,
transport, treat, store, handle, dispose, transfer or process hazardous or toxic
materials, substances, wastes, pollutants or contaminants, except in material
compliance with all Environmental Laws
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and Worker Safety Laws, other than any such activity that, individually or in
the aggregate, has not had, and would not reasonably be expected to have, a
Company Material Adverse Effect. The Company and the Company Subsidiaries have
not reported to any Governmental Entity any material violation of an
Environmental Law or any release, discharge or emission of any hazardous or
toxic materials, substances, wastes, pollutants or contaminants, other than any
such violation, release, discharge or emission that, individually or in the
aggregate, has not had, and would not reasonably be expected to have, a Company
Material Adverse Effect. To the Company Knowledge, there are no pending,
threatened or asserted claims or liabilities under CERCLA, 42 U.S.C. sec.9601 et
seq., RCRA, 42 U.S.C. sec.6901 et seq., or equivalent state law provisions and
no current or former property, asset or operation of the Company or any Company
Subsidiary is identified or currently proposed for the National Priorities List
at 40 CFR sec.300, Appendix B, or the CERCLIS or equivalent state lists or
hazardous substances release sites.
Section 3.15 Financial Advisor. The Company's Board of Directors has
received the opinion of Chase Securities Inc. to the effect that, as of the date
hereof, the Merger Consideration, together with the Rights to be distributed to
the holders of Company Common Stock in the Rights Offering, is fair from a
financial point of view to the holders of Company Common Stock. Except for Chase
Securities, Inc., no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Company. The Company has previously delivered to Parent
copies of the engagement letter, dated February 4, 1998, from Chase Securities
Inc. to the Company.
Section 3.16 Public Utility. The Company is not a "holding company," a
"subsidiary company" of a "holding company," an affiliate of a "holding
company," or a "public utility company," as such terms are defined in the
Holding Company Act.
Section 3.17 Offshore Group. (a) Except as disclosed in the Company Group
SEC Reports filed and delivered to Parent prior to the date of this Agreement or
in Section 3.17(a) of the Company Disclosure Schedule or as does not otherwise
have, and would not reasonably be expected to have, a Company Material Adverse
Effect, neither the Company nor any Company Subsidiary has any joint and several
liabilities or obligations arising out of the assets, business, operations,
debts or liabilities of the Offshore Group.
(b) Neither the Company nor any Company Subsidiary is contractually liable,
either primarily or contingently, for any liability or obligation of any member
of the Offshore Group under any indenture or other loan or credit document or
any other contract, license, lease or instrument to which any member of the
Offshore Group is a party, except for liabilities or obligations set forth in
Section 3.17(b) of the Company Disclosure Schedule which will be released prior
to the Effective Time.
(c) Since December 31, 1997, except as permitted by this Agreement or any
Related Agreement or as otherwise set forth in Section 3.17(c) of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary has made any
investment, loan, payment, advance or contribution of funds or property to any
member of the Offshore Group or forgiven or capitalized any amounts owed by any
member of the Offshore Group to the Company or any Company Subsidiary (other
than the Exchange).
(d) The assets owned or leased by the MSG Entities are used in connection
with the ownership or operation of such entities' semi-submersible drilling rigs
and are not used in connection with the business of the Company and the Company
Subsidiaries.
Section 3.18 Limitation on Company Representations and Warranties. Except
as set forth in Section 3.4, 3.5, 3.13(b) or 3.17, no representations or
warranties delivered by the Company in this Agreement shall cover, apply to, or
otherwise pertain to any member of the Offshore Group or any assets, business,
operations or information related thereto.
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ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business by the Company Pending the Merger. Except
as contemplated by the Company Disclosure Schedule, this Agreement and the
Related Agreements during the period from the date of this Agreement to the
Effective Time, the Company shall, and shall cause each of the Company
Subsidiaries to, (i) carry on its business in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and, to the
extent consistent therewith, use all reasonable efforts to keep available the
services of its current officers and employees and preserve its relationships
with customers, suppliers, licensors, lessors and others having business
dealings with it to the end that its goodwill and ongoing business shall be
unimpaired at the Effective Time and (ii) prepare and timely file all Tax
Returns and amendments required to be filed by any of the Company and the
Company Subsidiaries prior to the Effective Time and pay all Taxes relating to
such Tax Returns before they shall become delinquent. Except as otherwise
expressly permitted or contemplated by this Agreement, the Related Agreements or
the Company Disclosure Schedule, the Company shall not, and shall not permit any
of the Company Subsidiaries to, without the prior written consent of Parent:
(a) (i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its stockholders in their
capacity as such (other than (x) dividends and other distributions by
direct or indirect wholly owned Subsidiaries, (y) regular quarterly cash
dividends by Leviathan, LGPC and Holdings declared and paid in amounts
(including any increases thereof) and at times consistent with past
practice and (z) the distribution of Offshore capital stock to the holders
of Company Common Stock in accordance with the terms of the Contribution
and Distribution Agreement and the Tax Sharing Agreement), (ii) other than
in the case of any direct or indirect wholly owned Company Subsidiary,
split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (iii) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of its
Subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities (other than a
purchase or an acquisition resulting from a required repurchase offer by
the Company pursuant to the Indenture dated as of March 21, 1994 between
the Company and the Bank of New York, successor in interest to the First
Interstate Bank of Texas, N.A. and the related loan and security documents
(collectively, as amended, the "Company Indenture") and the Company's
Senior Subordinated Promissory Note dated January 23, 1997 payable to Hare
& Co. (the "Subordinated Note") as a consequence of any of the Company's
election under the Restructuring Agreement, the Contribution and the Rights
Offering (as defined in Section 5.11(a)) or the transactions contemplated
by the Contribution and Distribution Agreement);
(b) issue, deliver, sell, pledge, dispose of or otherwise encumber
(other than the pledges or other encumbrances described in Section 4.1(e))
any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire any such shares, voting securities, equity equivalent or
convertible securities, other than the issuance of shares of Company Common
Stock upon the exercise of Options (whether or not presently exercisable)
outstanding on the date of this Agreement or upon the exercise of Warrants
outstanding on the date of this Agreement, in each case in accordance with
their current terms;
(c) amend its articles or certificate of incorporation or by-laws or
other comparable organizational documents;
(d) acquire or agree to acquire (i) by merging or consolidating with,
or by purchasing a substantial portion of the assets of or equity in, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or (ii) any assets
except, in the case of clauses (i) and (ii), for transactions not exceeding
$100,000 individually or $1,000,000 for all transactions pursuant to
clauses (i) and (ii) in the aggregate;
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(e) except for Permitted Encumbrances or as required by contracts and
agreements set forth in the Company Disclosure Schedule, sell, lease,
license, mortgage or otherwise encumber or subject to any lien, charge or
encumbrance or otherwise dispose of, or agree to sell, lease, license,
mortgage or otherwise encumber or subject to any lien, charge or
encumbrance or otherwise dispose of, any of its assets, other than
transactions that are in the ordinary course of business consistent with
past practice and not material to the Company and the Company Subsidiaries
taken as a whole; when used in this Agreement, the term "Permitted
Encumbrances" shall include any liens, title defects, preferential rights
or other encumbrances upon any of the relevant individual's or entities'
property, assets or revenues, whether now owned or hereafter acquired, that
are (i) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like liens arising in the ordinary course of business which are
not overdue for a period of more than 60 days or which are being contested
in good faith by appropriate proceeding, (ii) pledges or deposits in
connection with workers' compensation, unemployment insurance and other
social security legislation and deposits securing liability to insurance
carriers under insurance or self-insurance arrangements, (iii) for taxes
not yet due or which are being contested in good faith by appropriate
proceedings, provided that adequate reserves with respect thereto are
maintained on the books of the Company or the Company Subsidiaries, as the
case may be, in conformity with GAAP, (iv) deposits to secure the
performance of bids, trade contracts (other than for borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature incurred in the ordinary course of
business, (v) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Company or such Company Subsidiary, (vi) created pursuant to construction,
operating and maintenance agreements, space lease agreements and other
similar agreements, in each case having ordinary and customary terms and
entered into in the ordinary course of business by the Company and the
Company Subsidiaries and (vii) created pursuant to or arising under the
Company Indenture, the Subordinated Note or the Second Amended and Restated
Credit Agreement dated as of March 23, 1995 between Leviathan, Chase
Manhattan Bank, as administrative agent, and the lenders thereto and the
related loan and security documents (collectively, as amended, the
"Leviathan Credit Agreement ");
(f) incur any indebtedness for borrowed money, guarantee any such
indebtedness, issue or sell any debt securities or warrants or other rights
to acquire any debt securities, guarantee any debt securities or make any
loans, advances or capital contributions to, or other investments in, any
other person, or enter into any arrangement having the economic effect of
any of the foregoing, other than indebtedness incurred in the ordinary
course of business consistent with past practice which is prepayable at any
time without premium or penalty;
(g) alter (through merger, liquidation, reorganization, restructuring
or in any other fashion) the corporate structure or ownership of the
Company or any Company Subsidiary other than as contemplated by this
Agreement and the Related Agreements;
(h) except as required under any collective bargaining agreement,
enter into or adopt any new, or amend any existing, severance plan,
agreement or arrangement or enter into any new or amend any existing
Company Employee Benefit Plan or employment or consulting agreement, other
than as required by law;
(i) increase the compensation payable or to become payable to its
officers or employees, except for (i) increases in the ordinary course of
business consistent with past practice in salaries or wages of employees of
the Company or any of its Subsidiaries and (ii) to the extent required
under the terms of any applicable incentive plan or arrangement set forth
in the Company Disclosure Schedule, the payment of annual incentive bonuses
relating to the fiscal year ending June 30, 1998;
(j) grant or award any stock options, restricted stock, performance
shares, stock appreciation rights or other equity-based incentive awards;
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(k) take any action with respect to accounting policies or procedures
for Tax or accounting purposes (other than actions required to be taken by
Tax laws or generally accepted accounting principles) or make or change any
election with respect to Taxes (except that the Company can elect to forgo
the carryback of net operating losses existing as of June 30, 1997);
(l) except as disclosed in the Company's or Leviathan's capital
expenditure plan which has been disclosed to Parent prior to the date of
this Agreement or in the Company Disclosure Schedule or for maintenance
capital expenditures in the ordinary course of business consistent with
past practice or capital expenditures to repair or replace casualty losses,
make or agree to make any new capital expenditure or expenditures in excess
of $100,000 individually or $1,000,000 in the aggregate;
(m) 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 consistent with past practice or in accordance with their terms,
of liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) of the
Company included in the Company Group SEC Reports or incurred in the
ordinary course of business consistent with past practice or as required by
law;
(n) settle or compromise any material federal, state, local or foreign
Tax liability;
(o) except as expressly provided in this Agreement, enter into, amend,
terminate or waive any provision of, any agreement or arrangement with any
Related Party or enter into any transaction with any Related Party;
(p) take any action which would prevent the Merger from constituting a
reorganization within the meaning of Section 368(a) of the Code; or
(q) enter into any contract, agreement, commitment or arrangement to
do any of the foregoing.
Section 4.2 Partnerships and Joint Ventures. Notwithstanding anything in
this Agreement to the contrary, (i) the Company shall have the right to take all
such actions it reasonably deems necessary or appropriate to cause LGPC,
Leviathan and applicable Subsidiaries of Leviathan to perform their obligations
under contracts to which they are parties, (ii) nothing in this Agreement shall
restrict LGPC and its Subsidiaries from taking such actions as they reasonably
deem necessary or appropriate by reason of any capital calls or equity issuances
by any entities (partnerships, limited liability companies or other joint
ventures) in which Leviathan or Subsidiaries of Leviathan own an interest as of
the date of this Agreement in order to maintain their proportionate equity
interest in such entities and (iii) to the extent that the Company and the
Company Subsidiaries are required to take any action or are precluded from
taking any action with respect to Viosca Knoll Gathering Company pursuant to any
provision of this Agreement and Parent declines a request by the Company to
waive the restrictions in this Agreement with respect to any such action, Parent
shall be deemed to have waived any and all fiduciary duties and obligations owed
to Parent or any Subsidiary thereof, in its capacity as a partner in Viosca
Knoll Gathering Company, in connection with any such action by the Company, VK
Deepwater Gathering Company, L.L.C., or any other Company Subsidiaries.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Access and Information. The Company and the Company
Subsidiaries shall afford to Parent and to Parent's accountants, counsel and
other representatives reasonable access during normal business hours (and at
such other times as the parties may mutually agree) throughout the period prior
to the Effective Time to all of its properties, books, contracts, commitments,
records and personnel, and, during such period, shall furnish promptly to Parent
(i) a copy of each report, schedule and other document filed or received by it
pursuant to the requirements of federal or state securities laws, and (ii) all
other information concerning its business, properties and personnel as Parent
may reasonably request.
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Section 5.2 Registration Statement/Information Statement. Parent and the
Company shall cooperate and promptly prepare, and Parent shall file with the
Commission as soon as practicable, a Registration Statement on Form S-4 (the
"Form S-4") under the Securities Act, with respect to the Parent Common Stock
issuable in the Merger, a portion of which Registration Statement shall also
serve as the information statement of the Company with respect to the Merger
(the "Information Statement/Prospectus"). Notwithstanding the foregoing, Parent
may elect to cause the Company to file the Information Statement/Prospectus as
confidential proxy material and to defer the filing of the Form S-4 until the
Commission has provided written comments with respect thereto or has indicated
that the Information Statement/Prospectus will not be reviewed, and shall
thereafter file the Form S-4 as promptly as reasonably practicable. The
respective parties will cause the Information Statement/Prospectus and the Form
S-4 to comply as to form in all material respects with the applicable provisions
of the Securities Act, the Exchange Act and the rules and regulations
thereunder. Parent shall use all reasonable efforts, and the Company will
cooperate with Parent, to have the Form S-4 declared effective by the Commission
as promptly as practicable after the filing thereof (including without
limitation, responding to any comments received from the Commission with respect
thereto) and to keep the Form S-4 effective as long as is necessary to
consummate the Merger. Each of Parent and the Company shall, as promptly as
practicable, provide to the other copies of any written comments received from
the Commission with respect to the Information Statement/Prospectus or the Form
S-4 and advise the other of any oral comments with respect to the Information
Statement/Prospectus or the Form S-4 received from the Commission. Parent shall
use its best efforts to obtain, prior to the effective date of the Form S-4, all
necessary state securities law or "Blue Sky" permits or approvals required to
carry out the transactions contemplated by this Agreement and will pay all
expenses incident thereto. Parent agrees that none of the information supplied
or to be supplied by Parent for inclusion or incorporation by reference in the
Form S-4 or the Information Statement/Prospectus (i) in the case of the
Information Statement/Prospectus and each amendment or supplement thereto, at
the time of mailing thereof, or (ii) in the case of the Form S-4 and each
amendment or supplement thereto, at the time it is filed or becomes effective,
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
Company agrees that none of the information supplied or to be supplied by the
Company for inclusion or incorporation by reference in the Form S-4 or the
Information Statement/Prospectus (i) in the case of the Information
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof, or, (ii) in the case of the Form S-4 or any amendment or
supplement thereto, at the time it is filed or becomes effective, will contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. For purposes of
the foregoing, it is understood and agreed that information concerning or
related to Parent will be deemed to have been supplied by Parent and information
concerning or related to the Company shall be deemed to have been supplied by
the Company. No amendment or supplement to the Information Statement/Prospectus
will be made by Parent or the Company without the approval (not to be
unreasonably delayed or withheld) of the other party. Parent will advise the
Company, promptly after it receives notice thereof, of the time when the Form S4
has become effective or any supplement or amendment has been filed, the issuance
of any stop order, or the suspension of the qualification of Parent Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction.
Section 5.3 Compliance with the Securities Act. At least 30 days prior to
the Effective Time, the Company shall deliver to Parent a list of names and
addresses of those persons who were, in the Company's reasonable judgment, at
the date of this Agreement, "affiliates" (each such person, an "Affiliate") of
the Company within the meaning of Rule 145 of the rules and regulations
promulgated under the Securities Act. The Company shall deliver or cause to be
delivered to Parent, prior to the Effective Time, from each of the Affiliates of
the Company identified in the foregoing list, an Affiliate Letter in the form
attached hereto as Exhibit B (an "Affiliate Letter"). Parent shall be entitled
to place legends as specified in such Affiliate Letters on the certificates
evidencing any Parent Common Stock to be received by such Affiliates pursuant to
the terms of the Agreement, and to issue appropriate stop transfer instructions
to the transfer agent for the Parent Common Stock, consistent with the terms of
such Affiliate Letters.
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Section 5.4 Stock Exchange Listing. Parent shall use its best efforts to
list on the NYSE, upon official notice of issuance, the Parent Common Stock to
be issued pursuant to the Merger.
Section 5.5 Employee Matters. As of the Effective Time, the employees of
the Company and each Company Subsidiary listed in Section 5.5(a) of the Company
Disclosure Schedule shall continue employment with the Surviving Corporation and
its Subsidiaries, respectively, in the same positions and at the same level of
wages and/or salary and without having incurred a termination of employment or
separation from service; provided, however, except as may be specifically
required by applicable law or any contract, neither the Surviving Corporation
and its Subsidiaries, on the one hand, nor any employee, on the other hand,
shall be obligated to continue any employment relationship or any specific terms
of employment for any specific period of time. The Company has agreed to make
certain severance payments to terminated employees as provided in the
Contribution and Distribution Agreement (as defined in Section 5.11(a)). At the
request of Parent, the Company shall terminate immediately prior to the
Effective Time any employee of the Company and the Company Subsidiaries listed
in Section 5.5(b) of the Company Disclosure Schedule. As of the Effective Time,
Parent shall be the sponsor of the Company Employee Benefit Plans sponsored by
the Company immediately prior to the Effective Time, and Parent shall and shall
cause its Subsidiaries to satisfy all obligations and liabilities under such
Company Employee Benefit Plans; provided, however, that, except as hereafter
provided in this Section 5.5 or in the Company Disclosure Schedule, nothing
contained in this Agreement shall limit or restrict Parent's or its
Subsidiaries' right on or after the Effective Time to amend, modify or terminate
any of the Company Employee Benefit Plans. To the extent any employee benefit
plan, program or policy of Parent or their affiliates is made available to any
person who is an employee of the Company or any of the Company Subsidiaries
immediately prior to the Effective Time: (i) service with the Company and the
Company Subsidiaries by any employee prior to the Effective Time shall be
credited for eligibility and vesting purposes and for purposes of qualifying for
any additional benefits tied to periods of service (such as higher rates of
matching contributions and eligibility for early retirement) under such plan,
program or policy, but not for benefit accrual purposes; and (ii) with respect
to any welfare benefit plans to which such employees may become eligible, Parent
shall cause such plans to provide credit for any co-payments or deductibles by
such employees and waive all pre-existing condition exclusions and waiting
periods, other than limitations or waiting periods that have not been satisfied
under any welfare plans maintained by the Company and the Company Subsidiaries
for their employees prior to the Effective Time. At the reasonable request of
Parent, the Company shall amend, modify or terminate any of the Company Employee
Benefit Plans at or immediately prior to the Effective Time (whichever the
Parent may request) and shall take such other steps as Parent may reasonably
request to facilitate the administration after the Effective Time of the
compensation and benefit plans, programs and arrangements of the Surviving
Corporation.
Section 5.6 Indemnification. (a) From and after the Effective Date, the
Surviving Corporation shall indemnify, defend and hold harmless the officers,
directors and employees of the Company and the Company Subsidiaries (except to
the extent such persons are liable due to performance in the capacity as an
officer, director or employee of any Subsidiary of the Company other than a
Company Subsidiary) who were such at any time prior to the Effective Time (the
"Indemnified Parties") from and against all losses, expenses, claims, damages or
liabilities arising out of the transactions contemplated by this Agreement to
the fullest extent permitted or required under applicable law, and the
Indemnified Parties shall be advanced expenses subject to a customary
reimbursement agreement. All rights to indemnification existing in favor of the
directors, officers or employees of the Company and the Company Subsidiaries as
provided in the Company's certificate of incorporation or By-laws, as in effect
as of the date hereof, with respect to matters occurring through the Effective
Time, shall survive the Merger and shall continue in full force and effect
thereafter. Parent shall maintain in effect for not less than six years after
the Effective Time the current policies of directors' and officers' liability
insurance maintained by the Company with respect to matters occurring on or
prior to the Effective Time; provided, however, that Parent may substitute
therefor policies of at least the same coverage (with carriers comparable to the
Company's existing carriers) containing terms and conditions which are no less
advantageous to the Indemnified Parties; and provided, further, that Parent
shall not be required in order to maintain or procure such coverage to pay an
annual premium in excess of 150% of the current annual premium paid by the
Company for its existing coverage (the "Cap"); and provided, further, that if
equivalent
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coverage cannot be obtained, or can be obtained only by paying an annual premium
in excess of the Cap, Parent shall only be required to obtain as much coverage
as can be obtained by paying an annual premium equal to the Cap.
(b) In the event that any action, suit, proceeding or investigation
relating hereto or to the transactions contemplated by this Agreement is
commenced, whether before or after the Effective Time, the parties hereto agree
to cooperate and use their respective reasonable efforts to vigorously defend
against and respond thereto.
(c) Any Indemnified Party, upon learning of any claim, action, suit,
proceeding or investigation for which such party may seek indemnification under
this Section 5.6, shall promptly notify Parent.
Section 5.7 HSR Act. The Company and Parent shall file as soon as
practicable notifications under the HSR Act in connection with the Merger and
the transactions contemplated hereby, and shall respond as promptly as
practicable to any inquiries received from the Federal Trade Commission and the
Antitrust Division of the Department of Justice for additional information or
documentation.
Section 5.8 Additional Agreements. (a) Subject to the terms and
conditions herein provided, each of the parties hereto agrees diligently to use
all commercially reasonable efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as soon as reasonably practical,
including using all commercially reasonable efforts to (i) obtain all necessary
waivers, consents and approvals, (ii) effect all necessary registrations and
filings, (iii) lift any injunction to the Merger (and, in such case, to proceed
with the Merger as expeditiously as possible), (iv) work diligently in
cooperation with the other party in connection with the consummation of any
repurchase offer or consent solicitation required pursuant to the Company's
Indenture or the Subordinated Note as a consequence of the Contribution and the
Rights Offering, the Merger, the Company's disposition of Deepflex or the
Company's election made pursuant to the Restructuring Agreement and the
obtaining of the consent of the holders of the notes issued pursuant to the
Company Indenture and the Subordinated Note to the amendments described in
Appendix A, provided that Parent shall control any solicitation of consents
contemplated by this clause (iv) and shall be responsible for all costs and
expenses incurred by any party hereto in connection with such solicitation of
consents, (v) to the extent deemed desirable by the Company, obtain waivers from
holders of applicable Options and Warrants with respect to any antidilution
adjustment, if any, in connection with the Contribution and the Rights Offering
in exchange for a proportionate share of the Offshore stock, and (vi) otherwise
promptly satisfy the conditions set forth in Article VI.
(b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of Parent and the Company shall take all such
necessary action.
(c) Following the Effective Time, Parent shall use all reasonable efforts
to conduct the business and otherwise act in a manner which would not jeopardize
the characterization of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
Section 5.9 No Shop. The Company agrees (a) that neither it nor any of
its Subsidiaries or affiliates shall, and it shall direct and use its best
efforts to cause its officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its Subsidiaries or affiliates) not to, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its stockholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company and
the Company Subsidiaries, taken as a whole (any such proposal or offer being
hereinafter referred to as an "Alternative Proposal"), or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Alternative Proposal, or
release any third party from any obligations under any existing standstill
agreement or arrangement, or enter into any agreement with respect to an
Alternative Proposal, or otherwise facilitate any effort or attempt to make or
implement an Alternative Proposal; (b) that it will immediately cease and cause
to be terminated any existing activities,
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discussions or negotiations with any parties with respect to any of the
foregoing, and it will take the necessary steps to inform the individuals or
entities referred to above of the obligations undertaken in this Section 5.9;
and (c) that it will notify Parent immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, it.
Notwithstanding the foregoing, prior to the Consent Date, the Company may,
directly or indirectly, furnish information and access to, and may participate
in discussions and negotiate with, any person, if (i) such person has submitted
an unsolicited written proposal to the Board of Directors of the Company
relating to an Alternative Proposal, (ii) the Board of Directors of the Company
believes, after consultation with its financial advisor, that such Alternative
Proposal is superior from a financial point of view to the transactions
contemplated by this Agreement and the Related Agreements and (iii) the Board of
Directors of the Company determines in its good faith judgment that it is
required to take such action to comply with the Board of Directors' fiduciary
duty imposed by law (a "Superior Proposal"). Such Board of Directors shall
provide a copy of any such written proposal to Parent immediately after receipt
thereof and thereafter keep Parent promptly advised of any development with
respect thereto and any revision of the terms of such Superior Proposal. Nothing
in this Section 5.9 shall (x) permit the Company to terminate this Agreement,
(y) permit the Company or any Company Subsidiary to enter into any agreement or
arrangement with respect to an Alternative Proposal during the term of this
Agreement (it being agreed that during the term of this Agreement, neither the
Company nor any Company Subsidiary shall enter into any agreement or arrangement
with any person that provides for, or in any way facilitates, an Alternative
Proposal (other than a confidentiality agreement in customary form)), or (z)
affect any other obligation of the Company under this Agreement.
Section 5.10 Advice of Changes; SEC Filings. The Company shall confer on
a regular basis with Parent on operational matters. Parent and the Company shall
promptly advise each other orally and in writing of any change or event that has
had, or could reasonably be expected to have, a Company Material Adverse Effect
or a Parent Material Adverse Effect, as the case may be. The Company and Parent
shall promptly provide each other (or their respective counsel) copies of all
filings made by such party with the SEC or any other Governmental Entity in
connection with this Agreement and the transactions contemplated hereby other
than any filing by the Company pursuant to the HSR Act.
Section 5.11 Certain Additional Matters. (a) Prior to the Closing, the
Company shall (i) contribute to Offshore all of the outstanding shares of
capital stock of Deepflex owned by the Company (the "Contribution") and (ii)
distribute pro rata to the holders of Company Common Stock rights (the "Rights")
to purchase all of the common and preferred stock and/or units representing the
same (the "Offshore Shares") owned or to be acquired by the Company in Offshore
(the "Rights Offering") as provided in the Contribution and Distribution
Agreement attached as Exhibit C (the "Contribution and Distribution Agreement").
The Company and Offshore will also execute and deliver a Tax Sharing Agreement
in the form attached as Exhibit D (the "Tax Sharing Agreement") immediately
prior to the Contribution and will execute and deliver such other definitive
documentation necessary to effectuate the Contribution and the Rights Offering
and document the contractual relationship between Offshore and the Company
(collectively, the "Offshore Documentation") as Parent, the Company and Offshore
shall in reasonable good faith mutually agree on. The Company shall cause
Offshore to execute and deliver the Offshore Documentation. The Company and
Offshore shall not amend, modify or waive any provisions of the Contribution and
Distribution Agreement or the Tax Sharing Agreement without the consent of
Parent. The Company shall, and shall cause Offshore, promptly to prepare and to
file with the Commission as soon as practical and in no event later than March
31, 1998, a Registration Statement under the Securities Act, with respect to the
Offshore Shares issuable or deliverable upon exercise of the Rights (the "Rights
Offering Registration Statements"), a portion of which shall also serve as the
prospectus of the Company and Offshore with respect to the offering and sale of
the Offshore Shares (the "Rights Offering Prospectuses"). The Company will, and
will cause Offshore to, use all reasonable efforts, and Parent and the Company
will cooperate with Offshore, to have the Rights Offering Registration
Statements declared effective by the Commission as promptly as practical after
the filing thereof, and to mail to stockholders of the Company in connection
with the Contribution and the Rights Offering the Rights Offering Prospectuses.
The Company shall, and shall cause Offshore to, perform its obligations required
to be performed prior to the Effective Time under the Contribution and
Distribution
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Agreement, the Offshore Documentation and any other agreements executed in
connection with this Agreement.
(b) Between the date hereof and the Closing, except as contemplated by
this Agreement and the Related Agreements (i) the Company and the Company
Subsidiaries shall not invest, loan, pay or otherwise advance or contribute any
funds or property to any member of the Offshore Group or pay any Taxes (as
defined in the Tax Sharing Agreement) relating to the assets, business or
operations of any member of the Offshore Group or forgive or capitalize any
amounts owed by any member of the Offshore Group to the Company or any of the
Company Subsidiaries, (ii) immediately prior to the Effective Time, the Company
shall cause the members of the Offshore Group to (and the members of the
Offshore Group shall) pay in cash all amounts owed by them to the Company or any
of the Company Subsidiaries (except (x) if the transactions contemplated by the
Redemption Agreement attached as Exhibit E (the "Redemption Agreement") are
consummated, the management fees under the First Amended and Restated Management
Agreement dated November 10, 1993 between Offshore and the Company will be
reduced by 50% effective retroactively to January 1, 1998, (y) management fees
under the Management Agreement dated November 10, 1993 between the Company and
Deepflex, as amended, dated January 19, 1995 that accrue from December 19, 1997
through the Closing, will be contributed or forgiven at or prior to the Closing,
and (z) as otherwise provided in the Contribution and Distribution Agreement))
and (iii) immediately prior to the Effective Time, the Company shall cause the
members of the Offshore Group to (and the members of the Offshore Group shall)
reimburse the Company for any payments of Taxes made by the Company or any
Company Subsidiaries after January 1, 1998 and prior to the Effective Time which
relate to the assets, business or operations of any member of the Offshore
Group.
(c) Contemporaneously with the execution and delivery of this Agreement,
each of Thomas P. Tatham, Donald V. Weir, Charles M. Darling IV, John H. Gray,
Grant E. Sims, James H. Lytal, Donald A. Sanders, Ben T. Morris and Michael T.
Willis and Parent have entered into agreements (the "Subsidiaries Agreements")
pursuant to which Parent will acquire all outstanding interests in Holdings,
Offshore Gas Marketing, Inc. and Offshore Gas Processors, Inc. (the
"Subsidiaries Securities") not owned by the Company concurrently with the
Closing.
(d) Contemporaneously with the execution and delivery of this Agreement,
Leviathan and Offshore are entering into an agreement (the "Leviathan Purchase
Agreement") pursuant to which Offshore will purchase the shares of capital stock
of Offshore held by Leviathan in exchange for Offshore's interests in certain
oil and gas properties. The Company shall cause Offshore to perform its
obligations to be performed prior to the Effective Time under the Leviathan
Purchase Agreement.
Section 5.12 Confidentiality Agreement. Each party shall keep all
information received pursuant to this Agreement confidential in accordance with
the confidentiality provisions of the offer letter executed December 19, 1997
between Parent and the Company.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(b) The Form S-4 shall have become effective in accordance with the
provisions of the Securities Act. No stop order suspending the
effectiveness of the Form S-4 shall have been issued by the Commission and
remain in effect and all necessary approvals under state securities laws
relating to the issuance or trading of the Parent Common Stock to be issued
to stockholders of the Company in connection with the Merger shall have
been obtained.
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(c) No preliminary or permanent injunction or other order by any
federal or state court in the United States of competent jurisdiction which
prevents the consummation of the Merger shall have been issued and remain
in effect (each party agreeing to use all commercially reasonable efforts
to have any such injunction lifted).
(d) The Parent Common Stock to be issued to Company stockholders in
connection with the Merger shall have been approved for listing on the
NYSE, subject only to official notice of issuance.
(e) On the Closing Date, the opinion of Fried, Frank, Harris, Shriver
& Jacobson, counsel to Parent, shall have been delivered to the Company and
Parent in form and substance reasonably satisfactory to the Company and
Parent to the effect that the Merger or, if applicable, the Alternative Tax
Free Merger, will qualify as a reorganization within the meaning of Section
368(a) of the Code, if applicable. In rendering such opinion, such counsel
shall be entitled to rely upon representations made by Parent and the
Company in certificates in the forms attached hereto as Exhibits F and G.
(f) The Contribution and the Rights Offering as provided in Section
5.11(a) hereof shall have occurred (including the effectiveness of the
Rights Offering Registration Statements and the consummation of the
transactions contemplated therein) and the Offshore Documentation shall
have been executed and delivered and be in full force and effect.
(g) The holders of notes issued pursuant to the Company Indenture and
the Subordinated Note shall have consented to the transactions related to
the Contribution and the Rights Offering and the holders of notes issued
pursuant to the Company Indenture and the Subordinated Note shall have
consented to the amendments described in Appendix A; provided that if such
note holders elect to exercise their rights under any repurchase offer
related to the transactions contemplated by the Merger Agreement and the
Related Agreements, Parent shall finance the Company's repurchase thereof
concurrently with the Closing or the consummation of such repurchase offer,
if later.
Section 6.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment (or waiver by the Company) at or prior to the Effective Time of
the following additional conditions:
(a) Performance of Obligations; Representations and
Warranties. Parent and Merger Sub shall have performed in all material
respects each of its agreements contained in this Agreement required to be
performed at or prior to the Effective Time, each of the representations
and warranties of Parent and Merger Sub contained in this Agreement that is
qualified as to materiality shall be true and correct at and as of the
Effective Time as if made at and as of such time (other than
representations and warranties which address matters only as of a certain
date, which shall be true and correct as of such certain date) and each of
the representations and warranties that is not so qualified shall be true
and correct in all material respects at and as of the Effective Time as if
made on and as of such date (other than representations and warranties
which address matters only as of a certain date, which shall be true and
correct in all material respects as of such certain date), in each case
except as contemplated or permitted by this Agreement, and the Company
shall have received certificates signed on behalf of Parent by an executive
officer of Parent to such effect.
(b) Consents and Authorizations. All consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by Parent and Merger Sub for the consummation by it of the
transactions contemplated by this Agreement shall have been obtained and
made by Parent and Merger Sub, except for those consents, waivers,
approvals, authorizations, orders and filings the failure of which to
obtain would not and would not reasonably be expected to adversely affect
the Closing.
(c) Subsidiaries Agreements. Parent shall have complied in all
material respects with its obligations to be performed prior to the
Effective Time under the Subsidiaries Agreements.
Section 6.3 Conditions to Obligations of Parent to Effect the Merger. The
obligations of Parent to effect the Merger shall be subject to the fulfillment
(or waiver by Parent) at or prior to the Effective Time of the following
additional conditions:
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(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed at or prior
to the Effective Time, (i) each of the representations and warranties of
the Company contained in this Agreement that is qualified as to materiality
shall be true and correct at and as of the Effective Time as if made at and
as of such time (other than representations and warranties which address
matters only as of a certain date, which shall be true and correct as of
such certain date) and (ii) each of the representations and warranties that
is not so qualified shall be true and correct in all material respects at
and as of the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date, which shall be true and correct in all material respects as of such
certain date) except for such inaccuracies or breaches which either (a) do
not adversely affect the Company or any Company Subsidiary or the value of
the Merger to Parent or Parent's ability to operate the businesses of the
Company and the Company Subsidiaries after the Effective Time or (b) have
been cured by the Company within ten days after Parent's delivery to the
Company of written notice of each such inaccuracy or breach; in the case of
(i) and (ii), except as contemplated or permitted by this Agreement, and
Parent shall have received a certificate signed on behalf of the Company by
an executive officer of the Company to such effect.
(b) Consents Under Agreements. The Company shall have obtained the
consent or approval of each person that is not a Governmental Entity whose
consent or approval shall be required in connection with the transactions
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease, or other agreement or instrument of the Company and the
Company Subsidiaries, except as to which the failure to obtain such
consents and approvals, individually or in the aggregate, would not be
expected, in the reasonable opinion of Parent, to have a Company Material
Adverse Effect or to have a material adverse effect upon the consummation
of the transactions contemplated in this Agreement.
(c) No Litigation. There shall not be pending any suit, action or
proceeding by any domestic Governmental Entity (i) challenging the
acquisition by Parent of any shares of Company Common Stock, seeking to
restrain or prohibit the consummation of the Merger or seeking to obtain
from Parent or the Company any damages that are material in relation to the
Company and the Company Subsidiaries taken as a whole, (ii) seeking to
prohibit or limit the ownership, operation or control by the Company,
Parent or any of their respective Subsidiaries of any portion of the
business or assets of the Company or Parent and their respective
Subsidiaries, or to compel the Company or Parent and their respective
Subsidiaries to dispose of or hold separate any portion of the combined
business or assets of the Company or Parent and their respective
Subsidiaries, as a result of the Merger, which in either case, is material
in relation to the Company and the Company Subsidiaries taken as a whole,
or (iii) seeking to impose limitations on the ability of Parent to acquire
or hold, or exercise full rights of ownership of, any shares of Company
Common Stock.
(d) Subsidiaries Agreements. Each party selling Subsidiaries
Securities pursuant to the Subsidiaries Agreements shall have complied in
all material respects with its obligations to be performed prior to the
Effective Time under the Subsidiaries Agreements.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of any matters
presented in connection with the Merger by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either the Company or Parent if there has been a breach of the
representations, warranties, covenants or agreements on the part of the
other set forth in this Agreement, which breach would result in the
condition set forth in Section 6.2(a), in the case of a breach by Parent or
Merger Sub, or
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Section 6.3(a), in the case of a breach by the Company, not being
satisfied, and such breach has not been cured within ten business days
following receipt by the breaching party of notice of such breach from the
non-breaching party;
(c) by either Parent or the Company if any permanent order, decree,
ruling or other action of a court or other competent authority restraining,
enjoining or otherwise preventing the consummation of the Merger shall have
become final and non-appealable;
(d) by either Parent or the Company if the Merger shall not have been
consummated on or before June 30, 1998, unless the failure to consummate
the Merger is the result of a material breach of any covenant or agreement
contained in this Agreement by the party seeking to terminate this
Agreement which has not been cured within ten business days following
receipt by the breaching party of notice of such breach from the
non-breaching party; provided that, at the option of Parent, exercisable by
notice in writing to the Company on or prior to June 30, 1998, the earliest
date on which this Agreement may be terminated under this paragraph (d)
shall be extended to September 30, 1998; and provided, further, that Parent
shall have the right to exercise such option only if in the exercise notice
Parent agrees that Parent shall permanently waive and be deemed to have
waived all of its conditions to Closing except for the following: (x)
Sections 6.1(a)-(f) and 6.3(d) (other than with respect to the Subsidiaries
Agreements relating to each of Michael T. Willis, Donald A. Sanders and Ben
T. Morris), (y) Section 6.3(a) with respect to covenants and agreements,
and (z) Section 6.3(a) with respect to representations or warranties of the
Company only to the extent Parent has given at least five days notice of
its non binding intent to exercise Parent's right to extend and either (i)
the Company has not delivered an officer's certificate with respect to the
matters provided for in Section 6.3(a) (substituting the date of the
certificate for the Effective Time in such certificate) or (ii) the
officer's certificate was not to the Company's knowledge true and accurate.
(e) by the Company, prior to the date on which the Consent has been
executed by the holders of a majority of the shares of Company Common Stock
outstanding as of the Consent Date, if the Board of Directors of the
Company has received a Superior Proposal which the Board of Directors has
resolved to accept; provided that concurrently with, and as a condition to
the validity of, any such purported termination, the Company shall pay to
Parent the sum of $20,000,000 in cash; provided that upon the tender of
such $20,000,000 payment by the Company, Parent shall be deemed to have
waived any and all claims Parent may have at law or in equity against the
Company, its Subsidiaries or their respective officers, directors or
employees arising out of or relating to this Agreement or Related
Agreements; and provided, further, that nothing in this paragraph (e) shall
constitute a waiver of any claim Parent may have at law or in equity
against a third party for tortious interference with contract arising out
of or relating to any Alternative Proposal.
Section 7.2 Effect of Termination. (a) In the event of termination of
this Agreement by either Parent or the Company, as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent or their respective officers or directors
(except for Section 5.12, Section 7.1(e), which liability on the part of the
Company thereunder shall be limited to $20,000,000, this Section 7.2 and Article
VIII, which shall survive the termination); provided, however, that nothing
contained in this Section 7.2 shall relieve any party hereto from any liability
for any willful breach of a representation or warranty contained in this
Agreement or the breach of any covenant or agreement contained in this
Agreement.
(b) If either the Company or Parent has willfully breached a
representation, warranty, covenant or agreement set forth in this Agreement that
results in the other party terminating this Agreement pursuant to Section
7.1(c), then, in addition to any other remedies available to the non-breaching
party, the breaching party shall promptly reimburse the non-breaching party for
all substantiated out-of-pocket costs and expenses incurred by the non-breaching
party in connection with this Agreement and the transactions contemplated
hereby, including, without limitation, costs and expenses of accountants,
attorneys and financial advisors, up to an aggregate of $5,000,000 (the
"Expenses Fee"). Each of Parent and the Company acknowledges that the agreements
contained in this Section 7.2(b) are an integral part of the transactions
contemplated in this
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Agreement, and that, without these agreements, Parent and the Company would not
enter into this Agreement; accordingly, if the breaching party fails to promptly
pay the amount due pursuant to this Section 7.2(b), and, in order to obtain such
payment, the non-breaching party commences a suit which results in a judgment
for the Expenses Fee, the breaching party shall pay to the non-breaching party
its costs and expenses (including attorney's fees) in connection with such suit.
Section 7.3 Amendment. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of the Company, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing duly executed by each of the parties hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. 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 duly executed by such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
Section 7.5 Exclusive Remedy for Inaccuracy or Breach of Representation or
Warranty. Except as expressly provided in Section 7.2(a) and (b) hereof, a
party's sole and exclusive remedy with respect to the inaccuracy or breach of
any representation or warranty provided by the other party shall be to (i) elect
not to close the Merger and the other transactions contemplated by this
Agreement to the extent permitted by Article VI and (ii) elect to terminate this
Agreement to the extent permitted by Article VII.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties. Except to the
extent expressly set forth in Articles II and III, the parties hereto have not
made and expressly negate and waive any representations or warranties (express,
implied, statutory or otherwise) with respect to this Agreement or the title,
condition or quality of any rights or assets of the Company or any Company
Subsidiary or the accuracy or completeness of any information provided or
obtained. The representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall terminate at the Effective
Time or, if sooner, the termination of this Agreement.
Section 8.2 Disclosure Schedules. Each disclosure identified in the
Parent Disclosure Schedule and the Company Disclosure Schedule or elsewhere in
this Agreement constitutes a disclosure by the disclosing party with respect to
all applicable Sections of this Agreement, regardless of any reference to a
particular Section or subsection.
Section 8.3 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally, one day after
being delivered to a nationally recognized overnight courier or when telecopied
(with a confirmatory copy sent by such overnight courier) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Merger Sub, to
El Paso Natural Gas Company
1001 Louisiana
Houston, Texas 77002
Attention: William A. Wise
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Facsimile No.: (713) 757-6030
and
Attention: Britton White, Jr.
Facsimile No.: (713) 757-1872
with a copy (which shall not constitute notice) to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Gary P. Cooperstein
Facsimile No.: (212) 859-4000
(b) if to the Company, to
DeepTech International Inc.
600 Travis Street
Suite 7500
Houston, Texas 77002
Attention: Chief Executive Officer
Facsimile No.: (713) 224-7574
with a copy (which shall not constitute notice) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Attention: Rick L. Burdick
Facsimile No.: (713) 236-0822
Section 8.4 Interpretation. When a reference is made in this Agreement to
a Section or Article, such reference shall be to a Section or Article of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." The phrase "the date
hereof" in this Agreement means the date of this Agreement. As used in this
Agreement, the word "Subsidiary" when used with respect to any relevant
individual or entity, means any other individual or entity that directly or
indirectly is controlled by such relevant individual or entity in question. As
used herein, the term "control" (including its derivatives and similar terms)
means the power to, directly or indirectly, direct or cause the direction of the
management and policies of such relevant individual or entity.
Section 8.5 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 8.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the other written agreements executed by the parties in connection
herewith constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and there are no promises, undertakings,
representations or warranties by the Company or Parent relative to the subject
matter of this Agreement not expressly set forth or referred to herein. This
Agreement, except for the provisions of Section 5.6, is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
Section 8.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
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Section 8.8 Assignment. Except as contemplated by Sections 1.11 and 1.12,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned, transferred, disposed of or otherwise alienated by either of
the parties hereto (whether voluntarily or involuntarily, with or without
consideration, by operation of law or otherwise) without the prior written
consent of the other party (which consent may be granted or withheld in such
party's sole discretion). An attempted assignment, transfer, disposition or
alienation in violation of this Agreement shall be null, void and ineffective.
Subject to the two preceding sentences, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
Section 8.9 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 terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic and
legal substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated by this Agreement may be
consummated as originally contemplated to the fullest extent possible.
Section 8.10 Enforcement of this 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 their specific wording or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, such remedy being in addition to
any other remedy to which any party is entitled at law or in equity.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
DEEPTECH INTERNATIONAL INC.
By: /s/ CHARLES M. DARLING, IV
------------------------------------
Name: Charles M. Darling, IV
Title: President
EL PASO ACQUISITION COMPANY
By: /s/ H. BRENT AUSTIN
------------------------------------
Name: H. Brent Austin
Title: Executive Vice President and
CFO
EL PASO NATURAL GAS COMPANY
By: /s/ H. BRENT AUSTIN
------------------------------------
Name: H. Brent Austin
Title: Executive Vice President and
CFO
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CERTIFICATE OF CORPORATE SECRETARY
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Corporate Secretary of Parent, and that, as such, he is familiar with
the facts herein certified and is duly authorized to certify the same and does
hereby certify and resolve on behalf of Parent that: (i) this Agreement has been
adopted by Parent pursuant to Section 251(f) of the Delaware General Corporation
Law, (ii) Parent's Restated Certificate of Incorporation does not require a vote
of its stockholders for the adoption of this Agreement, (iii) this Agreement
does not amend in any respect Parent's Restated Certificate of Incorporation,
(iv) each share of stock of Parent outstanding immediately prior to the
effective date of the Merger is to be an identical outstanding or treasury share
of the Surviving Corporation after the Effective Time, and (v) the authorized
unissued shares or the treasury shares of common stock of Parent to be issued or
delivered under this Agreement plus those initially issuable upon conversion of
any other shares, securities or obligations to be issued or delivered under this
Agreement do not exceed 20% of the shares of common stock of Parent outstanding
immediately prior to the Effective Time.
IN WITNESS WHEREOF, I hereunder subscribe my name effective as of the 27th
day of February, 1998.
By: /s/ DAVID L. SIDDALL
------------------------------------
Name: David L. Siddall
Title: Corporate Secretary of El
Paso Natural Gas Company
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CERTIFICATE OF SECRETARY
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of the Company, and that, as such, he is familiar with the
facts herein certified and is duly authorized to certify the same and does
hereby certify and resolve on behalf of the Company that this Agreement has been
adopted by written consent of the holders of a majority of the outstanding
shares of capital stock of the Company entitled to vote thereon.
IN WITNESS WHEREOF, I hereunder subscribe my name effective as of the 27th
day of February, 1998.
By: /s/ DONALD V. WEIR
------------------------------------
Name: Donald V. Weir
Title: Secretary of DeepTech
International Inc.
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APPENDIX A-2
AMENDMENT NO. 1 (this "Amendment"), dated as of June 16, 1998, by and among
El Paso Natural Gas Company, a Delaware corporation ("Parent"), El Paso Energy
Corporation, a Delaware corporation ("Holding"), El Paso Acquisition Company, a
Delaware corporation ("Merger Sub"), and DeepTech International Inc., a Delaware
corporation (the "Company"), to the Agreement and Plan of Merger, dated as of
February 27, 1998 (the "Merger Agreement"), by and among Parent, Merger Sub and
the Company. All capitalized terms not defined herein shall have the respective
meanings ascribed to them in the Merger Agreement.
WHEREAS, Parent may adopt a holding company structure (the "Holding Company
Reorganization") whereby Parent and its subsidiaries, including Merger Sub,
would become direct and indirect subsidiaries of Holding, a newly formed
Delaware holding company which has not engaged in any business other than in
connection with the Holding Company Reorganization.
WHEREAS, pursuant to the Holding Company Reorganization, holders of Parent
Common Stock would become holders on a share-for-share basis of shares of common
stock of Holding (the "Holding Common Stock").
WHEREAS, Parent, Merger Sub and the Company desire to add Holding as a
party to the Merger Agreement and to provide for Holding to perform the
obligations of Parent under the Merger Agreement if the Holding Company
Reorganization occurs prior to the Effective Time.
NOW, THEREFORE, Parent, Holding, Merger Sub and the Company agree as
follows:
1. By this Amendment, Holding is hereby added as a party to the Merger
Agreement.
2. If the Holding Company Reorganization occurs prior to the Effective
Time, for the period subsequent to the Holding Company Reorganization:
(a) Unless the context otherwise requires, all references in the
Merger Agreement to Parent, except with respect to Article II of the Merger
Agreement, shall be deemed references to Holding, and in accordance with
Section 1.9(g) of the Merger Agreement, all references to Parent Common
Stock shall be deemed references to Holding Common Stock.
(b) Unless the context otherwise requires, references to the Restated
Certificate of Incorporation of Parent shall be deemed references to the
Restated Certificate of Incorporation of Holding as in effect immediately
prior to the Effective Time.
(c) Holding shall perform all of the obligations of Parent under the
Merger Agreement which have not theretofore been performed.
(d) The capital stock of Merger Sub will be transferred by Parent to
Holding so that, notwithstanding any other provision of the Merger
Agreement, Merger Sub will be a wholly owned Subsidiary of Holding.
(e) Holding hereby represents and warrants to the Company as follows:
(i) Holding is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(ii) As of the date hereof, the authorized capital stock of Holding
consists of 1,000 shares of common stock, par value $1.00 per share, all
of which are validly issued and outstanding, fully paid and
nonassessable and are directly owned by Parent free and clear of all
liens, claims and encumbrances. Upon the consummation of the Merger, the
authorized capital stock of Holding will consist of 275,000,000 shares
of common stock, par value $3.00 per share, and 25,000,000 shares of
preferred stock, par value $.01 per share.
(iii) Holding has the corporate power to enter into this Agreement
and to carry out its obligations hereunder. The execution and delivery
of this Agreement and the consummation of the
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transactions contemplated hereby have been duly authorized by the Board
of Directors and sole stockholder of Holding. This Agreement constitutes
a valid and binding obligation of Holding enforceable against Holding in
accordance with its terms except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement
of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding therefor may be
brought. No other corporate proceedings on the part of Holding are
necessary to authorize this Agreement and the transactions contemplated
hereby. Except as required by the HSR Act, the Securities Act, the
Exchange Act and the corporation, securities or blue sky laws or
regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any Governmental Entity is
necessary for the consummation by Holding of the Merger or the
transactions contemplated by this Agreement, other than filings,
registrations, authorizations, consents or approvals the failure to make
or obtain which would not prevent the consummation of the transactions
contemplated this Agreement.
(f) References to Parent and Merger Sub, collectively, in Sections
6.2(a), 6.2(b) and 7.1(b) of the Merger Agreement shall be deemed to refer
to Parent, Merger Sub and Holding.
3. Except as expressly set forth herein, the Merger Agreement shall
continue in full force and effect in accordance with its terms.
4. This Amendment shall not be effective unless and until the Merger
Agreement, as amended by this Amendment (as amended, the "Amended Merger
Agreement"), has been duly approved by the holders of a majority of the
outstanding shares of Company Common Stock entitled to vote or act by consent
thereon; it being understood that the Merger Agreement has previously been duly
approved by written consents of the holders of the Company Common Stock and that
the foregoing written consents shall remain in full force and effect
notwithstanding any failure by the holders of Company Common Stock to approve
the Amended Merger Agreement.
5. This Amendment may be executed by one or more of the parties hereto on
any number of separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
6. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
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IN WITNESS WHEREOF, the parties have executed this Amendment as the date
first written above.
EL PASO NATURAL GAS COMPANY
By:
----------------------------------
Name:
Title:
EL PASO ENERGY CORPORATION
By:
----------------------------------
Name:
Title:
EL PASO ACQUISITION COMPANY
By:
----------------------------------
Name:
Title:
DEEPTECH INTERNATIONAL INC.
By:
----------------------------------
Name:
Title:
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APPENDIX B
CONTRIBUTION AND DISTRIBUTION AGREEMENT
This CONTRIBUTION AND DISTRIBUTION AGREEMENT (the "Agreement") is made as
of the 27th day of February, 1998 among DeepTech International Inc., a Delaware
corporation (the "Company"), Tatham Offshore, Inc., a Delaware corporation
("Offshore"), DeepFlex Production Services, Inc., a Delaware corporation
("DeepFlex"), and El Paso Natural Gas Company, a Delaware corporation
("Parent").
BACKGROUND
A. The Company and its affiliates are the holders of the shares of common
stock and preferred stock of Offshore set forth on Schedule 1.
B. DeepFlex desires to satisfy a portion of certain indebtedness owed by
DeepFlex to the Company by causing Offshore to transfer the shares of capital
stock of Offshore held by DeepFlex to the Company.
C. The Company desires to sell, and Offshore desires to purchase, a portion
of certain indebtedness owed by DeepFlex to the Company, in exchange for which
Offshore will transfer all of the stock of Tatham Offshore Development, Inc.
("TODI"), to the Company and Offshore will cancel certain reversionary
interests.
D. The Company desires to capitalize the remaining portion of the
indebtedness owed by DeepFlex to the Company.
E. The Company desires to contribute to Offshore, and Offshore desires to
accept the contribution of, the stock of DeepFlex.
F. The Company desires to distribute on a pro rata basis to the holders of
the Company's common stock, par value $0.01 per share ("Company Common Stock"),
rights (the "Rights") to purchase the Offshore Shares (as hereinafter defined)
on the terms and subject to the conditions set forth herein (including the sale
of the underlying Offshore Shares, the "Rights Offering") and Offshore is
willing to cooperate with the Company in connection therewith.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the meanings
set forth below:
"Action" shall mean any action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
"Commission" shall mean the Securities and Exchange Commission.
"Company Indenture" shall mean the Indenture dated as of March 21, 1994
between the Company and the Bank of New York, successor in interest to the First
Interstate Bank of Texas, N.A. and the related loan and security documents.
"Completion Date" shall mean the earlier of (i) the date on which all of
the Offshore Shares shall have been subscribed and paid for pursuant to the
Rights Offering, including any subscriptions and payments for Offshore Shares by
Tatham Brothers, Thomas P. Tatham and/or Offshore, and such subscriptions shall
have been accepted by the Company and (ii) the Final Expiration Date.
"DeepFlex Note" shall mean (i) the Second Amended and Restated Senior
Promissory Note dated March 1, 1995, issued by DeepFlex to the Company and (ii)
any other indebtedness owed by DeepFlex or any of its Subsidiaries to the
Company or any Company Subsidiary.
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"DeepFlex Shares" shall mean the shares of capital stock of DeepFlex owned,
directly or indirectly, by the Company.
"Distribution" shall mean the distribution pursuant to the Rights Offering
of the Rights to holders of record on the Record Date of Company Common Stock.
"Distribution Date" shall mean the date of effecting the Distribution.
"Effective Time" shall have the meaning ascribed to it in the Merger
Agreement.
"Estimated Tax Amount" shall mean the tax estimated to be due by DeepFlex
or Offshore as set forth on the Price Tax Schedule (as defined in the Tax
Sharing Agreement).
"Excess Proceeds" means the net proceeds of the Rights Offering in excess
of $75 million.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"FPS" shall mean the FPS III, Inc., a Delaware corporation and/or FPS V,
Inc., a Delaware corporation.
"Final Expiration Date" shall mean the date on which the right of Tatham
Brothers, Thomas P. Tatham and Offshore to exercise any Rights pursuant to the
Rights Offering shall terminate, which date shall be the close of business on
the later of (x) two days after the General Expiration Date and (y) five days
after the date of the Effective Time.
"General Expiration Date" shall mean the date fixed by the Board of
Directors of Offshore on which the right of all holders of Rights (other than
Tatham Brothers, Thomas P. Tatham and Offshore) to exercise Rights pursuant to
the Rights Offering shall terminate, which date shall be not more than 50 days
following the Distribution Date.
"Initial Proceeds" shall have the meaning ascribed to it in Section 4.3
hereof.
"Initial Subscription Period" shall mean the period fixed by the Board of
Directors of Offshore for holders of Rights to purchase the Offshore Shares
subject to such Rights (exclusive of any period (an "Additional Period") fixed
by the Board of Directors of Offshore for the purchase of any unsubscribed
Shares), which period shall expire no later than the General Expiration Date.
"Leviathan" shall mean Leviathan Gas Pipeline Partners, L.P.
"Merger Agreement" shall mean the Agreement and Plan of Merger, among
Parent, El Paso Acquisition Company and the Company, dated as of February 27,
1998.
"Offshore Common Stock" shall mean the common stock, par value $0.01 per
share, of Offshore listed on Schedule 1 attached hereto.
"Offshore Preferred Stock" shall mean the Series A 12% Convertible
Exchangeable Preferred Stock, par value $0.01 per share, Series B 8% Convertible
Exchangeable Preferred Stock, par value $0.01 per share, Series C 4% Convertible
Exchangeable Preferred Stock, par value $0.01 per share, 9% Senior Convertible
Preferred Stock, par value $0.01 per share, and Mandatory Redeemable Preferred
Stock, par value $0.01 per share, of Offshore listed on Schedule 1 attached
hereto.
"Offshore Shares" shall mean (i) the shares of Offshore Common Stock and
Offshore Preferred Stock or (ii) units comprised of such shares.
"Prospectus" shall mean the prospectus(es) to be distributed to the holders
of Company Common Stock in connection with the Rights Offering.
"Record Date" shall mean the record date for the Distribution fixed by the
Company's Board of Directors or any committee thereof.
"Redemption Agreement" shall mean the Redemption Agreement dated the date
hereof between Leviathan and Offshore.
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"Registration Statement" shall mean the registration statement(s)
registering the offering and sale of the Rights and the Offshore Shares pursuant
to the Rights Offering.
"RIGCO" shall mean RIGCO North America, L.L.C., a Delaware limited
liability company.
"Rig Distribution" shall have the meaning ascribed to it in Section 3.2
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Preferred Stock" shall mean the 9% Senior Convertible Preferred
Stock, par value $0.01 per share, of Offshore.
"Subordinated Note" shall mean the Company's Senior Subordinated Note dated
January 23, 1997 payable to Hare & Co.
"Tatham Brothers" shall mean Tatham Brothers, L.L.C., a Delaware limited
liability company.
"Tax" shall have the meaning ascribed to it in the Tax Sharing Agreement.
"Tax Sharing Agreement" shall have the meaning ascribed to it in the Merger
Agreement.
Other capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Merger Agreement.
2. PRELIMINARY ACTION.
2.1 Registration Statement and Prospectus. The Company and Offshore shall
prepare and file the Registration Statement (which shall include the Prospectus)
with the Commission as promptly as practical, and in no event later than March
31, 1998. Subject to the conditions set forth herein, the Company and Offshore
shall use all commercially reasonable efforts to cause the Registration
Statement to become effective under the Securities Act. The Company and Offshore
shall cause the Prospectus to be mailed to the holders of record on the Record
Date of Company Common Stock.
2.2 Federal Securities Laws. The Company and Offshore shall take all such
other action as may be necessary or appropriate under the securities laws of the
United States in connection with the Rights Offering to permit the Rights and
the Offshore Shares to be offered and sold as provided herein.
2.3 Blue Sky. The Company and Offshore shall take all such action as may
be necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the Rights
Offering to permit the offering and sale of the Rights and the Offshore Shares
as provided herein.
2.4 Listing. Offshore may prepare and file an application to effect the
listing of the Offshore Shares on the Nasdaq National Market.
2.5 Representations and Warranties Regarding TODI. Offshore represents and
warrants to Parent and the Company as of the date of this Agreement and as of
the date of the Contribution as follows:
(a) TODI is a corporation validly existing and in good standing under
the laws of Delaware. The authorized capital stock of TODI consists of
1,000 shares of common stock, par value $.01, of which 1 share is validly
issued and outstanding, which is owned by Offshore. There are no options,
warrants, calls, convertible securities or other rights, agreements or
commitments obligating TODI to issue, deliver or sell shares of its capital
stock or obligating TODI to grant, extend or enter into any such option,
warrant, call or other such right, agreement or commitment.
(b) Except as listed on Schedule 2, TODI is not a party to any
contracts or agreements and has no liabilities or obligations, whether
absolute or contingent, accrued or unaccrued, matured or unmatured.
2.6 No Other Representations or Warranties; Consents. Each party hereto
understands and agrees that, except as expressly provided in Section 2.5, no
party hereto is, in this Agreement or in any other agreement or document
contemplated by this Agreement or otherwise, representing or warranting in any
way (i) that the
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obtaining of any consents or approvals, the execution and delivery of any
agreements or the making of any filings or applications contemplated by this
Agreement will satisfy the provisions of any or all applicable laws or (ii)
matters relating to the business, operations, assets, debts or liabilities of
DeepFlex, Offshore or their respective Subsidiaries. Notwithstanding the
foregoing, the parties shall use all commercially reasonable efforts to obtain
all consents and approvals, to enter into all agreements and to make all filings
and applications which may be required for the consummation of the transactions
contemplated by this Agreement, including, without limitation, all applicable
regulatory filings or consents under federal or state laws and all necessary
consents, approvals, agreements, filings and applications.
3. THE CONTRIBUTION.
3.1 The Contribution. Subject to the satisfaction of the conditions set
forth in Article 7 hereof, at least seven days prior to the Distribution Date:
(a) (i) the Company shall sell to Offshore, and Offshore shall
purchase from the Company $8 million of the DeepFlex Note in exchange for
(x) the delivery by Offshore to the Company of a stock certificate
evidencing the outstanding share of capital stock of TODI, duly endorsed
for transfer, free and clear of all liens, charges and encumbrances, and
(y) the irrevocable termination and cancellation by Offshore of all its
rights to receive an assignment of certain interests in oil and gas
properties under the Agreement for Purchase and Sale by and between
Offshore and Flextrend Development Company, L.L.C. dated June 30, 1995 and
(ii) in satisfaction of $12 million of the amount due and owing with
respect to the DeepFlex Note, DeepFlex shall deliver to the Company stock
certificates evidencing all of the shares of Offshore Common Stock and
Offshore Preferred Stock owned by DeepFlex, duly endorsed for transfer,
free and clear of all liens, charges and encumbrances;
(b) in full satisfaction of the remaining balance of the DeepFlex Note
held by the Company, the Company shall contribute to the capital of
DeepFlex the balance of the amount due and owing with respect to the
DeepFlex Note after the repayment and transfer in paragraph (a) (or, in the
case of indebtedness due and owing from a DeepFlex Subsidiary, transfer
such indebtedness to DeepFlex); and
(c) the Company shall contribute to the capital of Offshore the
DeepFlex Shares, by delivery to Offshore of stock certificates evidencing
the DeepFlex Shares, duly endorsed for transfer, free and clear of all
liens, charges and encumbrances (the contributions described in clauses (a)
through (c) are referred to herein collectively as the "Contribution").
3.2 Optional Rig Distribution. Prior to the Contribution, at Offshore's
option, the Company shall cause RIGCO to distribute to FPS either (but not both
of) the FPS Laffit Pincay or the FPS Bill Shoemaker (the "Rig Distribution");
provided, however, that such Rig Distribution shall occur only if the gain
realized (as calculated for federal income tax purposes) by RIGCO on the
distribution is no more than $48 million.
4. THE RIGHTS OFFERING.
4.1 The Rights Offering. The Company shall take all steps required to
effect the Rights Offering and Offshore shall cooperate with the Company in
connection therewith, including, without limitation, the transactions
contemplated by Section 2.
4.2 Terms of the Rights Offering.
(a) Pursuant to the Rights Offering, the Company will distribute to
the holders of record on the Record Date of the Company Common Stock, pro
rata, Rights to purchase all of the Offshore Shares. The Rights will be
transferable by the holders thereof and will be listed or admitted to
trading on NASDAQ.
(b) The subscription price payable for the Offshore Shares by holders
of Rights shall be $3.25 per Offshore Share.
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(c) Subject to paragraph (e) below, each Right will expire on the
General Expiration Date, unless theretofore exercised by the holder thereof
by completion of the subscription form mailed to holders of Rights,
accompanied by payment of the aggregate subscription price for the Offshore
Shares covered thereby.
(d) At Offshore's election, the subscription form will include an
over-subscription option which will permit each holder who exercises in
full the Rights distributed to such holder to elect to subscribe, pro rata
with all holders of Rights who exercise their over-subscription option
(each, a "Subscribing Holder"), for any Offshore Shares covered by
unexercised Rights ("Unsubscribed Shares"). As promptly as practicable
following the Initial Subscription Period, the Company shall notify each
Subscribing Holder of the number of Unsubscribed Shares to be distributed
to such holder and the aggregate subscription price therefor, and each
Subscribing Holder shall have until the General Expiration Date to deliver
to the Company payment of the subscription price for the Unsubscribed
Shares to be delivered to such holder.
(e) Immediately following the General Expiration Date, any Rights to
acquire Unsubscribed Shares which have not been subscribed for as provided
in paragraph (d) ("Remaining Shares") will be transferred to Tatham
Brothers and Tatham Brothers shall be obligated to exercise such number of
Rights, if any, as is required by the Standby Agreement dated the date
hereof among Parent, the Company, Offshore, Tatham Brothers and Thomas P.
Tatham (the "Standby Agreement").
(f) Thomas P. Tatham has guaranteed the obligations of Tatham Brothers
under the Standby Agreement and is obligated pursuant to such guarantee to
perform prior to the Final Expiration Date the obligations of Tatham
Brothers described in clause (e) of this Section 4.2, to the extent Tatham
Brothers has not theretofore performed such obligations in accordance with
the Standby Agreement.
(g) Offshore shall purchase on the Final Expiration Date all Remaining
Shares not purchased by Tatham Brothers at the subscription price of $3.25
per Offshore Share.
(h) All Rights of Tatham Brothers, Thomas P. Tatham and Offshore to
exercise any Rights covering Remaining Shares shall expire on the Final
Expiration Date.
(i) All net proceeds received by the Company from any holder of
Rights, including, without limitation, Tatham Brothers, Thomas P. Tatham
and/or Offshore upon the exercise of Rights, constitute net proceeds of the
Rights Offering and shall be distributed as provided in Section 4.3.
(j) The completion of the Rights Offering is subject to the
satisfaction of the conditions set forth in Article 7 hereof and the prior
consummation of the Contribution.
(k) Other terms of the Rights Offering shall be determined by mutual
agreement between the Company, Parent and Offshore.
4.3 Proceeds of Rights Offering. The first $75 million of net proceeds
(the "Initial Proceeds") of the Rights Offering shall be retained by the
Company. Subject to Section 3.03 of the Tax Sharing Agreement, the Company shall
contribute the Excess Proceeds to the capital of Offshore. If the Completion
Date occurs prior to the date of the Effective Time, the Initial Proceeds,
together with the Estimated Tax Amount, shall be deposited by the Company in
escrow in accordance with an escrow agreement in the form of Schedule 3 hereto.
4.4 Expenses of Contribution and Rights Offering. Subject to Sections 5.2
and 5.3, the first $1 million of expenses related in any way to the Contribution
and the Rights Offering, including, without limitation, all legal, financial
advisory, accounting and printing fees of the Company and Offshore ("Expenses"),
shall be borne by the Company and any Expenses in excess of $1 million shall be
borne by Offshore. Neither the Company nor Offshore has retained (or will
retain) a financial advisor in connection with the Contribution and the Rights
Offering.
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5. ADDITIONAL ASSURANCES; INDEMNIFICATION.
5.1 Mutual Assurances. Parent, the Company and Offshore agree to cooperate
with respect to the Contribution and the Rights Offering and to execute such
further documents and instruments as may be necessary to effect the transactions
contemplated thereby.
5.2 Indemnification.
(a) From and after the Effective Time, Offshore shall indemnify,
defend and hold Parent and its Subsidiaries (including the Company and the
Company Subsidiaries) and the officers, directors and employees of each
such entity (other than members of the Offshore Indemnified Group (defined
herein), the "Parent Indemnified Group") harmless from and against all
losses, expenses, claims, damages and liabilities (other than Taxes, which
are governed by the Tax Sharing Agreement) to which the Parent Indemnified
Group may be or become subject that relate to (i) the assets, business,
operations, debts or liabilities of the Offshore Group, whether arising
prior to, concurrent with or after the Contribution or the Rights Offering,
(ii) the failure to obtain all necessary third party consents to the
Contribution or the Rights Offering (other than the failure to obtain all
necessary consents under the Company Indenture and the Subordinated Note in
connection with the Contribution and the Rights Offering, or the failure to
obtain any other necessary third party consents as to which Offshore or the
Company notify Parent to the extent the failure to obtain the consent is a
result of Parent's election to unreasonably withhold or delay its consent
under Section 4.1 of the Merger Agreement (the "5.2(a)(ii) Consents")), or
(iii) any filing by any member of the Offshore Group under the Securities
Act or the Exchange Act (including, without limitation, the Registration
Statement) or any information relating to the Offshore Group contained in
any filing made by any member of the Company Group in each case whether
made prior to or concurrent with the Effective Time.
(b) From and after the Effective Time, Parent shall indemnify, defend
and hold the Offshore Group and the officers, directors and employees
thereof (other than members of the Company Indemnified Group, the "Offshore
Indemnified Group") harmless from and against all losses, expenses, claims,
damages and liabilities (other than Taxes, which are governed by the Tax
Sharing Agreement) to which the Offshore Indemnified Group may be or become
subject that relate to (i) the assets, business, operations, debts or
liabilities of the Company Group, whether arising prior to, concurrent
with, or after the Contribution or the Rights Offering, (ii) the failure to
obtain the 5.2(a)(ii) Consents, or (iii) any filing by any member of the
Company Group (other than to the extent a filing by a member of the Company
Group contained or contains information relating to the Offshore Group)
under the Securities Act or the Exchange Act, whether made prior to or
concurrent with the Effective Time.
6. COVENANTS.
6.1 Employment Matters. As of the Effective Time, the employees of the
Company and each Company Subsidiary listed in Schedule 4 hereto (the "Spin Off
Employees") shall be offered full-time employment by Offshore or one of its
Subsidiaries; provided, however, that except as may be specifically required by
applicable law or any contract, neither Offshore and its Subsidiaries, on the
one hand, nor any employee, on the other hand, shall be obligated to continue
any employment relationship or any specific terms of employment for any specific
period of time. Effective as of the Effective Time, Offshore shall, and hereby
does, assume all obligations arising under any employment agreement or
arrangement (written or oral) between the Company or any of its Subsidiaries and
the Spin Off Employees (including, without limitation, any obligation of the
Company under lease agreements relating to automobiles provided by the Company
to any Spin Off Employee prior to the Effective Time), and, effective as of the
Effective Time, the Company and its Subsidiaries shall be, and hereby are,
indemnified by Offshore from all obligations arising under such employment
agreements or arrangements.
6.2 Offshore Defined Contribution Plan. Effective as of the Effective
Time, Offshore shall establish a defined contribution plan for the benefit of
the Spin Off Employees and any other full-time Offshore employees (the "Offshore
DC Plan"). As promptly as practicable after the Effective Time, the Company
shall cause the trustee of the DeepTech International Inc. Section 401(k) Plan
(the "DeepTech DC Plan")
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to transfer to the trustee of the Offshore DC Plan the account balances of each
Spin Off Employee with respect to whom the DeepTech DC Plan maintains an account
as of the close of business on the date of the Effective Time. Such transfers
shall be equal to the value of the transferred account balances as of the close
of business on the day preceding the date of transfer and shall be in cash,
except that the Offshore DC Plan shall accept the following: (a) Company Common
Stock (which, as of the Effective Time, will represent solely the right to
receive the Merger Consideration) for the Company Common Stock fund portion of
such account balances (together with the Offshore Shares distributed in
connection with the Distribution); and (b) amounts credited to the DeepTech DC
Plan which are held in mutual funds which are also investment media in the
Offshore DC Plan. Offshore shall cause the Offshore DC Plan (x) to permit the
Spin Off Employees to sell from the Company Common Stock fund portion of the
Offshore DC Plan any shares of the Parent Common Stock received in the Merger
and (y) not to permit the future investment in the shares of Company Common
Stock or the common stock of any other entity that does not sponsor the Offshore
DC Plan (except for investments through mutual funds or other collective
investment vehicles with respect to which participants have no control over the
individual investments thereof).
6.3 Severance and Consulting Arrangements.
(a) In the case of any person listed on Schedule 5 hereto, such person
shall be entitled to severance as provided below, if such person is not
offered employment by the Surviving Corporation, Parent or any of their
Subsidiaries in Houston at such person's current base salary as of the
Effective Time or is terminated by the Surviving Corporation, Parent or any
of their Subsidiaries prior to January 1, 1999. In the case of any person
listed on Schedule 6 hereto, such person shall be entitled to severance as
provided below, if (i) such person is not employed by Offshore or any of
its Subsidiaries in Houston as of the Effective Time, unless such person is
offered employment by the Surviving Corporation, Parent or any of their
Subsidiaries in Houston at such person's current base salary as of the
Effective Time or (ii) such person is employed by the Surviving
Corporation, Parent or any of their Subsidiaries at such person's current
base salary as of the Effective Time and is terminated by the Surviving
Corporation, Parent or any of their Subsidiaries prior to January 1, 1999.
Any person entitled to severance as provided in this paragraph shall
receive a lump sum cash payment equal to six months' base salary based upon
such person's current monthly base salary paid to such employee as of the
date of termination. Until January 1, 1999, none of Offshore and its
Subsidiaries listed shall employ or enter into any consulting arrangement
with any employee listed on Schedule 5.
(b) Certain individuals listed on Schedule 7 hereto may enter into
agreements to provide certain consulting services to the Company and
Offshore for a period of six months after the Effective Time. The Company
and Offshore shall each pay one half of the costs of such consulting
agreements.
6.4 Offshore Group/Company Group Arrangements. All arrangements and
agreements between any member of the Offshore Group and the Company Group are
set forth in the Company Disclosure Schedule. Except as contemplated by this
Agreement, the Merger Agreement (including the Company Disclosure Schedule) and
the related Agreements, it is the intention of the parties hereto that between
the date of this Agreement and the Effective Time the Company Group and the
Offshore Group shall be operated as independent corporate groups and there shall
be no new investment, contribution, financing or credit support or payments of
Taxes (as defined in the Tax Sharing Agreement) provided by any member of either
group to any member of the other group, and any additional funds required by any
member of either group from the date of this Agreement to the Effective Time
shall be obtained from such group's internally generated funds or from third
parties. Except as contemplated by this Agreement, the Merger Agreement
(including the Company Disclosure Schedule) and the related Agreements, in
furtherance of the foregoing, between the date of this Agreement and the
Effective Time, no member of the Company Group shall invest, loan, pay or
otherwise advance or contribute any funds or property (other than the accrual of
(i) amounts payable under that certain First Amended and Restated Management
Agreement dated November 10, 1993 between Offshore and the Company (the
"Management Agreement"), as amended, and (ii) interest on indebtedness
outstanding on the date of this Agreement under the DeepFlex Note) to any member
of the Offshore Group or pay any Taxes relating to the assets, business or
operations of any member of the Offshore Group or forgive
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or capitalize any amounts owed by any member of the Offshore Group to any member
of the Company Group (other than, if the transactions contemplated by the
Redemption Agreement are consummated, the reduction by 50% of the management
fees payable by Offshore to the Company pursuant to the Management Agreement,
effective retroactively to January 1, 1998). Except as contemplated by this
Agreement, the Merger Agreement (including the Company Disclosure Schedule) and
the Related Agreements, immediately prior to the Effective Time, the members of
the Offshore Group (i) shall pay in cash all amounts owed by them to any member
of the Company Group (except that amounts outstanding under the Management
Agreement which relate to DeepFlex and its Subsidiaries will be contributed to
Offshore or forgiven and the DeepFlex Note will be treated as provided in
Article 3 hereof) and (ii) shall reimburse the Company for any payments of Taxes
made by the Company or any Company Subsidiary after January 1, 1998 and prior to
the Effective Time which relate to the assets, business or operations of any
member of the Offshore Group. Any amounts owing by the Company Group to the
Offshore Group (all of which are set forth in the Company Disclosure Schedule)
will be offset against amounts otherwise owed to the Company under the DeepFlex
Note. Other than the Tax Sharing Agreement, this Agreement and the agreements
marked with an asterisk as continuing agreements in the Company Disclosure
Schedule, all intercompany agreements and arrangements between any member of the
Offshore Group and any member of the Company Group shall terminate as of the
Effective Time. The Company and Offshore shall take or shall cause to be taken
all actions necessary to effectuate the termination of such agreements.
6.5 Restrictions on Amendments. The Company and Offshore shall not amend,
modify, waive or extend any time period under any provisions of this Agreement,
the Redemption Agreement, or the Tax Sharing Agreement prior to the Effective
Time without the consent of Parent.
6.6 Sublease. As of the Effective Time, subject to the approval by the
lessor of (i) the assignment of the existing lease to Parent, as successor to
the Company, and (ii) the sublease contemplated hereby, the Company shall
sublease to Offshore, and Offshore shall sublease from the Company, the space
currently occupied by the Company on the 74th and 75th floor of 600 Travis
Street, Houston, Texas, pursuant to the Sublease Agreement attached as Schedule
8 hereto, which shall be executed and delivered at the Effective Time.
6.7 North Atlantic Partners. Leviathan has entered into an agreement,
attached as Schedule 9 hereto, with North Atlantic Pipeline Partners, L.P., an
indirect wholly owned subsidiary of Offshore, and other parties, dated February
5, 1998, relating to the participation by Leviathan in a proposed pipeline
project in Canadian Atlantic waters (the "NAP Agreement"). The Company and
Offshore agree that no payments shall be made by or on behalf of Leviathan
pursuant to the NAP Agreement and Leviathan will not incur any liability or
obligation under the NAP Agreement prior to the first anniversary of the
Effective Time, and the NAP Agreement may be terminated by Leviathan at any time
prior to the first anniversary of the Effective Time without cost, liability,
expense or continuing obligation on the part of Leviathan or any of its
affiliates. No press release or other public disclosure that mentions Parent or
its Subsidiaries shall be made with respect to the NAP Agreement or the
transactions contemplated thereby, except by Offshore with the prior consent of
Parent, which will not be unreasonably withheld or delayed.
6.8 Exchange of Senior Preferred Stock. As promptly as practical, and in
any event no later than Monday, March 2, 1998, Offshore shall take, and the
Company shall cause Leviathan to take, all such actions as shall be necessary to
exchange the outstanding shares of the Senior Preferred Stock for a
substantially identical series of preferred stock of Offshore, except that such
new series of preferred stock shall not be redeemable and shall be immediately
convertible into Offshore Common Stock. References in this Agreement to the
Senior Preferred Stock shall include the shares of preferred stock of Offshore
for which the Senior Preferred Stock shall be exchanged.
6.9 Cross-Guarantees. Each of the Company, Offshore, Leviathan and
DeepFlex shall be responsible for its respective premium obligations under the
premium finance agreements between such parties and AFCO Credit Corporation.
Prior to the Effective Time, each of the Company, Offshore, Leviathan and
DeepFlex shall pay any unpaid portion of its premium obligations under such
agreements, whether or not such obligations are then due and payable.
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7. CONDITIONS TO THE CONTRIBUTION AND THE COMPLETION OF THE RIGHTS OFFERING.
The Contribution and the completion of the Rights Offering shall be subject
to the satisfaction or waiver of the following conditions (provided that the
condition in Section 7.3 shall apply solely to the Rights Offering):
7.1 Securities Law Compliance. The transactions contemplated hereby shall
be in compliance with applicable federal and state securities laws and
applicable Nasdaq regulations, and the Registration Statement shall have been
declared effective and no stop orders shall have been instituted with respect
thereto under the Securities Act.
7.2 Legal Proceedings. No preliminary or permanent injunction or other
order by any federal or state court in the United States of competent
jurisdiction which prevents the consummation of the Contribution or the Rights
Offering shall have been issued and remain in effect (each party agreeing to use
all commercially reasonable efforts to have any such injunction lifted).
7.3 Proceeds of Rights Offering. The net proceeds actually received and
retained by the Company pursuant to the Rights Offering shall be not less than
the Initial Proceeds and the Estimated Tax Amount shall have been paid by
Offshore or retained by the Company out of the Excess Proceeds, and such amounts
shall have been deposited in escrow in accordance with Section 4.3, if required.
8. MISCELLANEOUS.
8.1 Waiver and Amendment. Any agreement on the part of a party hereto to
any waiver shall be valid only if set forth in an instrument in writing duly
executed by such party. The failure of any party to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
This Agreement may not be amended except by an instrument in writing duly
executed by each of the parties hereto.
8.2 Assignment. No party may assign its rights and obligations hereunder
without the prior written consent of the other; provided, however, that, so long
as such party remains primarily obligated and responsible with respect thereto,
any party may assign its rights hereunder to any of its affiliates (which
remains an affiliate) or to any person or entity with which the assigning party
is merged or consolidated if such person is the surviving entity or which
acquires all or substantially all of the assets of such party.
8.3 No Third-Party Beneficiaries. This Agreement is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
8.4 Counterparts. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement, and shall be effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
8.5 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to its rules
of conflicts of laws thereof.
8.6 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.7 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally, one day after being
delivered to a nationally recognized overnight courier or
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when telecopied (with a confirmatory copy sent by such overnight courier) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or the Company, to
El Paso Natural Gas Company
1001 Louisiana
Houston, Texas 77002
Attention: William A. Wise
Facsimile No.: (713) 757-6030
and
Attention: Britton White, Jr.
Facsimile No.: (713) 757-1872
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Gary P. Cooperstein
Facsimile No.: (212) 859-4000
(b) if to Offshore or DeepFlex, to
Tatham Offshore, Inc.
7500 Chase Tower
600 Travis Street
Houston, Texas 77002
Attention: Chief Executive Officer
Facsimile No.: (713) 224-7574
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Pennzoil Place -- South Tower
Houston, Texas 77002
Attention: Rick L. Burdick
Facsimile No.: (713) 236-0822
8.8 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 terms, conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
8.9 Termination. Parent's obligations under this Agreement shall terminate
upon termination of the Merger Agreement if the Merger has not been consummated
prior thereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
DEEPTECH INTERNATIONAL INC.
By:
----------------------------------
Name:
Title:
TATHAM OFFSHORE, INC.
By:
----------------------------------
Name:
Title:
DEEPFLEX PRODUCTION SERVICES, INC.
By:
----------------------------------
Name:
Title:
EL PASO NATURAL GAS COMPANY
By:
----------------------------------
Name:
Title:
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APPENDIX C
FAIRNESS OPINION OF CHASE SECURITIES INC.
February 6, 1998
Independent Committee of the
Board of Directors
Deeptech International Inc.
600 Travis Street
Suite 750
Houston, Texas 77002
Board of Directors
Deeptech International Inc.
600 Travis Street
Suite 750
Houston, Texas 77002
Members of the Independent Committee and the Board of Directors:
You have informed us that Deeptech International Inc. ("Deeptech") and El
Paso Natural Gas Company ("El Paso") propose to enter into an Agreement and Plan
of Merger (the "Merger Agreement"), which provides for, among other things, the
merger (the "Merger") of Deeptech with and into El Paso pursuant to which each
outstanding share of common stock, par value $.01 per share (the "Deeptech
Common Stock"), of Deeptech not owned by El Paso or Deeptech or their respective
subsidiaries shall be converted into either (i) a fraction of a share of common
stock, par value $3.00 per share (the "El Paso Common Stock"), of El Paso
calculated by multiplying $14.00 by the "Multiplier" and dividing the result by
the "Average Price" of El Paso Common Stock (as each such term is defined in the
Merger Agreement), or (ii) $14.00 in cash (collectively, the "Merger
Consideration"), in each case as the holder thereof shall have elected or be
deemed to have elected in accordance with the Merger Agreement. You have further
informed us that, prior to the closing of the Merger, Deeptech shall distribute
pro rata to the holders of Deeptech Common Stock rights (the "Rights"),
exercisable for $3.25 per Right, to purchase all of the common and preferred
stock (and/or units representing the same) in Tatham Offshore, Inc. ("Offshore")
owned or to be acquired by Deeptech in accordance with the Contribution and
Distribution Agreement (as defined in the Merger Agreement). As used in this
opinion, the term "Consideration" collectively refers to the Merger
Consideration and the Rights to be received by the holders of Deeptech Common
Stock in connection with the Merger.
You have requested that we render our opinion as to the fairness, from a
financial point of view, of the Consideration to be received by the holders of
Deeptech Common Stock in connection with the Merger.
In arriving at the opinion set forth below, we have, among other things:
(a) reviewed a draft of the Merger Agreement and the Contribution and
Distribution Agreement in the forms provided to us and have assumed that
the final forms of the Merger Agreement and the Contribution and
Distribution Agreement will not vary in any regard that is material to
our analysis;
(b) reviewed certain publicly available business and financial information
that we deemed relevant relating to Deeptech, El Paso, Offshore and
Leviathan Gas Pipeline Partners L.P. ("Leviathan"), an affiliate of
Deeptech, as well as the respective industries in which they operate;
(c) discussed, with members of management of Deeptech, Leviathan and El
Paso, Deeptech's, Leviathan's and El Paso's respective operations,
historical financial statements and future prospects, as well as such
other matters as we deemed necessary or appropriate;
(d) reviewed certain internal non-public financial and operating data
provided to us by or on behalf of
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the management of Deeptech, Leviathan and El Paso relating to their
respective businesses, including certain forecast and projection
information as to future financial results of such businesses;
(e) compared the financial and operating performance of Deeptech,
Leviathan and El Paso with publicly available information concerning
certain other companies we deemed comparable and reviewed the relevant
stock market information for such other companies;
(f) reviewed the financial terms of certain recent business combinations
and acquisition transactions we deemed reasonably comparable to the
Merger and otherwise relevant to our inquiry; and
(g) made such other analyses and examinations as we have deemed necessary
or appropriate.
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for us, or publicly
available, for purposes of this opinion, and have further relied upon the
assurances of management of Deeptech, Leviathan and El Paso that they are not
aware of any facts that would make such information inaccurate or misleading. We
have neither made nor obtained any independent evaluations or appraisals of the
assets or liabilities of Deeptech, Leviathan or El Paso, nor have we conducted a
physical inspection of the properties and facilities of Deeptech, Leviathan or
El Paso. We were not requested to, and did not, generally solicit offers from
third parties to acquire all or part of the Company. We have assumed that the
financial forecast and projection information provided to us by or on behalf of
Deeptech, Leviathan and El Paso have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Deeptech, Leviathan and El Paso, respectively, as to the future
financial performance of such companies.
For purposes of rendering our opinion we have assumed that the
representations and warranties of each party contained in the Merger Agreement
are true and correct in all material respects, that each party will perform in
all material respects all of the covenants and agreements required to be
performed by it under the Merger Agreement and that all conditions to the
consummation of the Merger will be satisfied without waiver thereof. We have
also assumed that any material governmental, regulatory or other consents and
approvals will be obtained and that, in the course of obtaining any necessary
governmental, regulatory or other consents and approvals, no restrictions will
be imposed that would have any material adverse effect on the contemplated
benefits to the holders of Deeptech Common Stock of the Merger.
Our opinion herein is necessarily based on market, economic and other
conditions as they exist and can be evaluated on the date of this letter. Our
opinion is limited to the fairness, from a financial point of view, of the
Consideration to be received by the holders of Deeptech Common Stock in
connection with the Merger, and we express no opinion as to the merits of the
underlying decision by Deeptech to engage in the Merger or consummate any of the
transactions contemplated thereby. This opinion does not constitute a
recommendation to any holder of Deeptech Common Stock as to how such holder
should vote with respect to the Merger or as to whether such holder should elect
cash or El Paso Common Stock as the Merger Consideration. We further express no
opinion as to the price at which the shares of El Paso Common Stock or the
Offshore capital stock will actually trade following consummation of the Merger,
nor do we express an opinion as to whether a holder of a Right should exercise
such Right.
Chase Securities, Inc. ("CSI"), as part of its financial advisory business,
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as financial advisor to the Independent
Committee of the Board of Directors (the "Committee") of Deeptech in connection
with the Merger and will receive a fee for rendering this opinion. In addition,
Deeptech has agreed to indemnify us for certain liabilities arising out of our
engagement. As we have previously advised you, The Chase Manhattan Corporation
("Chase") and its affiliates, including CSI, in the ordinary course of business,
have, from time to time, provided, and in the future may continue to provide,
commercial and investment banking services to Deeptech, Leviathan and El Paso
and their respective affiliates or subsidiaries. In the ordinary course of
business we or our affiliates may trade in the debt and equity securities of
Deeptech, Leviathan, El Paso or their respective affiliates or
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subsidiaries for our own accounts and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the Consideration to be received by the holders of Deeptech
Common Stock in connection with the Merger is fair, from a financial point of
view, to such holders.
This opinion is for the use and benefit of the Committee and the Board of
Directors of Deeptech in their evaluation of the Merger and shall not be used
for any other purpose without the prior written consent of CSI. Except as
expressly permitted under CSI's engagement letter with Deeptech, this opinion
shall not be reproduced, disseminated, quoted, summarized or referred to an any
time, in any manner or for any purpose, nor shall any public references to CSI
be made by Deeptech or El Paso, without the prior written consent of CSI.
Very truly yours,
/s/ CHASE SECURITIES INC.
CHASE SECURITIES INC.
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ANNEX I
DELAWARE CODE TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
SECTION 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record in a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of the shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in
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advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock
I-3
<PAGE> 157
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
I-4
<PAGE> 158
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides that a corporation may indemnify directors
and officers as well as other employees and individuals against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement in
connection with specified actions, suits, proceedings whether civil, criminal,
administrative, or investigative (other than action by or in the right of the
corporation -- a "derivative action"), if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such action, and the statue requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statue provides that it is not
exclusive of other indemnification that may be granted by a corporation's
charter, By-laws, disinterested director vote, stockholder vote, agreement, or
otherwise.
Article X of the By-laws of El Paso requires indemnification to the full
extent permitted under Delaware law as from time to time in effect. Subject to
any restrictions imposed by Delaware law, the By-laws of El Paso provide an
unconditional right to indemnification for all expense, liability, and loss
(including attorney's fees, judgments, fines, ERISA excise taxes, or penalties
and amounts paid in settlement) actually and reasonably incurred or suffered by
any person in connection with any actual or threatened proceeding (including, to
the extent permitted by law, any derivative action) by reason of the fact that
such person is or was serving as a director or officer or employee of El Paso,
such person or is or was serving at the request of El Paso as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to an
employee benefit plan. The By-laws of El Paso also provide that El Paso may, by
action of its Board of Directors, provide indemnification to its agents with the
same scope and effect as the foregoing indemnification of directors and
officers.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for (i) any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) payment of unlawful dividends or unlawful
stock purchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit.
Article 10 of El Paso's Restated Certificate of Incorporation, as amended,
provides that to the full extent that the DGCL, as it now exists or may
hereafter be amended, permits the limitation or elimination of the liability of
directors, a director of El Paso shall not be liable to El Paso or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any amendment to or repeal of such Article 10 shall not adversely affect any
right or protection of a director of El Paso for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
El Paso maintains directors' and officers' liability insurance which
provides for payment, on behalf of the directors and officers of El Paso and its
subsidiaries, of certain losses of such persons (other than matters uninsurable
under law) arising from claims, including claims arising under the Securities
Act of 1933, as amended, for acts or omissions by such persons while acting as
directors or officers of El Paso and/or its subsidiaries, as the case may be.
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<PAGE> 159
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Set forth below is a list of the exhibits included as part of this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger ("Merger Agreement"), dated as
of February 27, 1998, among El Paso Natural Gas Company, El
Paso Acquisition Company and DeepTech International Inc.
(included as Appendix A-1 to the Proxy
Statement/Prospectus)**
2.2 Contribution and Distribution Agreement, dated as of
February 27, 1998, among DeepTech International Inc.,
DeepFlex Production Services, Inc., El Paso Natural Gas
Company and Tatham Offshore, Inc. (included as Appendix B to
the Proxy Statement/Prospectus)**
2.3 Amendment No. 1 to the Merger Agreement, dated June 16, 1998
among El Paso Natural Gas Company, El Paso Acquisition
Company, El Paso Energy Corporation and DeepTech
International Inc. (included as Appendix A-2 to the Proxy
Statement/Prospectus)**
5.1 Form of Opinion of Fried, Frank, Harris, Shriver & Jacobson,
as to the legality of the securities being registered*
5.2 Opinion of Chase Securities, Inc., financial advisor of
DeepTech (included as Appendix C to the Proxy
Statement/Prospectus)**
8.1 Form of Opinion of Fried, Frank, Harris, Shriver & Jacobson
re: tax matters**
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants
of El Paso Natural Gas Company**
23.2 Consent of Price Waterhouse LLP, independent accountants of
DeepTech International Inc., Leviathan Gas Pipeline Company,
Leviathan Gas Pipeline Partners, L.P. and Viosca Knoll
Gathering Company**
23.3 Consent of Deloitte & Touche LLP, independent accountants of
High Island Offshore System**
23.4 Consent of Arthur Andersen LLP, independent public
accountants of Poseidon Oil Pipeline Company, L.L.C.**
23.5 Consent of Ryder Scott Company Petroleum Engineers,
Independent Petroleum Engineers**
23.6 Consent of Netherland, Sewell & Associates, Inc.,
Independent Petroleum Engineers**
23.7 Consent of Netherland, Sewell & Associates, Inc.,
Independent Petroleum Engineers**
23.8 Consent of Chase Securities, Inc.*
23.9 Consent of Fried, Frank, Harris, Shriver & Jacobson re:
legality of the securities being registered (included in
Exhibit 5.1 to this Registration Statement)*
23.10 Consent of Fried, Frank, Harris, Shriver & Jacobson re: tax
matters (included in Exhibit 8.1 to this Registration
Statement)**
99.1 Form of Election and Letter of Transmittal**
99.2 Form of DeepTech International Inc. Proxy**
99.3 Form of DeepTech International Inc. Written Consent for all
holders of record other than Cede & Co.**
99.4 Form of DeepTech International Inc. Written Consent for Cede
& Co., as holder of record**
</TABLE>
- - ---------------
* Previously filed with Form S-4 Registration Statement
** Filed herewith
II-2
<PAGE> 160
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) under the Securities Act of
1933 if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
provided, however, that the undertakings set forth in paragraphs (1)(i) and
(ii) above do not apply if the information required to be included in a
post effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that
are incorporated by reference in this registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof;
(3) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the registration statement through the date of
responding to the request;
(4) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form;
(5) That every prospectus that is filed pursuant to paragraph (6)
immediately preceding will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
II-3
<PAGE> 161
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective; and
(7) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c3 under the Exchange Act; and, where interim financial information
required to be presented by Article 3 of Regulation S-X is not set forth in
the prospectus, to deliver, or cause to be delivered to each person to whom
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE> 162
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on June 16, 1998.
EL PASO NATURAL GAS COMPANY
/s/ WILLIAM A. WISE
By:
William A. Wise
Chairman of the Board, and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates as indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, Chief Executive June 16, 1998
- - --------------------------------------------- Officer and Director
William A. Wise
* President June 16, 1998
- - ---------------------------------------------
Richard Owen Baish
* Executive Vice President and Chief June 16, 1998
- - --------------------------------------------- Financial Officer
H. Brent Austin
* Vice President and Controller (Chief June 16, 1998
- - --------------------------------------------- Accounting Officer)
Jeffrey I. Beason
* Director June 16, 1998
- - ---------------------------------------------
Byron Allumbaugh
* Director June 16, 1998
- - ---------------------------------------------
Juan Carlos Braniff
* Director June 16, 1998
- - ---------------------------------------------
Peter T. Flawn
* Director June 16, 1998
- - ---------------------------------------------
James F. Gibbons
</TABLE>
II-5
<PAGE> 163
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director June 16, 1998
- - ---------------------------------------------
Ben F. Love
* Director June 16, 1998
- - ---------------------------------------------
Kenneth L. Smalley
* Director June 16, 1998
- - ---------------------------------------------
Malcolm Wallop
*By: /s/ H. BRENT AUSTIN Attorney-in-Fact
---------------------------------------
H. Brent Austin
</TABLE>
II-6
<PAGE> 164
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger (the "Merger Agreement"), dated
as of February 27, 1998, among El Paso Natural Gas Company,
El Paso Acquisition Company and DeepTech International Inc.
(included as Appendix A-1 to the Proxy
Statement/Prospectus)**
2.2 Contribution and Distribution Agreement, dated as of
February 27, 1998, among DeepTech International Inc.,
DeepFlex Production Services, Inc., El Paso Natural Gas
Company and Tatham Offshore, Inc. (included as Appendix B to
the Proxy Statement/Prospectus)**
2.3 Amendment No. 1 to the Merger Agreement, dated as of June
16, 1998, among El Paso Natural Gas Company, El Paso
Acquisition Company, El Paso Energy Corporation and DeepTech
International Inc. (included as Appendix A-2 to the Proxy
Statement/Prospectus)**
5.1 Form of Opinion of Fried, Frank, Harris, Shriver & Jacobson
as to the legality of the securities being registered*
5.2 Opinion of Chase Securities, Inc., financial advisor of
DeepTech (included as Appendix C to the Proxy
Statement/Prospectus)**
8.1 Form of Opinion of Fried, Frank, Harris, Shriver & Jacobson
re: tax matters**
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants
of El Paso Natural Gas Company**
23.2 Consent of Price Waterhouse LLP, independent accountants of
DeepTech International Inc., Leviathan Gas Pipeline Company,
Leviathan Gas Pipeline Partners, L.P. and Viosca Knoll
Gathering Company**
23.3 Consent of Deloitte & Touche LLP, independent accountants of
High Island Offshore System**
23.4 Consent of Arthur Andersen LLP, independent public
accountants of Poseidon Oil Pipeline Company, L.L.C.**
23.5 Consent of Ryder Scott Company Petroleum Engineers,
Independent Petroleum Engineers**
23.6 Consent of Netherland, Sewell & Associates, Inc.,
Independent Petroleum Engineers**
23.7 Consent of Netherland, Sewell & Associates, Inc.,
Independent Petroleum Engineers**
23.8 Consent of Chase Securities, Inc.*
23.9 Consent of Fried, Frank, Harris, Shriver & Jacobson
re: legality of the securities being registered (included in
Exhibit 5.1 to this Registration Statement)*
23.10 Consent of Fried, Frank, Harris, Shriver & Jacobson re: tax
matters (included in Exhibit 8.1 to this Registration
Statement)**
99.1 Form of Election and Letter of Transmittal**
99.2 Form of DeepTech International Inc. Proxy**
99.3 Form of DeepTech International Inc. Written Consent for all
holders of record other than Cede & Co.**
99.4 Form of DeepTech International Inc. Written Consent for Cede
& Co., as holder of record**
</TABLE>
- - ---------------
* Previously filed with Form S-4 Registration Statement
** Filed herewith
<PAGE> 1
EXHIBIT 8.1
FORM OF OPINION OF
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
, 1998
(202) 639-7073
El Paso Natural Gas Company
1001 Louisiana Street
Houston, Texas 77002
Gentlemen:
We are acting as counsel to El Paso Natural Gas Company, a Delaware
corporation ("El Paso"), and El Paso Acquisition Company, a Delaware corporation
and a wholly-owned subsidiary of El Paso ("Merger Sub"), in connection with the
merger (the "Merger") of DeepTech International Inc., a Delaware corporation
("DeepTech"), with and into El Paso or with Merger Sub pursuant to an Agreement
and Plan of Merger, dated as of February 27, 1998 (the "Merger Agreement"), by
and among El Paso, Merger Sub, and DeepTech.
El Paso proposes to file with the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "1933 Act"), registration statement
on Form S-4 (File No. 333-49863) (the "Registration Statement") with respect to
the common stock, par value $3.00 per share, of El Paso to be issued to holders
of shares of common stock, par value $0.01 per share, of DeepTech ("DeepTech
Common Stock") in connection with the Merger. In addition, DeepTech has
prepared, and we have reviewed, a Proxy Statement/ Prospectus which is contained
in and made a part of the Registration Statement (the "Proxy Statement/
Prospectus"). In rendering the opinion set forth below we have relied upon the
facts stated in the Proxy Statement/Prospectus and upon such other documents as
we have deemed appropriate.
We have assumed that all parties to the Merger Agreement have acted, and
will act, in accordance with the terms of such Merger Agreement and that the
Merger Agreement will be consummated at the effective time pursuant to the terms
and conditions set forth in the Merger Agreement without the waiver or
modification of any such terms and conditions.
Based upon and subject to the foregoing and to the qualifications,
limitations and assumptions contained in the portion of the Proxy
Statement/Prospectus captioned "Certain Material U.S. Federal Income Tax
Consequences of the Merger," that portion of the Proxy Statement/Prospectus
captioned "Certain Material U.S. Federal Income Tax Consequences of the Merger"
constitutes our opinion regarding the material federal income tax consequences
of the Merger to holders of outstanding DeepTech Common Stock. No opinion is
expressed on any matters other than those specifically referred to herein.
The opinion is furnished to you for use in connection with the Registration
Statement and may not be used for any other purpose without our prior written
consent. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Registration Statement. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the 1933 Act.
Very truly yours,
FRIED, FRANK, HARRIS,
SHRIVER & JACOBSON
------------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of El Paso Natural Gas Company ("El Paso") on Amendment No. 1 to Form S-4 (File
No. 333-49863) of our report dated March 12, 1998, on our audits of the
consolidated financial statements and the financial statement schedule of El
Paso as of December 31, 1997 and 1996, and for the years ended December 31,
1997, 1996 and 1995, which report is included in El Paso's Annual Report on Form
10-K for the year ended December 31, 1997. We also consent to the references to
our firm under the headings "Summary Selected Consolidated Financial Data of El
Paso," "Selected Historical Consolidated Financial Data of El Paso" and
"Experts" in this Registration Statement.
/S/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
HOUSTON, TEXAS
JUNE 16, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of El Paso Natural Gas Company of (i) our report dated September 19, 1997
appearing on page F-2 of DeepTech International Inc.'s Annual Report on Form
10-K/A for the year ended June 30, 1997, (ii) our report dated September 19,
1997 appearing on page F-29 of DeepTech International Inc.'s Annual Report on
Form 10-K/A relating to the financial statements of Leviathan Gas Pipeline
Company for the year ended June 30, 1997, (iii) our report dated March 2, 1998
appearing on page F-2 of Leviathan Gas Pipeline Partners, L.P.'s Form 10-K for
the year ended December 31, 1997, and (iv) our report dated March 2, 1998
appearing on F-27 of Leviathan Gas Pipeline Partners, L.P.'s Form 10-K relating
to the financial statements of Viosca Knoll Gathering Company for the year ended
December 31, 1997. We also consent to the reference to us under the heading
"Experts" in such Proxy Statement/Prospectus.
/S/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
HOUSTON, TEXAS
JUNE 16, 1998
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 1 to
Registration Statement No. 333-49863 of El Paso Natural Gas Company on Form S-4
of our report dated February 18, 1998 relating to the financial statements of
High Island Offshore System as of December 31, 1997 and 1996 and for the years
then ended, appearing in the Annual Report on Form 10-K of Leviathan Gas
Pipeline Partners, L.P. for the year ended December 31, 1997 and to the
reference to us under the heading "Experts" in the Proxy Statement/Prospectus,
which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Detroit, Michigan
June 11, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement on Form S-4 of our report dated
February 20, 1998 relating to the financial statements of Poseidon Oil Pipeline
Company, L.L.C., as of December 31, 1997 and 1996 and for the year ended
December 31, 1997 and the period from inception (February 14, 1996) through
December 31, 1996, which report is included in Leviathan Gas Pipeline Partners,
L.P.'s Annual Report on Form 10-K for the year ended December 31, 1997, and to
all references to our Firm included in this Form S-4.
/S/ ARTHUR ANDERSEN LLP
Denver, Colorado
June 17, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF RYDER SCOTT COMPANY PETROLEUM ENGINEERS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of the use of our report, Estimated Net Reserves and
Income Data Attributable to Certain Leasehold and Royalty Interests of Tatham
Offshore, Inc., dated as of June 30, 1997, and to all references to our firm
appearing in DeepTech International Inc.'s Annual Report on Form 10-K/A for the
fiscal year ended June 30, 1997 incorporated by reference in this Form S-4. We
also consent to the reference to us under the heading "Experts" in this
Registration Statement.
/s/ Ryder Scott Company
Petroleum Engineers
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
June 16, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our reserve report dated as of June 30, 1997, and to
all references to our firm appearing in DeepTech International Inc.'s First
Amendment to the Annual Report on Form 10-K/A for the fiscal year ended June 30,
1997 incorporated by reference in this Form S-4. We also consent to the
reference to us under the heading "Experts" in this Form S-4.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ FREDERIC D. SEWELL
-------------------------------------
Frederic D. Sewell
President
Dallas, Texas
June 16, 1998
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our reserve report dated as of December 31, 1997, and
to all references to our firm appearing in the Annual Report on Form 10-K of
Leviathan Gas Pipeline Partners, L.P. for the fiscal year ended December 31,
1997. We also consent to the reference to us under the heading "Experts" in this
Form S-4.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ FREDERIC D. SEWELL
-------------------------------------
Frederic D. Sewell
President
Dallas, Texas
June 16, 1998
<PAGE> 1
EXHIBIT 99.1
FORM OF ELECTION AND LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF
COMMON STOCK, PAR VALUE $0.01 PER SHARE ("DEEPTECH SHARES"),
OF
DEEPTECH INTERNATIONAL INC. ("DEEPTECH")
when submitted pursuant to an election to receive (i) $14.00 in cash (the "Cash
Consideration") per share or (ii) a fraction of a share (the "Stock
Consideration") of common stock, par value $3.00 per share, of El Paso Natural
Gas Company (the "El Paso Common Stock") equal to or greater than 0.3733 shares
of El Paso Common Stock but in no event greater than 0.56 of a share of El Paso
Common Stock (subject to adjustments to reflect any change in the number of
DeepTech Shares outstanding on a fully diluted basis between the date of the
Original Merger Agreement (as defined herein) and the effective time of the
Merger (as defined below)) depending upon the Average Price (as defined in the
accompanying Proxy Statement/Prospectus) in connection with the merger of
DeepTech with and into
EL PASO NATURAL GAS COMPANY ("EL PASO")
OR WITH A SUBSIDIARY OF EL PASO
<TABLE>
<S> <C> <C> <C>
By Mail: By Overnight Courier: By Hand: By Facsimile:
BankBoston, N.A. BankBoston, N.A. BankBoston, N.A. FOR ELIGIBLE
Attention: Corporate Attention: Securities INSTITUTIONS
Attention: Corporate Reorganization Transfer & Reporting ONLY
Reorganization Mail Stop 45-01-40 Services, Inc. ( ) -
P.O. Box 8029 150 Royall Street c/o Boston or
Boston, MA Canton, MA 02021 Equiserve LP ( ) -
0266-8029 55 Broadway,
3rd Floor
New York, NY 10006
</TABLE>
BankBoston, N.A. is the Exchange Agent.
FOR INFORMATION CALL TOLL FREE: 1-800-736-3001
If DeepTech stockholders approve the Amended Merger Agreement (as defined
in the accompanying Proxy Statement/Prospectus) and the merger contemplated
thereby, El Paso intends to reorganize its corporate structure prior to the
merger into a holding company structure, in which case DeepTech will merge with
El Paso Energy Corporation ("El Paso Energy"), a new El Paso holding company, or
with a subsidiary of such holding company. If DeepTech stockholders approve the
Amended Merger Agreement and the holding company reorganization occurs prior to
the effective time of the merger, all references in this Form of Election and
Letter of Transmittal to El Paso will be deemed references to El Paso Energy and
references to El Paso Common Stock will be deemed references to El Paso Energy
common stock.
PLEASE READ THE INSTRUCTIONS IN THIS FORM OF ELECTION AND LETTER OF
TRANSMITTAL CAREFULLY BEFORE COMPLETING THIS FORM OF ELECTION AND
LETTER OF TRANSMITTAL.
<PAGE> 2
BOX A: CASH ELECTION AND DESCRIPTION OF DEEPTECH SHARES ENCLOSED
(ATTACH ADDITIONAL SHEETS IF NECESSARY).
SEE "ELECTION" AND INSTRUCTION 13.
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
NAME AND ADDRESS OF
REGISTERED HOLDER(S)
(PLEASE FILL IN, IF
BLANK, EXACTLY AS NUMBER OF DEEPTECH NUMBER OF DEEPTECH
NAME(S) APPEAR(S) ON SHARES FOR WHICH CASH IS SHARES FOR WHICH
CERTIFICATE(S)) CERTIFICATE NUMBER(S) ELECTED NON-ELECTION IS MADE
- - ------------------------ ------------------------ ------------------------ ------------------------
- - ------------------------ ------------------------ ------------------------ ------------------------
- - ------------------------ ------------------------ ------------------------ ------------------------
- - ------------------------ ------------------------ ------------------------ ------------------------
- - ------------------------ ------------------------ ------------------------ ------------------------
- - ------------------------ ------------------------ ------------------------ ------------------------
- - ------------------------ ------------------------ ------------------------ ------------------------
TOTAL NUMBER OF
DEEPTECH SHARES:
------------------------
</TABLE>
NOTE: CHECK THE APPROPRIATE BOX IN BOX C BELOW TO CONVERT YOUR ELECTION
AUTOMATICALLY TO A STOCK ELECTION IN CERTAIN CIRCUMSTANCES.
Check this box if this election represents a revocation of any earlier
election. [ ]
For the consequences of making a Stock Election, Cash Election or making a
Non-Election, See Instruction 3.
BOX B: STOCK ELECTION AND DESCRIPTION OF DEEPTECH SHARES ENCLOSED
(ATTACH ADDITIONAL SHEETS IF NECESSARY).
SEE "ELECTION" AND INSTRUCTION 13.
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
NAME AND ADDRESS OF
REGISTERED HOLDER(S)
(PLEASE FILL IN, IF NUMBER OF DEEPTECH
BLANK, EXACTLY AS SHARES FOR WHICH SHARES NUMBER OF DEEPTECH
NAME(S) APPEAR(S) ON OF EL PASO COMMON STOCK SHARES FOR WHICH
CERTIFICATE(S)) CERTIFICATE NUMBER(S) ARE ELECTED NON-ELECTION IS MADE
- - ------------------------ ------------------------ ------------------------ ------------------------
- - ------------------------ ------------------------ ------------------------ ------------------------
- - ------------------------ ------------------------ ------------------------ ------------------------
- - ------------------------ ------------------------ ------------------------ ------------------------
- - ------------------------ ------------------------ ------------------------ ------------------------
- - ------------------------ ------------------------ ------------------------ ------------------------
- - ------------------------ ------------------------ ------------------------ ------------------------
TOTAL NUMBER OF
DEEPTECH SHARES:
------------------------
</TABLE>
2
<PAGE> 3
NOTE: CHECK THE APPROPRIATE BOX IN BOX C BELOW TO CONVERT YOUR ELECTION
AUTOMATICALLY TO A CASH ELECTION IN CERTAIN CIRCUMSTANCES.
Check this box if this election represents a revocation of any earlier
election. [ ]
For the consequences of making a Stock Election, Cash Election or making a
Non-Election, See Instruction 3.
BOX C: AUTOMATIC CONVERSION OF ELECTIONS BASED ON AVERAGE TRADING PRICE
OF EL PASO COMMON STOCK
SEE "ELECTION" AND INSTRUCTION 13.
- - --------------------------------------------------------------------------------
[ ] (1) Check here if you wish the Stock Election set forth in Box B above to
be treated as a Cash Election if the Average Price (determined without
regard to any minimum price used to calculate the Exchange Ratio (as
defined in the accompanying Proxy Statement/Prospectus)) is less than
$25.00. IF YOU CHECK THIS BOX, YOUR ELECTION WILL AUTOMATICALLY BE
CONVERTED TO A CASH ELECTION IF, BASED UPON THE AVERAGE PRICE OF EL PASO
COMMON STOCK FOR THE TEN TRADING DAYS ENDING ON AND INCLUDING THE TRADING
DAY PRIOR TO THE EFFECTIVE TIME (THE "MEASUREMENT PERIOD"), THE VALUE OF
THE CASH CONSIDERATION IS GREATER THAN THE VALUE OF THE STOCK
CONSIDERATION.
[ ] (2) Check here if you wish the Cash Election set forth in A above to be
treated as a Stock Election if the Average Price (determined without regard
to any maximum price used to calculate the Exchange Ratio) is greater than
$37.50 (an "Amended Stock Election"). IF YOU CHECK THIS BOX, YOUR ELECTION
WILL AUTOMATICALLY BE CONVERTED TO A STOCK ELECTION (SUBJECT TO BOX D
BELOW) IF, BASED UPON THE AVERAGE PRICE OF EL PASO COMMON STOCK FOR THE
MEASUREMENT PERIOD, THE VALUE OF THE STOCK CONSIDERATION IS GREATER THAN
THE VALUE OF THE CASH CONSIDERATION.
Check this box if this election represents a revocation of any earlier
election. [ ]
BOX D: TAXABLE STOCK ELECTION
SEE "ELECTION" AND INSTRUCTION 13.
- - --------------------------------------------------------------------------------
[ ] Check here if you wish the Stock Election set forth in B above (and any
Amended Stock Election set forth in C above) to apply even if the receipt
of El Paso Common Stock in the Merger will be taxable. DO NOT CHECK THIS
BOX UNLESS YOU WISH TO RECEIVE EL PASO COMMON STOCK IN A TAXABLE
TRANSACTION. YOU WILL AUTOMATICALLY RECEIVE CASH FOR ALL OF YOUR DEEPTECH
SHARES IN THE MERGER IF YOU DO NOT CHECK THIS BOX AND THE MERGER IS
RESTRUCTURED AS A TAXABLE TRANSACTION AS CONTEMPLATED BY SECTION 1.12 OF
THE MERGER AGREEMENT.
Check this box if this election represents a revocation of any earlier
election. [ ]
5:00 P.M., NEW YORK TIME, ON , 1998, IS THE ELECTION DEADLINE
BY WHICH DATE A COMPLETED FORM OF ELECTION AND LETTER OF TRANSMITTAL, TOGETHER
WITH YOUR CERTIFICATES OR DELIVERY OF SUCH DEEPTECH SHARES BY BOOK-ENTRY
TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT A BOOK-ENTRY
3
<PAGE> 4
TRANSFER FACILITY (AS DEFINED BELOW) (OR CUSTOMARY AFFIDAVITS AND
INDEMNIFICATION REGARDING THE LOSS OR DESTRUCTION OF SUCH CERTIFICATES OR AN
APPROPRIATE GUARANTEE OF DELIVERY OF SUCH CERTIFICATE(S) BY A COMMERCIAL BANK OR
TRUST COMPANY IN THE UNITED STATES OR A MEMBER OF A REGISTERED NATIONAL SECURITY
EXCHANGE OR OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. ("ELIGIBLE
INSTITUTION")), MUST BE RECEIVED BY THE EXCHANGE AGENT IN ORDER FOR ANY STOCK
ELECTION OR CASH ELECTION CONTAINED HEREIN TO BE VALID.
Nominee record holders, which include a nominee, trustee or any other
person that holds DeepTech Shares in any capacity whatsoever on behalf of
another person or entity ("Nominees"), are directed to Instruction 14 hereto
and, if submitting more than one election, must complete Box E below. Each
record holder submitting more than one election, other than a Nominee record
holder submitting more than one election, should indicate such holder's
election(s) in Boxes A through D above.
4
<PAGE> 5
BOX E: TO BE COMPLETED ONLY BY A NOMINEE, TRUSTEE OR ANY OTHER
PERSON THAT HOLDS DEEPTECH SHARES IN ANY CAPACITY WHATSOEVER ON
BEHALF OF MORE THAN ONE PERSON OR ENTITY.
If this Box E is completed, the undersigned, acting for itself and as
nominee, trustee or in another representative capacity on behalf of another
person or entity, hereby submits the following elections and attaches
Certificates for all DeepTech Shares held of record by the undersigned (attach
additional sheets if necessary, numbering each additional election with
consecutive numbers starting with "7").
<TABLE>
<CAPTION>
TOTAL
NUMBER OF
DEEPTECH
SHARES
NUMBER OF SUBJECT TO (1) CASH (2) STOCK (3) NON-
ELECTION ELECTION ELECTION ELECTION ELECTION
- - --------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
1
----------- ------------ ------------ ------------
2
----------- ------------ ------------ ------------
3
----------- ------------ ------------ ------------
4
----------- ------------ ------------ ------------
5
----------- ------------ ------------ ------------
6
----------- ------------ ------------ ------------
</TABLE>
AUTOMATIC CONVERSION OF ELECTIONS BASED ON AVERAGE TRADING PRICE OF EL PASO
COMMON STOCK
[ ] Check here if you wish the Stock Election set forth in (1) of Box E above
to be treated as a Cash Election if the Average Price (determined without
regard to any minimum price used to calculate the Exchange Ratio) is less
than $25.00. IF YOU CHECK THIS BOX, YOUR ELECTION WILL AUTOMATICALLY BE
CONVERTED TO A CASH ELECTION IF, BASED UPON THE AVERAGE PRICE OF EL PASO
COMMON STOCK FOR THE TEN TRADING DAYS ENDING ON AND INCLUDING THE TRADING
DAY PRIOR TO THE EFFECTIVE TIME (THE "MEASUREMENT PERIOD"), THE VALUE OF
THE CASH CONSIDERATION IS GREATER THAN THE VALUE OF THE STOCK
CONSIDERATION.
[ ] Check here if you wish the Cash Election set forth in (2) of Box E above to
be treated as a Stock Election if the Average Price (determined without
regard to any maximum price used to calculate the Exchange Ratio) is
greater than $37.50 (an "Amended Stock Election"). IF YOU CHECK THIS BOX,
YOUR ELECTION WILL AUTOMATICALLY BE CONVERTED TO A STOCK ELECTION (SUBJECT
TO BOX D ABOVE) IF, BASED UPON THE AVERAGE PRICE OF EL PASO COMMON STOCK
FOR THE MEASUREMENT PERIOD, THE VALUE OF THE STOCK CONSIDERATION IS GREATER
THAN THE VALUE OF THE CASH CONSIDERATION.
TAXABLE STOCK ELECTION
[ ] Check here if you wish the Stock Election set forth in (2) of Box E above
(and any Amended Stock Election set forth in the immediately preceding
paragraph above) to apply even if the receipt of El Paso Common Stock in
the Merger will be taxable. DO NOT CHECK THIS BOX UNLESS YOU WISH TO
RECEIVE EL PASO COMMON STOCK IN A TAXABLE TRANSACTION. YOU WILL
AUTOMATICALLY RECEIVE CASH FOR ALL OF YOUR DEEPTECH SHARES IN THE MERGER IF
YOU DO NOT CHECK THIS BOX AND THE MERGER IS RESTRUCTURED AS A TAXABLE
TRANSACTION AS CONTEMPLATED BY SECTION 1.12 OF THE MERGER AGREEMENT.
5
<PAGE> 6
DELIVERY BY BOOK-ENTRY TRANSFER
SEE INSTRUCTION 1.
Check box below if DeepTech Shares are being delivered by book-entry (transfer
to the Exchange Agent's account on a book-entry transfer facility (a "Book-Entry
Transfer Facility") and complete the following:
[ ] The Depository Trust Company
Account Number:
- - ------------------------------
6
<PAGE> 7
GUARANTEE OF DELIVERY
If certificates for DeepTech Shares are not available prior to the Election
Record Date (see Instruction 1), the following Guarantee may be completed by an
Eligible Institution and the election made herein will be valid if such
certificates, together with a completed Election Form and Letter of Transmittal,
are in fact delivered to the Exchange Agent within three trading days after the
date of execution hereof.
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or a correspondent in the United States,
hereby guarantees that, within three New York Stock Exchange trading days from
the date of this Form of Election and Letter of Transmittal, certificates
representing the DeepTech Shares covered hereby in proper form for transfer and
any required documents, together with a completed Form of Election and Letter of
Transmittal, will be deposited by the undersigned with the Exchange Agent. IF
YOU COMPLETE THIS GUARANTEE OF DELIVERY, YOU WILL NEED A SIGNATURE GUARANTEE BY
AN ELIGIBLE INSTITUTION. SEE INSTRUCTION 5.
The undersigned acknowledges that it must deliver the DeepTech Shares
covered hereby to the Exchange Agent within the time period set forth above and
that failure to do so could result in financial loss to the undersigned.
<TABLE>
<S> <C>
Dated: ------------------------------------------
- - ------------------------------------------ (Firm -- Please Print)
------------------------------------------
Number of Shares: (Authorized Signature)
- - ------------------------------ ------------------------------------------
(Address)
Check box below if Deep Tech Shares will ------------------------------------------
be delivered by book-entry transfer ------------------------------------------
(Area Code and Telephone Number)
[ ] The Depository Trust Company
Account Number:
- - -------------------------------
</TABLE>
NOTICE OF DELIVERY UNDER GUARANTEE
(TO BE COMPLETED UPON DELIVERY OF SHARES PURSUANT TO A GUARANTEE OF DELIVERY)
Name(s) of Registered Holder(s):
- - ----------------------------------------------------------------------
Window Ticket No.:
- - --------------------------------------------------------------------------------
Date of Execution of Guarantee of Delivery:
- - ------------------------------------------------------------
Name of Institution which provided Guarantee of Delivery:
- - --------------------------------------------
If delivered by book-entry transfer (assuming such procedure is available),
check box below of Book-Entry Transfer Facility:
[ ] The Depository Trust Company
Account Number:
- - ------------------------ Transaction Code Number:
- - ------------------------
7
<PAGE> 8
In the event a Form of Election and Letter of Transmittal is delivered to
the Exchange Agent on behalf of a record holder of DeepTech Shares prior to the
Election Deadline and not revoked prior to such deadline, or if a Form of
Election and Letter of Transmittal is delivered to the Exchange Agent after the
Election Deadline, DeepTech or El Paso, as the case may be, will deem such
delivery a revocation of any objections to the Merger previously filed with
DeepTech for purposes of exercising dissenter's rights and a waiver of any
future rights to such exercise.
Information as to the federal income tax consequences of receiving Stock
Consideration or Cash Consideration in exchange for your DeepTech Shares is set
forth under the caption "CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER" in the Proxy Statement/Prospectus furnished to you concurrently
herewith. You are urged, in addition, to consult with your tax advisor.
IF YOUR CERTIFICATE(S) HAS (HAVE) BEEN LOST, STOLEN OR DESTROYED AND YOU
REQUIRE ASSISTANCE IN REPLACING IT (THEM), SEE INSTRUCTION 12 BELOW. YOU CANNOT
SUBMIT AN EFFECTIVE FORM OF ELECTION AND LETTER OF TRANSMITTAL WITHOUT ATTACHING
YOUR CERTIFICATES TO THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL OR
COMPLYING WITH THE GUARANTEE OR BOOK-ENTRY TRANSFER PROVISION OR AS SET FORTH IN
INSTRUCTION 12; THEREFORE, IF YOU WISH TO MAKE AN EFFECTIVE ELECTION, IT IS
CRITICAL THAT YOU ACT IMMEDIATELY.
8
<PAGE> 9
TO BankBoston, N.A.
Pursuant to the Agreement and Plan of Merger, dated as of February 27, 1998
(the "Original Merger Agreement"), among El Paso, El Paso Acquisition Company
("Merger Sub"), a wholly owned subsidiary of El Paso, and DeepTech International
Inc., as amended by Amendment No. 1 ("Amendment No. 1"), dated June , 1998 (as
so amended, the "Amended Merger Agreement"), among El Paso, Merger Sub, El Paso
Energy Corporation, a wholly owned subsidiary of El Paso, and DeepTech, the
undersigned hereby (x) makes the election or elections set forth herein and
surrenders to BankBoston, N.A. for cancellation, as exchange agent (the
"Exchange Agent"), certificates representing all of the undersigned's DeepTech
Shares (each such certificate, a "Certificate"), listed in Box A and/or Box B
(or, if held by a nominee, trustee or other representative making multiple
elections, in Box E) above in exchange for either (i) the right to receive
$14.00 in cash (a "Cash Election"), or (ii) the right to receive a fraction of a
share of common stock, par value $3.00 per share, of El Paso (the "El Paso
Common Stock") equal to or greater than 0.3733 of a share of El Paso Common
Stock but in no event greater than 0.56 of a share of El Paso Common Stock
(subject to adjustments to reflect any change in the number of DeepTech Shares
outstanding on a fully diluted basis between the date of the Merger Agreement
and the effective time of the Merger) depending upon the Average Price (as
defined below) (a "Stock Election") or (y) makes no election, in which case the
undersigned's DeepTech Shares will be treated as described herein. See "THE
MERGER AGREEMENT -- DeepTech Common Stock Elections" in the Proxy
Statement/Prospectus. In addition, it is understood that the Exchange Agent will
pay cash in lieu of any fractional shares of El Paso Common Stock otherwise
issuable in connection with the Merger as specified herein. If DeepTech
stockholders approve the Amended Merger Agreement and the merger contemplated
thereby, El Paso intends to reorganize its corporate structure prior to the
merger into a holding company structure, in which case DeepTech will merge with
El Paso Energy, or, under certain circumstances, with Merger Sub. If DeepTech
stockholders approve the Amended Merger Agreement and the holding company
reorganization occurs prior to the effective time of the merger, all references
in this Form of Election and Letter of Transmittal to El Paso will be deemed
references to El Paso Energy and references to El Paso Common Stock will be
deemed references to El Paso Energy common stock. In this Form of Election and
Letter of Transmittal, references to the "Merger Agreement" mean either the
Original Merger Agreement or the Amended Merger Agreement, whichever is
applicable, and references to the "Merger" mean the merger contemplated by the
applicable Merger Agreement. Except as described above or as expressly provided
herein, capitalized terms shall have the meanings ascribed to them in the Proxy
Statement/Prospectus.
The undersigned understands that the elections referred to above are
subject to certain terms, conditions and limitations that are set forth in the
Merger Agreement, the Instructions below and the Proxy Statement/Prospectus with
respect to the Merger (including all documents incorporated therein, and as it
may be amended from time to time, the "Proxy Statement/Prospectus") delivered
prior hereto. The Merger Agreement and Amendment No. 1 are included as
Appendices A-1 and A-2 to the Proxy Statement/Prospectus. Extra copies of this
Form of Election and Letter of Transmittal and the Proxy Statement/Prospectus
may be requested from the Exchange Agent, at the addresses or phone number shown
above. The filing of this Form of Election and Letter of Transmittal with the
Exchange Agent is acknowledgment of the receipt of the Proxy
Statement/Prospectus. The undersigned understands and acknowledges that all
questions as to the validity, form and eligibility of any election and surrender
of the DeepTech Shares hereunder shall be reasonably determined by the Exchange
Agent, and such determination shall be final and binding.
The undersigned hereby represents and warrants that the undersigned is, as
of the date hereof, and will be as of the effective time of the Merger (the
"Effective Time"), the registered holder of the DeepTech Shares represented by
the Certificate(s) surrendered herewith, with good title to the above-described
DeepTech Shares and full power and authority to sell, assign and transfer such
DeepTech Shares, free and clear of all liens, claims and encumbrances, and not
subject to any adverse claims. The undersigned will, upon request, execute any
additional documents necessary or desirable to complete the surrender and
exchange of such DeepTech Shares. The undersigned hereby irrevocably appoints
the Exchange Agent, as agent of the undersigned, to effect the exchange pursuant
to the Original Merger Agreement or, if the DeepTech stockholders approve the
Amended Merger Agreement and El Paso consummates its holding company
9
<PAGE> 10
reorganization prior to the effective time of the merger, the Amended Merger
Agreement and the Instructions hereto. All authority conferred or agreed to be
conferred in the Form of Election and Letter of Transmittal shall be binding
upon the successors, assigns, heirs, executors, administrators and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned.
The undersigned authorizes and instructs you, as Exchange Agent, to deliver
Certificates and receive on behalf of the undersigned, in exchange for DeepTech
Shares represented thereby, any check for cash or any certificate for shares of
El Paso Common Stock issuable in the Merger pursuant to the Merger Agreement. If
the Certificate(s) is (are) not delivered herewith or by book-entry transfer,
there is furnished herewith (i) a guarantee of delivery of such Certificate(s)
from a member of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc. or a commercial bank or trust
company having an office in the United States (provided below) in accordance
with Instruction 5 or (ii) an affidavit and indemnification regarding the loss,
theft or destruction of such Certificate(s) reasonably acceptable to El Paso in
accordance with Instruction 12.
ELECTION
The appropriate election(s) must be made in Boxes A through D (or, if a
nominee, trustee or other representative making multiple elections, Box E) above
with respect to each DeepTech Share represented by the Certificate(s)
surrendered herewith.
Each DeepTech Share will be converted into the right to receive (i) $14.00
in cash, without interest (the "Cash Consideration") or (ii) a fraction of a
share of El Paso Common Stock (the "Stock Consideration" and, together with the
Cash Consideration, the "Merger Consideration") equal to or greater than 0.3733
of a share of El Paso Common Stock but in no event greater than 0.56 of a share
of El Paso Common Stock (subject to adjustments described below) depending upon
the average of the closing sales prices of a share of El Paso Common Stock on
the New York Stock Exchange during the ten consecutive trading days ending on
and including the trading day immediately prior to the effective time of the
Merger (the "Average Price"). If the Average Price of El Paso Common Stock is at
least $25.00 and not more than $37.50, then each DeepTech Share for which a
Stock Election is made will be converted into the right to receive a fraction of
a share of El Paso Common Stock determined by dividing $14.00 by the average El
Paso stock price during the specified ten-day period. If the Average Price of
the El Paso Common Stock is less than $25.00, each DeepTech Share for which a
Stock Election is made will be converted into the right to receive 0.56 of a
share of El Paso Common Stock. If the Average Price of El Paso Common Stock is
more than $37.50, each DeepTech Share for which a Stock Election is made will be
converted into the right to receive 0.3733 of a share of El Paso Common Stock.
The number of shares of El Paso Common Stock or cash to be received by each
DeepTech stockholder will also be adjusted appropriately to reflect any change
in the number of DeepTech Shares outstanding on a fully diluted basis, including
DeepTech Shares issuable upon the exercise of options or warrants, between the
date of the Original Merger Agreement and the effective time of the Merger.
El Paso will not issue fractional shares of El Paso Common Stock in the
Merger. Instead, El Paso will pay a cash adjustment to holders who would
otherwise receive fractional shares of El Paso Common Stock equal to the product
of such fraction of a share and the Average Price.
Each holder of DeepTech Shares may specify, by completion of the
appropriate box in Box C that if the Average Price is less than $25.00, such
DeepTech Shares will be automatically converted into a Cash Election, even if a
Stock Election has been made by completion of Box B, and/or if the Average Price
is greater than $37.50, such DeepTech Shares will be automatically converted
into a Stock Election, even if a Cash Election has been made by completion of
Box A (collectively, an "Automatic Conversion Election").
Under the Merger Agreement, if more than 50% of the total Merger
Consideration consists of cash, El Paso and DeepTech will restructure the form
of the Merger as a merger of a subsidiary of El Paso with and into DeepTech.
This restructuring is to ensure that, regardless of whether stockholders of
DeepTech elect to receive stock or cash in the Merger, DeepTech will not incur
any corporate level income tax by reason of the
10
<PAGE> 11
Merger. If the Merger is restructured, the Merger will be a taxable transaction
for all DeepTech stockholders, whether you elect to receive cash or El Paso
Common Stock.
If the Merger is a taxable transaction, regardless of any election set
forth on this Form of Election each DeepTech Share will be converted into the
right to receive cash unless the DeepTech stockholder specifies by marking the
appropriate box on this Form of Election that such DeepTech stockholder wishes
to receive El Paso Common Stock in a taxable transaction (a "Taxable Stock
Election"). DEEPTECH STOCKHOLDERS SHOULD NOT MARK THIS BOX ON THIS FORM OF
ELECTION UNLESS SUCH STOCKHOLDERS WISH TO RECEIVE STOCK IN A TAXABLE
TRANSACTION.
Except for the effects upon the election procedure and the tax consequences
to DeepTech stockholders described in the Proxy Statement/Prospectus, this
restructuring will not alter any of the material terms of the Merger Agreement.
In addition, El Paso has the right under the Merger Agreement to
restructure the Merger as a merger of DeepTech with and into a subsidiary of El
Paso. This restructuring will not alter any of the material terms of the Merger,
including the tax consequences to DeepTech stockholders.
See "THE MERGER AGREEMENT -- Special Cash Rights; Restructuring of Merger"
in the Proxy Statement/Prospectus and Instruction 3 hereto.
ALL DEEPTECH STOCKHOLDERS WISHING TO MAKE A STOCK ELECTION OR A CASH
ELECTION MUST ENSURE THAT THE EXCHANGE AGENT RECEIVES A PROPERLY COMPLETED FORM
OF ELECTION AND LETTER OF TRANSMITTAL PRIOR TO THE ELECTION RECORD DATE. ALL
STOCKHOLDERS SUBMITTING ELECTION FORMS AND LETTERS OF TRANSMITTAL AFTER SUCH
TIME WILL BE DEEMED TO HAVE MADE NO ELECTION REGARDLESS OF THE ELECTION
SPECIFIED ON SUCH FORM. DEEPTECH STOCKHOLDERS WISHING TO MAKE NO ELECTION ARE
NOT REQUIRED TO SUBMIT THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL PRIOR TO
THE ELECTION RECORD DATE OR PRIOR TO THE EFFECTIVE TIME BUT SUCH HOLDER'S
CERTIFICATES MUST BE SURRENDERED IN ORDER TO RECEIVE THE MERGER CONSIDERATION.
THE EXCHANGE AGENT RESERVES THE RIGHT TO DEEM THAT YOU HAVE CHECKED THE
"NON-ELECTION" BOX IF:
A. NO ELECTION CHOICE IS INDICATED IN BOXES A OR B (OR, IF A NOMINEE,
TRUSTEE OR OTHER REPRESENTATIVE MAKING MULTIPLE ELECTIONS, BOX E) ABOVE;
B. YOU FAIL TO FOLLOW THE INSTRUCTIONS ON THIS FORM OF ELECTION AND LETTER
OF TRANSMITTAL (INCLUDING SUBMISSION OF YOUR CERTIFICATES) OR OTHERWISE
FAIL TO PROPERLY MAKE AN ELECTION; OR
C. A COMPLETED FORM OF ELECTION AND LETTER OF TRANSMITTAL (INCLUDING
SUBMISSION OF YOUR CERTIFICATES) IS NOT ACTUALLY RECEIVED BY THE
ELECTION RECORD DATE (OR IN ACCORDANCE WITH THE GUARANTEE PROVISIONS FOR
LATE DELIVERY OF CERTIFICATES).
In order to receive the Merger Consideration, this Form of Election and
Letter of Transmittal must be (i) completed and signed in the space provided
below and on the Substitute Form W-9 and (ii) mailed or delivered with your
Certificate(s) to the Exchange Agent at either of the addresses set forth above.
In order to properly make a Stock Election, Cash Election, Automatic Conversion
Election and/or Taxable Stock Election, these actions must be taken in a timely
fashion such that the Form of Election and Letter of Transmittal is received by
the Exchange Agent prior to the Election Record Date.
The method of delivery of the Certificates and all other required documents
is at the election and risk of the stockholder; however, if the Certificates are
sent by mail, it is recommended that they be sent by registered mail,
appropriately insured, with return receipt requested.
11
<PAGE> 12
Unless otherwise indicated below under "Special Issuance and Payment
Instructions," in exchange for the enclosed Certificates, the undersigned
requests issuance of the Merger Consideration to the undersigned. Similarly,
unless otherwise indicated below under "Special Delivery Instructions," the
undersigned requests that the Merger Consideration be mailed to the undersigned
at the address shown above. In the event that both the "Special Delivery
Instructions" and the "Special Issuance and Payment Instructions" are completed,
please issue the Merger Consideration in the name of, and mail the Merger
Consideration to, the person or entity so indicated at the address so indicated.
Appropriate signature guarantees have been included with respect to shares for
which Special Issuance and Payment Instructions have been given.
CONSUMMATION OF THE MERGER IS SUBJECT TO THE SATISFACTION OF CERTAIN
CONDITIONS. NO PAYMENTS RELATED TO ANY SURRENDERED CERTIFICATES WILL BE MADE
PRIOR TO THE EFFECTIVE TIME.
In the event that the Merger Agreement is terminated, the Exchange Agent
will promptly return Certificates previously submitted with Forms of Election
and Letters of Transmittal. In such event, DeepTech Shares held through The
Depository Trust Company are expected to be available for sale or transfer
promptly following such termination; however, Certificates representing DeepTech
Shares held of record directly by the beneficial owners of such DeepTech Shares
will be returned as promptly as practicable by first class, insured mail.
- - -------------------------------------------------------------------------------
SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS
(See Instructions 1, 4, 5, 9, 10 and 11)
To be completed ONLY if the certificate representing the Stock
Consideration and/or the check representing the Cash Consideration or cash in
lieu of fractional shares, as the case may be, is to be issued in the name of
someone other than the undersigned. NOTE: THE PERSON NAMED IN THESE SPECIAL
ISSUANCE AND PAYMENT INSTRUCTIONS MUST BE THE PERSON WHO COMPLETES THE
SUBSTITUTE FORM W-9.
Issue the certificate representing the Stock Consideration and/or the check
representing the Cash Consideration or cash in lieu of fractional shares to:
Name: -----------------------------------------------------------------------
(Please Print)
Address: --------------------------------------------------------------------
- - -----------------------------------------------------------------------------
(Include Zip code)
- - -----------------------------------------------------------------------------
Taxpayer Identification or Social Security No. ------------------------------
If you complete this box, you will need a signature guarantee by an eligible
institution. See Instruction 5.
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 4, 5 and 10)
To be completed ONLY if the certificate representing the Stock
Consideration and/or the check representing the Cash Consideration or cash in
lieu of fractional shares, as the case may be, is to be sent to someone other
than the undersigned or to the undersigned at an address other than that shown
above.
Mail the certificate representing the Stock Consideration and/or the check
representing the Cash Consideration or cash in lieu of fractional shares to:
Name: -------------------------------------------------------------------------
(Please Print)
Address: ----------------------------------------------------------------------
- - -------------------------------------------------------------------------------
(Include Zip Code)
Check this box if this is a permanent change of address. [ ]
- - -------------------------------------------------------------------------------
12
<PAGE> 13
The undersigned represents and warrants that the undersigned has full power
and authority to transfer the DeepTech Shares surrendered hereby and that the
transferee will acquire good and unencumbered title thereto, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any adverse
claim when the DeepTech Shares are accepted for exchange by the Exchange Agent.
The undersigned will, upon request, execute and deliver any additional documents
deemed by the Exchange Agent or El Paso to be necessary and desirable to
complete the transfer of the DeepTech Shares surrendered hereby.
Date: ------------------------------------------------------
PLEASE SIGN HERE
Signature: ---------------------------------------------------------------------
Signature: ---------------------------------------------------------------------
Must be signed by registered holder(s) as name(s) appear(s) on stock
certificate(s). If signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, the capacity of the person signing should be
indicated. (See Instruction 8 hereto).
Dated: ------------------------------------------------------
Name(s): -----------------------------------------------------------------------
(Please Print)
Capacity: ----------------------------------------------------------------------
Daytime Area Code and Telephone Number: ----------------------------------------
SIGNATURE GUARANTEE
(REQUIRED ONLY IN CASE SPECIFIED IN INSTRUCTION 5)
The undersigned hereby guarantees the signature(s) which appear(s) on this
Form of Election and Letter of Transmittal.
Dated: ------------------------------------------------------
- - --------------------------------------------------------------------------------
(Name of Eligible Institution Issuing Guarantee)
(Please Print)
- - --------------------------------------------------------------------------------
(Fix Medallion Stamp Above)
13
<PAGE> 14
INSTRUCTIONS
This Form of Election and Letter of Transmittal is to be completed and
submitted to the Exchange Agent prior to the Election Record Date by those
DeepTech stockholders desiring to make a Stock Election, Cash Election,
Automatic Conversion of Elections and/or Taxable Stock Election. All DeepTech
stockholders, including those making a non-election in Boxes A or B, must
surrender their Certificates to the Exchange Agent in order to receive the
Merger Consideration. Until a record holder's Certificates are received by the
Exchange Agent at one of the addresses set forth above, together with such
documents as the Exchange Agent may require, and until the same are processed
for exchange by the Exchange Agent, such holders will not receive any
certificates representing the Stock Consideration and/or the check representing
the Cash Consideration or cash in lieu of fractional shares (if any) in exchange
for their Certificates. No interest will accrue on the Cash Consideration, the
cash in lieu of fractional shares or such dividends. If your Certificate(s) is
(are) lost, stolen or destroyed, please refer to Instruction 12 below.
A HOLDER OF DEEPTECH SHARES MUST MAKE THE APPROPRIATE ELECTION(S) IN BOXES
A THROUGH D (OR, IF A NOMINEE, TRUSTEE OR OTHER REPRESENTATIVE MAKING MULTIPLE
ELECTIONS, BOX E) ABOVE TO MAKE AN EFFECTIVE STOCK ELECTION, CASH ELECTION,
AUTOMATIC CONVERSION ELECTION AND/OR TAXABLE STOCK ELECTION.
Your election is subject to certain terms, conditions and limitations that
have been set out in the Merger Agreement and the Proxy Statement/Prospectus.
The Merger Agreement and Amendment No. 1 are included as Appendices A-1 and A-2
to the Proxy Statement/Prospectus. Extra copies of the Proxy
Statement/Prospectus may be requested from the Exchange Agent at the addresses
or phone number shown above. The filing of this Form of Election and Letter of
Transmittal with the Exchange Agent is acknowledgment of the receipt of the
Proxy Statement/Prospectus.
1. ELECTION RECORD DATE. For any Stock Election, Cash Election, Automatic
Conversion of Election and/or Taxable Stock Election contained herein to be
considered, this Form of Election and Letter of Transmittal, properly completed,
and the related Certificates must be received by the Exchange Agent at one of
the addresses shown above on this Form of Election and Letter of Transmittal no
later than 5:00 p.m. , 1998.
Holders whose Certificate(s) is (are) not immediately available or holders
who cannot complete the procedure for delivery by book-entry transfer on a
timely basis may deliver the DeepTech Shares and may also make an effective
election by (a) completing Boxes A, B, C, D and/or E herein, having the Box
entitled "Guarantee of Delivery" herein properly completed and duly executed
with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message) and delivering such documents to the Exchange
Agent prior to the Election Deadline; and (b) delivering their Certificates, in
proper form for transfer, or a confirmation of a book-entry transfer of such
Shares, if such procedure is available, into the Exchange Agent's account at one
of the Book-Entry Transfer Facilities within three Nasdaq National Market
trading days after the date of execution hereof. In addition, at the time the
Certificates (or the DeepTech Shares pursuant to a book-entry transfer) are
delivered pursuant to the Guarantee of Delivery, the guarantor must submit to
the Exchange Agent another Form of Election and Letter of Transmittal with only
the section entitled "Notice of Delivery Under Guarantee" properly completed (or
must otherwise provide such information to the Exchange Agent). If the guarantor
fails to deliver the Certificate(s) (or the DeepTech Shares by book-entry
transfer) in accordance with the guaranteed delivery procedures contained
herein, without limitation of any other recourse, any purported Election with
respect to the DeepTech Shares subject to such guarantee will be void. The term
"Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility
to, and received by, the Exchange Agent 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 delivering the DeepTech Shares, that such participant has received and
agrees to be bound by the terms of this Form of Election and Letter of
Transmittal and that El Paso may enforce such agreement against the participant.
14
<PAGE> 15
2. REVOCATION OR AMENDMENT OF FORM OF ELECTION AND LETTER OF
TRANSMITTAL. An election may be revoked or amended, but only by written notice
received by the Exchange Agent prior to the Election Record Date. Any
Certificate(s) representing DeepTech Shares that have been submitted to the
Exchange Agent in connection with an election shall be returned without charge
to the holder thereof in the event such election is revoked as aforesaid and
such holder requests in writing the return of such Certificate(s). Upon any such
revocation, unless a duly completed Form of Election is thereafter submitted in
accordance with the procedures set forth in the Proxy Statement/Prospectus, such
DeepTech Shares shall be Non-Election Shares, as described therein.
3. SPECIAL CASH RIGHTS/RESTRUCTURING OF MERGER; AUTOMATIC CONVERSION
ELECTION. As set forth in the Proxy Statement/Prospectus, if the Aggregate Cash
Consideration exceeds 50% of the Aggregate Merger Consideration, the Merger may
be restructured as set forth in the Merger Agreement. If the Merger is
restructured, the Merger will be a taxable transaction for all DeepTech
stockholders, whether you elect to receive cash or El Paso Common Stock. If the
Merger is a taxable transaction, regardless of any election you may have made,
you will receive cash for your DeepTech Shares unless you specify by marking the
appropriate box on the Form of Election that you wish to receive El Paso Common
Stock in a taxable transaction. YOU SHOULD NOT MARK THIS BOX ON THE FORM OF
ELECTION UNLESS YOU WISH TO RECEIVE STOCK IN A TAXABLE TRANSACTION.
Each holder of DeepTech Shares may specify, by completion of the
appropriate box in Box C, that if the Average Price is less than $25.00, such
DeepTech Shares will be automatically converted into a Cash Election, even if a
Stock Election has been made by completion of Box B, and if the Average Price is
greater than $37.50, such DeepTech Shares will be automatically converted into a
Stock Election, even if a Cash Election has been made by completion of Box A.
4. NO FRACTIONAL INTERESTS. No certificate representing fractional shares
of El Paso Common Stock will be issued. The Exchange Agent will remit cash
without interest in lieu of such fractional shares. No DeepTech stockholder
shall be entitled to dividends, voting rights or any other rights in respect of
any fractional share.
5. GUARANTEE OF SIGNATURES. Signatures on this Form of Election and Letter
of Transmittal need not be guaranteed unless the "Special Issuance and Payment
Instructions" or "Special Delivery Instructions" box or the "Guarantee of
Delivery" section has been completed. In such event, signatures on this Form of
Election and Letter of Transmittal must be guaranteed by an eligible guarantor
institution pursuant to Rule 17Ad-15 promulgated under the Securities Exchange
Act of 1934 (generally a member firm of the New York Stock Exchange or any bank
or trust company which is a member of the Medallion Program). Public notaries
cannot execute acceptable guarantees of signatures.
6. DELIVERY OF FORM OF ELECTION AND LETTER OF TRANSMITTAL AND
CERTIFICATES. This Form of Election and Letter of Transmittal, properly
completed and duly executed, together with the Certificate(s) representing the
DeepTech Shares, should be delivered to the Exchange Agent at one of the
addresses set forth above. The method of delivery of the Certificates and all
other required documents is at the election and risk of the record holder of
such DeepTech Shares; however, if such Certificates are sent by mail, it is
recommended that they be sent by registered mail, appropriately insured, with
return receipt requested.
7. INADEQUATE SPACE. If the space provided herein is inadequate, the
Certificate numbers and the numbers of DeepTech Shares represented thereby
should be listed on additional sheets and attached hereto.
8. SIGNATURES ON ELECTION FORM, STOCK POWERS AND ENDORSEMENTS.
(a) All signatures must correspond exactly with the name written on
the face of the Certificate(s) without alteration, variation or any change
whatsoever.
(b) If the Certificate(s) surrendered is (are) held of record by two
or more joint owners, all such owners must sign this Form of Election and
Letter of Transmittal.
(c) If any surrendered DeepTech Shares are registered in different
names on several Certificates, it will be necessary to complete, sign and
submit as many separate Election Forms and Letters of Transmittal as there
are different registrations of Certificates.
15
<PAGE> 16
(d) If this Form of Election and Letter of Transmittal is signed by a
person(s) other than the record holder(s) of the Certificates listed (other
than as set forth in paragraph (e) below), such Certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the record holder(s) appear(s) on such
Certificate.
(e) If this Form of Election and Letter of Transmittal 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 and such person is not the record holder of the accompanying
Certificates, he or she must indicate the capacity when signing and must
submit proper evidence of his or her authority to act.
9. STOCK TRANSFER TAXES. In the event that any transfer or other taxes
become payable by reason of the issuance of the Merger Consideration in any name
other than that of the DeepTech stockholder, such transferee or assignee must
pay such tax to the Exchange Agent or must establish to the satisfaction of the
Exchange Agent that such tax has been paid.
10. SPECIAL ISSUANCE AND PAYMENT AND DELIVERY INSTRUCTIONS. Indicate the
name and/or address of the person(s) to whom the Stock Consideration and/or the
check representing the Cash Consideration or cash in lieu of fractional shares
(if any) is to be issued and/or sent, if different from the name and/or address
of the person(s) signing this Form of Election and Letter of Transmittal.
11. WITHHOLDING. Each surrendering DeepTech stockholder is required to
provide the Exchange Agent with such holder's correct Taxpayer Identification
Number ("TIN") on the Substitute Form W-9 and to certify whether such holder is
subject to backup withholding. The TIN that must be provided is that of the
DeepTech stockholder with respect to the Certificate(s) surrendered herewith or
of the last transferee appearing on the transfers attached to or endorsed on
such Certificate(s) (or, if a check is made payable to another person as
provided in the box above entitled "Special Issuance and Payment Instructions,"
then the TIN of such person). Failure to provide the information on the
Substitute Form W-9 may subject the surrendering stockholder to 31% federal
income tax withholding on payments made to such surrendering holder with respect
to the DeepTech Shares and on future dividends paid by El Paso. A DeepTech
stockholder must cross out item (2) in the certification box of Substitute Form
W-9 if such holder has been notified by the Internal Revenue Service ("IRS")
that such holder is currently subject to backup withholding. The box in Part 3
of the Substitute Form W-9 should be checked if the surrendering stockholder has
not been issued a TIN and has applied for a TIN or intends to apply for a TIN in
the near future. If the box in Part 3 is checked and the Exchange Agent is not
provided with a TIN within 60 days thereafter, El Paso will withhold 31% of all
such payments and dividends until a TIN is provided to the Exchange Agent.
Foreign investors should consult their tax advisors regarding the need to
complete IRS Form W-8 and any other forms that may be required.
12. LOST, STOLEN, OR DESTROYED CERTIFICATES. You cannot submit an effective
Form of Election and Letter of Transmittal without attaching your Certificates
to this Form of Election and Letter of Transmittal. If your Certificate(s) has
(have) been lost, stolen or destroyed, you are urged to call the Exchange Agent
toll-free at 1-800- immediately to receive instructions as to the steps
you must take in order to effect an exchange of your DeepTech Shares. In
addition, the Exchange Agent will provide you with a form of an affidavit and
indemnification regarding the loss, theft or destruction of your Certificate(s)
that is in form and substance reasonably acceptable to El Paso. Such form may be
completed and submitted as an alternative to attaching your Certificate(s) to
this Form of Election and Letter of Transmittal.
13. ELECTIONS AND CERTIFICATES. Each DeepTech stockholder is entitled to
make a Stock Election, Cash Election, Automatic Conversion Election and/or
Taxable Stock Election provided the Form of Election and Letter of Transmittal
for any holder making such election(s) is properly completed and received by the
Exchange Agent prior to the Election Record Date. All DeepTech stockholders must
complete Boxes A through D, as applicable (or, if a nominee, trustee or other
representative making more than one election, Box E), in order to receive the
desired Merger Consideration. To properly complete Box A or Box B (or, if a
nominee, trustee or other representative making more than one election, Box E),
the number of each Certificate surrendered herewith must be written in the
column under the heading "Certificate Number," and the number of DeepTech Shares
represented by each Certificate surrendered herewith in connection with a
16
<PAGE> 17
specific election should be written in the appropriate column under the heading
"Number of Shares" beside each Certificate number. Stockholders wishing to make
more than one election may do so on one Form of Election by specifying under the
appropriate Box the number of DeepTech Shares for which a Stock Election, Cash
Election or Non-Election is desired, including multiple elections with respect
to DeepTech Shares represented by a single Certificate. All stockholders,
including those making a Non-Election, must surrender their Certificates to the
Exchange Agent in order to receive the Merger Consideration. DeepTech
stockholders should see "Important Tax Information" below for important tax
consequences of various elections.
14. HOLDERS WHO ARE NOMINEES, TRUSTEES OR OTHER REPRESENTATIVES. Each
holder of record is entitled to make an election and submit a Form of Election
and Letter of Transmittal covering all DeepTech Shares actually held of record
by such holder. Nominee record holders, which include nominees, trustees or any
other person that holds DeepTech Shares in any capacity whatsoever on behalf of
more than one person or entity, are entitled to make an election for such
nominee record holders as well as an election on behalf of each beneficial owner
of DeepTech Shares held through such nominee record holders, but such elections
must be made on one Form of Election and Letter of Transmittal. Beneficial
owners who are not record holders are not entitled to submit Forms of Election
and Letters of Transmittal. Persons submitting a Form of Election and Letter of
Transmittal on behalf of a registered shareholder as trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or acting in
another fiduciary or representative capacity should refer to Instruction 8
above.
15. MISCELLANEOUS. Neither El Paso nor the Exchange Agent is under any duty
to give notification of defects in any Form of Election and Letter of
Transmittal. El Paso and the Exchange Agent shall not incur any liability for
failure to give such notification, and each of El Paso and the Exchange Agent
has the absolute right to reject any and all Forms of Election and Letters of
Transmittal not in proper form or to waive any irregularities in any Form of
Election and Letter of Transmittal.
16. INFORMATION AND ADDITIONAL COPIES. Information and additional copies of
this Form of Election and Letter of Transmittal may be obtained by telephoning
toll-free 1-800- .
IMPORTANT TAX INFORMATION
WITHHOLDING. Under the federal income tax law, the Exchange Agent is
required to file a report with the IRS disclosing any payments of cash being
made to each holder of Certificates pursuant to the Merger Agreement and to
impose 31% backup withholding if required. If the correct certifications on
Substitute Form W-9 are not provided, a $50 penalty may be imposed by the IRS
and payments made for Shares may be subject to backup withholding of 31%.
Withholding is also required if the IRS notifies the recipient that they are
subject to backup withholding as a result of a failure to report interest and
dividends.
In order to avoid backup withholding of federal income tax resulting from a
failure to provide a correct certification, a United States ("U.S.") citizen or
resident or other U.S. entity must, unless an exemption applies, provide the
Exchange Agent with his or her correct TIN on Substitute Form W-9 as set forth
on this Form of Election and Letter of Transmittal. Such person must certify
under penalties of perjury that such number is correct and that such holder is
not otherwise subject to backup withholding. The TIN that must be provided is
that of the registered holder of the Certificate(s) or of the last transferee
appearing on the transfers attached to or endorsed on the Certificate(s) (or, if
a check is made payable to another person as provided in the box entitled
"Special Issuance and Payment Instructions," then the TIN of such person).
Foreign investors should consult their tax advisors regarding the need to
complete IRS Form W-8 and any other forms that may be required.
Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person 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 from the IRS.
Please read the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional important
information on how to complete the Substitute Form W-9.
17
<PAGE> 18
ELECTIONS. As set forth in the Proxy Statement/Prospectus, the Merger
generally will not subject stockholders of DeepTech to U.S. federal income tax
to the extent they receive El Paso Common Stock pursuant to the Merger. DeepTech
stockholders that receive both cash and El Paso Common Stock will recognize
gain, if any, but not loss, equal to the lesser of the cash received and the
gain realized, computed separately for each block of DeepTech Shares exchanged
in the Merger. If a DeepTech stockholder receives only cash in the Merger, or if
the Merger is restructured as a taxable transaction as described above, DeepTech
stockholders will generally recognize gain or loss equal to the difference
between the value of the consideration received in the Merger (the cash and/or
the El Paso Common Stock) and the stockholder's basis in the DeepTech Shares
surrendered. In general, any gain recognized in the Merger by a DeepTech
stockholder will be capital gain, although under unusual circumstances it could
be ordinary income.
The foregoing is a summary of the anticipated federal income tax
consequences under the Code and is for general information only. It does not
include consequences of state, local or other tax laws or special consequences
to particular shareholders having special situations. DeepTech stockholders
should consult their own advisors regarding specific tax consequences of the
Merger to them.
<TABLE>
<S> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------
Please Fill in Your Name and Address Below:
- - ----------------------------------------------------------------------------------------------------------------------
Name (if joint ownership, list first and circle the name of the person or entity whose number is entered in Part 1)
- - ----------------------------------------------------------------------------------------------------------------------
Address (number and street)
- - ----------------------------------------------------------------------------------------------------------------------
City, State and Zip Code
- - ----------------------------------------------------------------------------------------------------------------------
PAYER'S NAME:
- - ----------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- Please provide your Taxpayer Social Security Number(s)
FORM W-9 Identification Number in the box at right OR
and certify by signing and dating below. Employer Identification Number(s)
DEPARTMENT OF THE TREASURY ---------------------------------
INTERNAL REVENUE SERVICE See the enclosed "Guidelines for
Certification of Taxpayer Identification
Number on Substitute Form W-9" for
instructions.
-------------------------------------------------------------------------------------
PAYER'S REQUEST FOR PART 2 -- Exempt Payees [ ] PART 3
TAXPAYER IDENTIFICATION
NUMBER (TIN) Awaiting TIN [ ]
- - ----------------------------------------------------------------------------------------------------------------------
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on the form is my correct Taxpayer Identification Number (or I am waiting for a number to be
issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) 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 (c) the IRS has notified me that I am no longer subject to backup
withholding.
CERTIFICATE 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 are subject to backup withholding you received another notification from the IRS
stating that you are no longer subject to backup withholding, do not cross out item (2). If you are exempt from
backup withholding, check the box in Part 2 above.
- - ----------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------- ------------------------------------
Signature Date
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM OF ELECTION AND LETTER OF
TRANSMITTAL, INCLUDING THE SUBSTITUTE FORM W-9, MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER. PLEASE REVIEW THE
ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
18
<PAGE> 19
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within 60 days, 31% of all
reportable payments made to me thereafter will be withheld until I provide such
number.
<TABLE>
<CAPTION>
<S> <C>
- - --------------------------------------------------- ---------------------------------------------------
Signature Date
</TABLE>
19
<PAGE> 20
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN--The Taxpayer Identification Number for most individuals is your Social
Security number. Refer to the following chart to determine the appropriate
number:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------- --------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
GIVE THE SOCIAL IDENTIFICATION
SECURITY NUMBER OF -- NUMBER OF --
- - -------------------------------------------------------------- --------------------------------------------------------------
<S> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner(3)
2. Two or more individuals The actual owner of the 7. A valid trust, estate, or Legal entity(4)
(joint account) account or, if combined pension trust
funds, the first individual on
the account(1)
3. Custodian account of a The minor(2) 8. Corporate The corporation
minor (Uniform Gift to
Minors Act)
4. a. The usual revocable The grantor-trustee(1) 9. Association, club, The organization
savings trust (grantor is religious, charitable,
also trustee) educational or other tax-
exempt organization
b. So-called trust account The actual owner(1)
that is not a legal or valid
trust under state law
5. Sole proprietorship The owner(3) 10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the The public entity
Department of
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. If
only one person on a joint account has a Social Security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business
name or "doing business as" name. You may use either your Social Security
number or your employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
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.
20
<PAGE> 21
B. EXEMPT PAYEES -- 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
any 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 non-resident 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 Substitute 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, dividend, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A, 6045 and 6050A, and their
regulations.
21
<PAGE> 22
C. OBTAINING A NUMBER -- If you do not have a taxpayer identification number or
you do not know your number, obtain Form SS-5, application for a Social
Security Number, 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.
D. 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 and to help verify the accuracy of your tax return. IRS may also
provide this information to the Department of Justice for civil and criminal
litigation and to cities, states and the District of Columbia to carry out
their tax laws. Payers must be given the numbers whether or not recipients
are required to file tax returns. Payers must generally withhold 31% of
taxable-interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number. Certain penalties may also
apply.
E. 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.
22
<PAGE> 1
EXHIBIT 99.2
[Front of Proxy Card]
SOLICITED BY THE BOARD OF DIRECTORS OF
DEEPTECH INTERNATIONAL INC.
SPECIAL MEETING OF STOCKHOLDERS
, 1998
The undersigned hereby appoints Thomas P. Tatham and _____________, and
each or either of them, with power of substitution, proxies for the undersigned
and authorizes them to represent and vote, as designated, all of the shares of
common stock, par value $.01 per share ("Common Stock"), of DeepTech
International Inc. ("DeepTech") held of record by the undersigned on __, 1998,
at the Special Meeting of Stockholders (the "Special Meeting") which will be
held at ___________, Houston, Texas, on _____, 1998 if necessary in connection
with the approval of the Agreement and Plan of Merger, dated as of February 27,
1998, as amended by Amendment No. 1 dated ________, 1998 (as amended, the
"Amended Merger Agreement"), among DeepTech, El Paso Natural Gas Company ("El
Paso"), El Paso Acquisition Company, a wholly owned subsidiary of El Paso
("Merger Sub") and El Paso Energy Corporation, a wholly owned subsidiary of El
Paso ("El Paso Energy"), and the merger (the "Merger") of DeepTech with El Paso
Energy or a subsidiary of El Paso Energy, and the transactions contemplated by
the Amended Merger Agreement and at any adjournment(s) or postponement(s) of
such meeting for the purpose identified on the reverse side of this proxy and
with discretionary authority as to any other matters that may properly come
before the Special Meeting. This proxy when properly executed will be voted in
the manner directed herein by the undersigned stockholder. If this proxy is
returned without direction being given, this proxy will be voted FOR proposal 1.
SEE (IMPORTANT -- TO BE SIGNED AND DATED ON REVERSE SIDE) REVERSE SIDE
<PAGE> 2
[Reverse of Proxy Card]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. APPROVAL OF THE AMENDED MERGER AGREEMENT AND THE MERGER.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF.
[ ] Mark here for comments
[ ] Mark here for address change and note at left.
Please mark, sign, date and return this proxy card promptly using the
enclosed envelope. Please sign exactly as your name appears. If acting as
attorney, executor, trustee or in other representative capacity, sign name and
title. If a corporation, please sign in full corporation name by president or
other authorized officer. If a partnership, please sign in partnership name by
authorized person. If held jointly, both parties must sign and date.
Signature :_______________ Date:_____________
Signature :_______________ Date:_____________
<PAGE> 1
EXHIBIT 99.3
[THIS FORM OF CONSENT IS TO BE USED ONLY IF A STOCKHOLDER OTHER THAN
CEDE & CO. IS THE HOLDER OF RECORD]
DEEPTECH INTERNATIONAL INC.
FORM OF WRITTEN CONSENT
OF
STOCKHOLDER
PURSUANT TO SECTION 228 OF THE GENERAL CORPORATION LAW OF DELAWARE
The undersigned, being the holder of record of the shares (the "Shares") of
common stock, par value $0.01 per share, of DeepTech International Inc., a
Delaware corporation (the "Corporation"), listed on Schedule 1 hereto, HEREBY
CONSENTS IN WRITING, in accordance with Section 228 of the General Corporation
Law of the State of Delaware and the Certificate of Incorporation and By-Laws of
the Corporation, to the adoption of the following resolution and the taking of
all action permitted thereby, without a meeting, without prior notice and
without a vote.
RESOLVED, that the Agreement and Plan of Merger, dated as of February
27, 1998 (the "Merger Agreement"), as amended by Amendment No. 1 dated
, 1998 (as amended, the "Amended Merger Agreement"), among
DeepTech, El Paso Natural Gas Company ("El Paso"), El Paso Acquisition
Company, a wholly owned subsidiary of El Paso ("Merger Sub") and El Paso
Energy Corporation, a wholly owned subsidiary of El Paso ("El Paso
Energy"), and the merger contemplated by the Amended Merger Agreement be,
and they hereby are approved, adopted, ratified and confirmed in all
respects.
The name and address of the beneficial owner and the number of Shares owned
by such beneficial owner are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF BENEFICIAL OWNER NUMBER OF SHARES
------------------- ----------------
<S> <C>
</TABLE>
IN WITNESS WHEREOF, the undersigned has executed this Written Consent as of
the day of , 1998.
------------------------------------
<PAGE> 1
EXHIBIT 99.4
[THIS FORM OF CONSENT IS TO BE USED
ONLY IF CEDE & CO. IS THE HOLDER OF
RECORD]
DEEPTECH INTERNATIONAL INC.
FORM OF WRITTEN CONSENT
OF
STOCKHOLDER
PURSUANT TO SECTION 228 OF THE
GENERAL CORPORATION LAW OF DELAWARE
The undersigned, being the holder of record of the shares (the "Shares") of
common stock, par value $0.01 per share, of DeepTech International Inc., a
Delaware corporation (the "Corporation"), listed below, HEREBY CONSENTS IN
WRITING, in accordance with Section 228 of the General Corporation Law of the
State of Delaware and the Certificate of Incorporation and By-Laws of the
Corporation, to the adoption of the following resolution and the taking of all
action permitted thereby, without a meeting, without prior notice and without a
vote.
RESOLVED, that the Agreement and Plan of Merger, dated as of February
27, 1998 (the "Merger Agreement"), as amended by Amendment No. 1 dated
, 1998 (as amended, the "Amended Merger Agreement"), among
DeepTech, El Paso Natural Gas Company ("El Paso"), El Paso Acquisition
Company, a wholly owned subsidiary of El Paso ("Merger Sub") and El Paso
Energy Corporation, a wholly owned subsidiary of El Paso ("El Paso
Energy"), and the merger contemplated by the Amended Merger Agreement be,
and they hereby are approved, adopted, ratified and confirmed in all
respects.
While Cede & Co. is furnishing this consent as the stockholder of record of
the Shares, it does so at the request of [Name of Participant] and only as a
nominal party for the true party in interest, [Name of Beneficial Owner]. Cede &
Co. has no interest in this matter other than to take those steps which are
necessary to ensure that [Name of Beneficial Owner] is not denied his rights as
the beneficial owner of the Shares, and Cede & Co. assumes no further
responsibility in this matter.
The name and address of the beneficial owner and the number of Shares owned
by such beneficial owner are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF BENEFICIAL OWNER NUMBER OF SHARES
------------------- ----------------
<S> <C>
</TABLE>
IN WITNESS WHEREOF, the undersigned has executed this Written Consent as of
the day of , 1998.
------------------------------------
