<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Amendment No. 2
Under the Securities Exchange Act of 1934
CORNERSTONE NATURAL GAS, INC.
(Name of Issuer)
Common Stock, $0.10 par value per share
------------------------------------------------------------
(Title of Class of Securities)
21922D 10 2
------------------------------------------------------------
(CUSIP Number)
Ray C. Davis
8080 N. Central Expressway, Suite 1200
Dallas, Texas 75206
(214) 691-5536
------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
April 20, 1996
------------------------------------------------------------
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with this statement [ ].
Page 1 of __ pages
Exhibit Index appears on Page 11
<PAGE> 2
<TABLE>
<S> <C> <C>
CUSIP NO. 21922D 10 2 13D Page 2 of __ Pages
(1) Name of Reporting Person Ray C. Davis
S.S. or I.R.S. Identification No. of Above Person ###-##-####
(2) Check the Appropriate box if a Member of a Group (a)
(See instruc-tions) (b) x
(3) SEC Use Only
-------------------
(4) Source of Funds (See instruc-tions) PF
(5) Check if Disclosure of Legal Proceedings is required Not Applicable
Pursuant to Items 2(d) or 2(e)
(6) Citizenship or Place of Organization United States
Number of Shares (7) Sole Voting
Beneficially Power 381,388
Owned by Each -----------------
Reporting Per- (8) Shared Voting
son With Power 2,958,047
-----------------
(9) Sole Disposi-
tive Power 1,210,619
-----------------
(10) Shared Dis-
positive
Power 3,787,278
-----------------
(11) Aggregate Amount Beneficially Owned by Each 1,210,619
Reporting Person -----------------
(12) Check if the Aggregate Amount in Row (11) Excludes Not applicable
Certain Shares (See Instructions)
(13) Percent of Class Represented by Amount in Row (11) 9.1%
(14) Type of Reporting Person (See Instructions) IN
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
CUSIP NO. 21922D 10 2 13D Page 3 of __ Pages
(1) Name of Reporting Person Ben H. Cook Inc.
S.S. or I.R.S. Identification No. of Above Person ###-##-####
(2) Check the Appropriate box if a Member of a Group (a)
(See instruc-tions) (b) x
(3) SEC Use Only
-------------------
(4) Source of Funds (See instruc-tions) PF
(5) Check if Disclosure of Legal Proceedings is required Not Applicable
Pursuant to Items 2(d) or 2(e)
(6) Citizenship or Place of Organization United States
Number of Shares (7) Sole Voting
Beneficially Power 1,618,612
Owned by Each -----------------
Reporting Per- (8) Shared Voting
son With Power -0-
-----------------
(9) Sole Disposi-
tive Power 2,131,433
-----------------
(10) Shared Dis-
positive
Power -0-
-----------------
(11) Aggregate Amount Beneficially Owned by Each 2,131,433
Reporting Person -----------------
(12) Check if the Aggregate Amount in Row (11) Excludes Not applicable
Certain Shares (See Instructions)
(13) Percent of Class Represented by Amount in Row (11) 16.36%
(14) Type of Reporting Person (See Instructions) IN
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
CUSIP NO. 21922D 10 2 13D Page 4 of __ Pages
(1) Name of Reporting Person Kelcy L. Warren
S.S. or I.R.S. Identification No. of Above Person ###-##-####
(2) Check the Appropriate box if a Member of a Group (a)
(See instruc-tions) (b) x
(3) SEC Use Only
-------------------
(4) Source of Funds (See instruc-tions) PF
(5) Check if Disclosure of Legal Proceedings is required Not Applicable
Pursuant to Items 2(d) or 2(e)
(6) Citizenship or Place of Organization United States
Number of Shares (7) Sole Voting
Beneficially Power 352,465
Owned by Each -----------------
Reporting Per- (8) Shared Voting
son With Power -0-
-----------------
(9) Sole Disposi-
tive Power 1,181,696
-----------------
(10) Shared Dis-
positive
Power -0-
-----------------
(11) Aggregate Amount Beneficially Owned by Each 1,181,696
Reporting Person -----------------
(12) Check if the Aggregate Amount in Row (11) Excludes Not applicable
Certain Shares (See Instructions)
(13) Percent of Class Represented by Amount in Row (11) 8.85%
(14) Type of Reporting Person (See Instructions) IN
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
CUSIP NO. 21922D 10 2 13D Page 5 of __ Pages
(1) Name of Reporting Person Clarence Mayer
S.S. or I.R.S. Identification No. of Above Person ###-##-####
(2) Check the Appropriate box if a Member of a Group (a)
(See instruc-tions) (b) x
(3) SEC Use Only
-------------------
(4) Source of Funds (See instruc-tions) PF
(5) Check if Disclosure of Legal Proceedings is required Not Applicable
Pursuant to Items 2(d) or 2(e)
(6) Citizenship or Place of Organization United States
Number of Shares (7) Sole Voting
Beneficially Power -0-
Owned by Each -----------------
Reporting Per- (8) Shared Voting
son With Power -0-
-----------------
(9) Sole Disposi-
tive Power 256,410
-----------------
(10) Shared Dis-
positive
Power -0-
-----------------
(11) Aggregate Amount Beneficially Owned by Each 256,410
Reporting Person -----------------
(12) Check if the Aggregate Amount in Row (11) Excludes Not applicable
Certain Shares (See Instructions)
(13) Percent of Class Represented by Amount in Row (11) 2.0%
(14) Type of Reporting Person (See Instructions) IN
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
CUSIP NO. 21922D 10 2 13D Page 6 of __ Pages
(1) Name of Reporting Person Kelly Jameson
S.S. or I.R.S. Identification No. of Above Person ###-##-####
(2) Check the Appropriate box if a Member of a Group (a)
(See instruc-tions) (b) x
(3) SEC Use Only
-------------------
(4) Source of Funds (See instruc-tions) PF
(5) Check if Disclosure of Legal Proceedings is required Not Applicable
Pursuant to Items 2(d) or 2(e)
(6) Citizenship or Place of Organization United States
Number of Shares (7) Sole Voting
Beneficially Power 3,328
Owned by Each -----------------
Reporting Per- (8) Shared Voting
son With Power -0-
-----------------
(9) Sole Disposi-
tive Power 274,738
-----------------
(10) Shared Dis-
positive
Power -0-
-----------------
(11) Aggregate Amount Beneficially Owned by Each 274,738
Reporting Person -----------------
(12) Check if the Aggregate Amount in Row (11) Excludes Not applicable
Certain Shares (See Instructions)
(13) Percent of Class Represented by Amount in Row (11) 2.148%
(14) Type of Reporting Person (See Instructions) IN
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
CUSIP NO. 21922D 10 2 13D Page 7 of __ Pages
(1) Name of Reporting Person Endevco Investors
S.S. or I.R.S. Identification No. of Above Person Joint Venture d/b/a
Ray Davis, Trustee
75-205526
(2) Check the Appropriate box if a Member of a Group (a)
(See instruc-tions) (b) x
(3) SEC Use Only
-------------------
(4) Source of Funds (See instruc-tions) PF
(5) Check if Disclosure of Legal Proceedings is required Not Applicable
Pursuant to Items 2(d) or 2(e)
(6) Citizenship or Place of Organization Texas Joint Venture
Number of Shares (7) Sole Voting
Beneficially Power 2,576,659
Owned by Each -----------------
Reporting Per- (8) Shared Voting
son With Power -0-
-----------------
(9) Sole Disposi-
tive Power 2,576,659
-----------------
(10) Shared Dis-
positive
Power -0-
-----------------
(11) Aggregate Amount Beneficially Owned by Each 2,576,659
Reporting Person -----------------
(12) Check if the Aggregate Amount in Row (11) Excludes Not applicable
Certain Shares (See Instructions)
(13) Percent of Class Represented by Amount in Row (11) 20.59%
(14) Type of Reporting Person (See Instructions) PN
</TABLE>
<PAGE> 8
CUSIP NO. 21922D 10 2 13D Page 8 of __ Pages
The Statement relates to Common Stock, par value $0.10 per share, of
Cornerstone Natural Gas, Inc., a Delaware corporation ("Cornerstone" or the
"Company"), held by Ray C. Davis, Kelcy L. Warren, Ben H. Cook, Clarence Mayer,
Kelly Jameson and Endevco Investors Joint Venture, and amends and supplements a
Schedule 13d filed by such persons on November 23, 1993.
Item 1. Security and Issuer.
This Item is not amended.
Item 2. Identity and Background.
This Item is not amended.
Item 3. Source and Amount of Funds or Other Consideration.
This Item is not amended.
Item 4. Purpose of Transaction.
This Item is amended by the addition of the following:
On April 20, 1996, each of the above Reporting Persons entered
into an option agreement dated as of April 20, 1996 (the "Option
Agreement") with El Paso Natural Gas, Company, a Delaware corporation
("Parent") and The El Paso Company a Delaware corporation (the
"Merger Sub") under which the Purchaser was granted an option to
acquire all of the securities of the Company held by the Reporting
Persons. A copy of such Option Agreement is attached hereto as an
exhibit and is incorporated herein.
In connection with the Option Agreement, the Company, the
Parent and the Merger Sub have entered into an Agreement and Plan of
Merger dated as of April 20, 1996 (the "Merger Agreement") under which
the Merger Sub and the Parent will acquire all of the issued and
outstanding shares of capital stock of the Company for $6.00 per share
net to the seller. In connection with the Merger Agreement, the
Merger Sub has agreed to commence a tender offer for all of the issued
and outstanding shares of capital stock of the Company on or before
April 26, 1996.
In order to induce the Parent and the Merger Sub to execute
and deliver the Merger Agreement, each Ray C. Davis, Kelcy L. Warren
and Ben H. Cook have entered into Non-Competition Agreements with the
Company.
<PAGE> 9
CUSIP NO. 21922D 10 2 13D Page 9 of __ Pages
Item 5. Interest in Securities of the Issuer.
This Item is amended by the addition of the following:
On April 20, 1996, each of the Reporting Persons granted an
option on all shares of common stock, warrants and options held by
such persons to the Parent and the Merger Sub.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect
to Securities of the Issuer.
This Item is amended to add the following:
Each of the Reporting Persons have entered into the Option
Agreement. Each of Ray C. Davis, Ben H. Cook and Kelcy L. Warren
have entered into Non-Competition Agreements with the Company. Such
agreements were executed in order to induce the Parent and the Merger
Sub to enter into the Merger Agreement with the Company.
Item 7. MATERIAL TO BE FILED AS EXHIBITS.
The response to Item 7 is hereby amended by the following:
EXHIBIT 99(A) Option Agreement
EXHIBIT 99(B) Agreement and Plan of Merger dated as of
April 20, 1996 among Cornerstone
Natural Gas, Inc., El Paso Natural Gas,
Company, and The El Paso Company
EXHIBIT 99(C) Non-Competition Agreement dated as of April
20, 1996 between Cornerstone Natural Gas,
Inc. and Ray C. Davis
EXHIBIT 99(D) Non-Competition Agreement dated as of April
20, 1996 between Cornerstone Natural Gas,
Inc. and Ben H. Cook
EXHIBIT 99(E) Non-Competition Agreement dated as of April
20, 1996 between Cornerstone Natural Gas,
Inc. and Kelcy L. Warren
<PAGE> 10
CUSIP NO. 21922D 10 2 13D Page 10 of __ Pages
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief,
the undersigned does hereby certify that the information set forth in this
statement is true, complete and correct.
DATE: April 24, 1996
/s/ RAY DAVIS
------------------------------
RAY DAVIS
/s/ BEN H. COOK
------------------------------
BEN H. COOK
/s/ KELCY L. WARREN
------------------------------
KELCY L. WARREN
/s/ CLARENCE MAYER
------------------------------
CLARENCE MAYER
/s/ KELLY JAMESON
------------------------------
KELLY JAMESON
ENDEVCO INVESTORS JOINT VENTURE
By: /s/ RAY DAVIS
-------------------------
RAY DAVIS, TRUSTEE AND
MANAGING PARTNER
ATTENTION: INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACT CONSTITUTE FEDERAL
CRIMINAL VIOLATION (SEE 18 U.S.C. Section 1001).
<PAGE> 11
CUSIP NO. 21922D 10 2 13D Page 11 of __ Pages
EXHIBIT INDEX Page
EXHIBIT 99(A) Option Agreement dated as of April 20, 1996 by and among the
holders named therein, El Paso Natural Gas, Company, The El
Paso Company
EXHIBIT 99(B) Merger Agreement dated as of April 20, 1996 among Cornerstone
Natural Gas, Inc., El Paso Natural Gas, Company, and The
El Paso Company
EXHIBIT 99(C) Non-Competition Agreement dated as of April 20, 1996 between
Cornerstone Natural Gas, Inc. and Ray Davis
EXHIBIT 99(D) Non-Competition Agreement dated as of April 20, 1996 between
Cornerstone Natural Gas, Inc. and Ben H. Cook
EXHIBIT 99(E) Non-Competition Agreement dated as of April 20, 1996 between
Cornerstone Natural Gas, Inc. and Kelcy L. Warren
<PAGE> 1
OPTION AGREEMENT
OPTION AGREEMENT (this "Agreement") dated as of April 20, 1996 among the
persons listed on Schedule 1 hereto (each, a "Holder" and, collectively, the
"Holders"), El Paso Natural Gas Company, a Delaware corporation ("Parent"), and
The El Paso Company, a Delaware corporation and a wholly owned subsidiary of
Parent (the "Purchaser"). Parent, the Purchaser and Cornerstone Natural Gas,
Inc., a Delaware corporation (the "Company"), propose to enter into an
Agreement and Plan of Merger (the "Merger Agreement") on the date of this
Agreement providing for the making of a tender offer by Purchaser (the "Offer")
for shares of Common Stock, par value $.10 per share, of the Company (the
"Company Common Stock"), at a purchase price of $6.00 per share, and a
subsequent merger (the "Merger") between the Company and the Purchaser.
Each Holder owns the number of shares of Company Common Stock (the
"Shares"), options to purchase Company Common Stock (the "Stock Options") or
warrants to purchase shares of Company Common Stock (the "Warrants" and,
collectively with the Stock Options and the Shares, the "Optioned Securities"),
or has the right to vote the number of Shares or other securities (the "Voting
Securities"), listed opposite the name of such Holder on Schedule 1. Parent
and the Purchaser have required, as a condition to entering into the Merger
Agreement, that the Holders enter into this Agreement. The Holders believe
that it is in the best interest of the Company and its stockholders to induce
Parent and the Purchaser to enter into the Merger Agreement and, therefore, the
Holders are willing to enter into this Agreement.
Accordingly, in consideration of the mutual covenants and agreements set
forth herein and in consideration of $1.00 and such other valuable
consideration the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. The Option. Each Holder hereby grants the Purchaser an
irrevocable option (the "Option") to purchase all of the Optioned Securities of
such Holder at the price set forth with respect to such Optioned Securities on
Schedule 1 (or such higher price as may be paid pursuant to the Offer), payable
in cash, without interest.
2. Exercise of the Option; Term. On the terms and subject to the
conditions of this Agreement, (a) the Purchaser may exercise the Option at any
time after later of (i) December 2, 1996, (ii) the date on which all waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), applicable to the exercise of the Option have expired
or been terminated and (iii) the date of expiration or termination of the
Offer, by written notice to each Holder specifying a date and time for the
closing not later than thirty (30) business days from the date of such notice
(which date and time may be one day after the delivery of such notice or
earlier if reasonably practicable), but only if (b) (i) the Merger Agreement
shall have been terminated and (ii) either (A) the stockholders of the Company
shall have failed to approve the Merger at the stockholders' meeting
contemplated by Section 9.4 of the Merger Agreement (the "Meeting"), (B) the
Meeting shall not have
<PAGE> 2
occurred (other than by reason of a breach by Parent or the Purchaser of its
obligations under the Merger Agreement), or (C) the termination fee
contemplated by Section 11.5(a) of the Merger Agreement shall have become due
and payable or the Merger Agreement shall have been terminated pursuant to
Section 11.2(e) or Section 11.4(c), (d), (e) or (f); provided that, (x)
notwithstanding clause (a)(i) of this sentence, the Purchaser may exercise the
Option at any time after the later of the periods prescribed in clauses (a)(ii)
and (a)(iii) of this sentence, if the Merger Agreement shall have been
terminated pursuant to Section 11.2(e) or Section 11.4(c), (d), (e) or (f) and
(y) notwithstanding clause (b) of this sentence, the Purchaser shall exercise
the Option if the Offer has been consummated in accordance with its terms. The
Option shall expire on the earliest of (a) the Effective Time (as defined in
the Merger Agreement), or (b) twelve months after the termination of the Merger
Agreement (but in any event not later than June 30, 1997) (such expiration date
is referred to herein as the "Expiration Date").
3. Closing. At the closing:
(a) against delivery of the Optioned Securities, free and
clear of all liens, claims, charges and encumbrances of any kind or
nature whatsoever, Parent shall cause the Purchaser to make payment to
each Holder of the aggregate price for such Holder's Optioned Securities
by wire transfer of immediately available funds; and
(b) each Holder shall deliver to the Purchaser a duly executed
certificate or certificates representing the number of Optioned
Securities purchased from such Holder, together with transfer powers
endorsed in blank relating to such certificates and, if requested by the
Purchaser, an irrevocable proxy (subject to receiving an opinion from
the Purchaser's counsel that such proxy does not violate the federal
proxy rules), duly executed by such Holder, authorizing such persons as
the Purchaser shall designate to act for such Holder as his lawful
agents, attorneys and proxies, with full power of substitution, to vote
in such manner as each such agent, attorney and proxy or his substitute
shall in his sole discretion deem proper, and otherwise act with respect
to the Optioned Securities at any meeting (whether annual or special and
whether or not an adjourned meeting) of the Company's Holders or
otherwise, and revoking any prior proxies granted by such Holder with
respect to the Holder's Optioned Securities.
Notwithstanding any provision of this Agreement to the contrary, the
Holders shall validly tender their Shares pursuant to the Offer and shall not
withdraw such Shares prior to the expiration of the Offer, and their obligation
to sell any Optioned Securities shall be satisfied, solely with respect to the
Shares so tendered, upon the purchase of such Shares by the Purchaser pursuant
to the Offer. If the Shares, together with any other shares of Company Common
Stock validly tendered and not withdrawn pursuant to the Offer, satisfy the
Minimum Condition (as defined in the Merger Agreement), then, subject to the
terms and conditions of the Offer, the Purchaser shall purchase the Shares
pursuant to the Offer.
-2-
<PAGE> 3
4. Covenants of the Holders.
(a) During the period from the date of this Agreement until
the Expiration Date, except in accordance with the provisions of this
Agreement, each Holder severally and not jointly agrees that he will
not:
(i) sell, transfer, pledge, hypothecate, assign or
otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer,
pledge, hypothecation, assignment or other disposition of, any
Optioned Securities or Voting Securities;
(ii) deposit any Optioned Securities or Voting Securities
into a voting trust, or grant any proxies or enter into a voting
agreement with respect to any Optioned Securities or Voting
Securities; or
(iii) initiate, solicit or knowingly encourage, directly
or indirectly, any inquiries or the making or implementation of
any proposal that constitutes, or may reasonably be expected to
lead to, any Proposal (as defined in the Merger Agreement) or
enter into discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain a Proposal, or agree
to or endorse any Proposal; except that any Holder who is a
member of the board of directors of the Company may conduct
himself in the manner expressly permitted under Section 9.1 of
the Merger Agreement.
(b) Any additional shares of Company Common Stock, warrants,
options or other securities or rights exercisable for, exchangeable for
or convertible into shares of Company Common Stock (collectively,
"Equity Securities") acquired by any Holder will become subject to this
Agreement and shall, for all purposes of this Agreement, be considered
Optioned Securities or Voting Securities, as the case may be.
(c) Each Holder agrees not to engage in any action or omit to
take any action which would have the effect of preventing or disabling
such Holder from delivering his Optioned Securities to the Purchaser or
otherwise performing his obligations under this Agreement. To the
extent that any Optioned Securities (other than Company Common Stock)
may not be assigned by such Holder to the Purchaser without exercising,
exchanging or converting such Optioned Securities for or into Company
Common Stock, subject to the Purchaser making a non-interest bearing
loan as set forth below, each Holder agrees to exercise, exchange or
convert such Optioned Securities for or into Company Common Stock prior
to the closing of the purchase of such Optioned Securities upon exercise
of the Option. In order to facilitate the exercise of any Stock Option,
the Purchaser shall loan to any requesting Holder funds sufficient to
allow such Holder to exercise the Stock Option. Such loan shall be non-
interest bearing and, at the Purchaser's option, shall be secured by a
pledge of the shares of Company Common Stock acquired upon exercise of
such Stock Option.
-3-
<PAGE> 4
5. Representations and Warranties of each Holder. Each Holder
severally and not jointly represents and warrants to Parent and the Purchaser
as follows:
(a) (i) such Holder is the record or beneficial owner of
the Optioned Securities, or has the right to vote the Voting Securities,
listed opposite the name of such Holder on Schedule 1, (ii) such
Optioned Securities or Voting Securities are the only Equity Securities
owned of record or beneficially by such Holder or in which such Holder
has any interest or which such Holder has the right to vote, as the case
may be, and (iii) such Holder does not have any option or other right to
acquire any other Equity Securities;
(b) such Holder has the right, power and authority to execute
and deliver this Agreement and to perform his obligations hereunder; the
execution, delivery and performance of this Agreement by such Holder
will not require the consent of any other person and will not constitute
a violation of, conflict with or result in a default under (i) any
contract, understanding or arrangement to which such Holder is a party
or by which such Holder is bound, (ii) any judgment, decree or order
applicable to such Holder, or (iii) any law, rule or regulation of any
governmental body applicable to such Holder; and this Agreement
constitutes a valid and binding agreement on the part of such Holder,
enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity;
(c) any Shares included in the Optioned Securities owned by
such Holder have been validly issued and are fully paid and
nonassessable and any shares of Company Common Stock issuable upon
exercise of the Stock Options or Warrants, when issued and upon payment
of the exercise price therefor, will be validly issued, fully paid and
nonassessable;
(d) except as set forth on Schedule 1 and except for the
Endevco Investors Joint Venture Agreement, which will terminate on or
before sale of the Optioned Securities, the Optioned Securities owned by
such Holder are now, and at all times during the term of this Agreement
will be, held by such Holder free and clear of all adverse claims,
liens, encumbrances and security interests, and none of the Optioned
Securities or Voting Securities are subject to any voting trust or other
agreement or arrangement (except as created by this Agreement) with
respect to the voting or disposition of the Optioned Securities or
Voting Securities; and there are no outstanding options, warrants or
rights to purchase or acquire, or agreements (except for this Agreement)
relating to, such Optioned Securities or Voting Securities; and
(e) upon purchase of the Optioned Securities owned by such
Holder, the Purchaser will obtain good and marketable title to such
Optioned Securities, free and clear of all adverse claims, liens,
encumbrances and security interests (except any created by the
Purchaser).
-4-
<PAGE> 5
6. Effect of Representations, Warranties and Covenants of Holders.
The representations, warranties and covenants of the Holders shall be several
and not joint. The liability of each individual Holder shall extend only to
the representations, warranties and covenants of such Holder and not to any
representation, warranty or covenant of any other Holder.
7. Representations and Warranties of Parent and the Purchaser. Each
of Parent and the Purchaser hereby represents and warrants to each Holder that:
it is a corporation duly formed under the laws of the State of Delaware; it has
all requisite corporate power and authority to enter into and perform all its
obligations under this Agreement; the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on its part; this Agreement has
been duly executed and delivered by it; and this Agreement constitutes a valid
and binding agreement on its part, enforceable in accordance with its terms,
subject to applicable bankruptcy insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
8. Voting of Equity Securities. Each Holder listed on Exhibit A
hereby agrees that, during the time this Agreement is in effect, at any meeting
of the stockholders of the Company, however called, and in any action by
written consent of the stockholders of the Company, he shall (a) vote all
Voting Securities of such Holder in favor of the Merger; (b) not vote any
Voting Securities in favor of any action or agreement which would result in a
breach in any material respect of any covenant, representation or warranty or
any other obligation of the Company under the Merger Agreement; and (c) vote
all Voting Securities of such Holder against any action or agreement which
would impede, interfere with or attempt to discourage the Offer or the Merger,
including, but not limited to: (i) any Proposal (other than the Offer and the
Merger) involving the Company or any of its subsidiaries; (ii) any change in
the management or board of directors of the Company, except as otherwise agreed
to in writing by the Purchaser; (iii) any material change in the present
capitalization or dividend policy of the Company; or (iv) any other material
change in the Company's corporate structure or business. At the request of the
Purchaser, each Holder listed on Exhibit A, in furtherance of the transactions
contemplated hereby and by the Merger Agreement, shall promptly execute and
deliver to the Purchaser an irrevocable proxy substantially in the form of
Exhibit B hereto and irrevocably appoint the Purchaser or its designees, its
attorney and proxy to vote all Voting Securities of such Holder, for all
purposes whatsoever, with full power of substitution. Each such Holder
acknowledges that this proxy (a) shall be coupled with an interest, (b)
constitutes, among other things, an inducement for Parent and the Purchaser to
enter into the Merger Agreement, and (c) shall be irrevocable and shall not be
terminated by operation of law upon the occurrence of any event. Any such
proxy shall terminate upon the termination of this Agreement.
9. Adjustments. In the event of any increase or decrease or other
change in the Optioned Securities by reason of stock dividends, split-up,
recapitalizations, combinations, exchanges of shares or the like, the number of
Optioned Securities and Voting Securities subject to this Agreement shall be
adjusted appropriately.
-5-
<PAGE> 6
10. Purchase of Warrants. Immediately following the purchase of
shares of Company Common Stock pursuant to the Offer, Parent shall purchase
(and the Holders shall sell) all outstanding Warrants held by the Holders, at a
purchase price per Warrant in cash equal to the excess, if any, of $6.00 (or
such higher cash price per share of Company Common Stock as shall be paid by
the Purchaser pursuant to the Offer) over the exercise price per share of
Company Common Stock covered by such Warrant, multiplied by the number of
shares of Company Common Stock covered by such Warrant. Each Holder shall
deliver to the Purchaser not less than two business days prior to the
expiration of the Offer the Warrants of such Holder and all documents necessary
or appropriate to effect the transactions contemplated by this Section 10, duly
executed by or on behalf of such Holder. All payments required by this Section
10 shall be made by wire transfer of immediately available funds at the
closing.
11. Governing Law. This Agreement shall be governed by and construed
in accordance with the law of the State of New York without regard to its rules
of conflict of laws.
12. Further Assurances. Each party hereto shall perform such further
acts and execute such further documents as may reasonably be required to carry
out the provisions of this Agreement.
13. Legend. As soon as practicable after the execution of this
Agreement, the following legend shall be placed on the certificates
representing the Optioned Securities:
"The Securities represented by this certificate are subject to
certain transfer and other restrictions contained in an Option
Agreement, dated as of April 20, 1996, among El Paso Natural Gas
Company, The El Paso Company and certain stockholders of the
Corporation."
14. Assignment. This Agreement may not be assigned by any party
hereto, except that the Purchaser may assign its right to purchase the Optioned
Securities to one or more of its affiliates.
15. Remedies. The parties agree that legal remedies for breach of
this Agreement will be inadequate and that this Agreement may be enforced by
Parent and the Purchaser by injunctive or other equitable relief.
16. Notices. All notices or other communications required or
permitted hereunder shall be in writing (except as otherwise provided herein)
and shall be deemed duly given if delivered in person, by confirmed facsimile
transmission or by overnight courier service, addressed as follows:
-6-
<PAGE> 7
To Parent or the Purchaser:
El Paso Natural Gas Company
100 North Stanton Street
El Paso, Texas 79901
Attention: H. Brent Austin,
Senior Vice President and
Chief Financial Officer
With a copy to:
Fried, Frank, Harris, Shriver
& Jacobson
One New York Plaza
New York, New York 10004
Attention: Gary P. Cooperstein, Esq.
Facsimile: (212) 859-4000
To each Holder:
At the address set forth beneath the name of such Holder on
Schedule 1
Akin, Gump, Strauss, Hauer & Feld, LLP
1700 Pacific Avenue., #4100
Dallas, Texas 75201
Attention: Jack Stillwell, Esq.
With copies to:
Schlanger, Mills, Mayer & Grossberg, LLP
5847 San Felipe, #1700
Houston, Texas 77057
Attention: Clarence Mayer, Esq.
17. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
-7-
<PAGE> 8
18. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same agreement.
19. Binding Effect; Benefits. This Agreement shall survive the death
or incapacity of any Holder and shall inure to the benefit of and shall be
binding upon the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns. Nothing in this Agreement,
expressed or implied, is intended to or shall confer on any person other than
the parties hereto and their respective heirs, legal representatives and
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
IN WITNESS WHEREOF, the Holders and the Purchaser have entered into this
Agreement as of the date first written above.
EL PASO NATURAL GAS COMPANY
By: /s/ H. Brent Austin
-----------------------------------
H. Brent Austin
THE EL PASO COMPANY
By: /s/ Robert G. Phillips
-----------------------------------
Robert G. Phillips
HOLDERS:
ENDEVCO INVESTORS JOINT VENTURE
By: /s/ Ray C. Davis
-----------------------------------
Ray C. Davis, Trustee
COLLINS & WARE, INC.
By: /s/ Ted Collins, Jr.
-----------------------------------
Ted Collins, Jr., President
/s/ James E. Davison
--------------------------------------
JAMES E. DAVISON
-8-
<PAGE> 9
H&S PRODUCTION, INC., PENSION TRUST
By: /s/ Scott G. Heape
-----------------------------------
Scott G. Heape, Trustee
/s/ Robert W. McDonald
--------------------------------------
ROBERT W. McDONALD
R. LACY, INC.
By: /s/ Neal A. Hawthorn
-----------------------------------
Neal A. Hawthorn, V.P.
/s/ Richard D. Brannon
--------------------------------------
RICHARD D. BRANNON, TRUSTEE
SANDOLLAR OIL & GAS, INC.
By: /s/ Jon P. Stephenson
-----------------------------------
Jon P. Stephenson
SMITH & CULPEPPER
By: /s/ Roger M. Smith
-----------------------------------
Roger M. Smith, G.P.
/s/ W.H. Hunt
--------------------------------------
W.H. HUNT
LYDA HUNT-HERBERT TRUSTS
DAVID S. HUNT
By: /s/ Gage A. Prichard, Trustee
/s/ John G. Rebensdorf, Trustee
-----------------------------------
-9-
<PAGE> 10
LYDA HUNT-HERBERT TRUSTS
DOUGLAS HUNT
By: /s/ Gage A. Prichard, Trustee
/s/ John G. Rebensdorf, Trustee
-----------------------------------
LYDA HUNT-HERBERT TRUSTS
BRUCE W. HUNT
By: /s/ Gage A. Prichard, Trustee
/s/ John G. Rebensdorf, Trustee
-----------------------------------
LYDA HUNT-HERBERT TRUSTS
BARBARA A. HUNT
By: /s/ Gage A. Prichard, Trustee
/s/ John G. Rebensdorf, Trustee
-----------------------------------
LYDA HUNT-HERBERT TRUSTS
LYDA BUNKER HUNT
By: /s/ Gage A. Prichard, Trustee
/s/ John G. Rebensdorf, Trustee
-----------------------------------
/s/ Ben H. Cook
--------------------------------------
BEN H. COOK
/s/ Ray C. Davis
--------------------------------------
RAY C. DAVIS
/s/ Kelcy L. Warren
--------------------------------------
KELCY L. WARREN
-10-
<PAGE> 11
/s/ James W. Bryant
--------------------------------------
JAMES W. BRYANT
/s/ Kelly J. Jameson
--------------------------------------
KELLY J. JAMESON
/s/ Clarence Mayer
--------------------------------------
CLARENCE MAYER
/s/ Robert L. Cavnar
--------------------------------------
ROBERT L. CAVNAR
-11-
<PAGE> 12
SCHEDULE 1
<TABLE>
<CAPTION>
Name Shares Stock Options Warrants Voting Securities
---- ------ ------------- -------- -----------------
<S> <C> <C> <C> <C>
Endevco Investors
Joint Venture
Collins & Ware, Inc. 228,833 0 0 228,833
James E. Davison 533,944 0 0 533,944
H&S Production, Inc 99,924 0 0 99,924
Robert W. McDonald 152,554 0 0 152,554
R. Lacy, Inc. 533,944 0 0 533,944
Richard D. Brannon, 0 0
Trustee 300,000 300,000
Sandollar Oil & Gas, 150,000 0 0 150,000
Inc.
Smith & Culpepper 43,516 0 0 43,516
W.H. Hunt 152,554 0 0 152,554
Lyda Hunt-Herbert
Trusts
David S. Hunt 76,278 0 0 76,278
Douglas Hunt 76,278 0 0 76,278
Bruce W. Hunt 76,278 0 0 76,278
Barbara A. Hunt 76,278 0 0 76,278
Lyda Bunker Hunt 76,278 0 0 76,278
Total 2,576,659 0 0 2,576,659
Ben H. Cook 1,618,612 0 512,821 1,618,612
Ray C. Davis 381,388 60,000 769,231 381,388
Kelcy L. Warren 352,465 60,000 769,231 352,465
James W. Bryant 509,062 0 0 509,062
Kelly J. Jameson 3,328 15,000 256,410 3,328
Clarence Mayer 0 0 256,410 0
Robert L. Cavnar 5,000 69,500 0 5,000
Total 5,446,514 204,500 2,564,103 5,446,514
</TABLE>
-12-
<PAGE> 13
EXHIBIT A
SECTION 8 HOLDERS
<TABLE>
<CAPTION>
Name Voting Securities
- ---- -----------------
<S> <C>
Ben H. Cook 1,618,612
Ray C. Davis 381,388
Kelcy L. Warren 352,465
James W. Bryant 509,062
R. Lacy, Inc. 533,944
James E. Davison 533,944
Richard D. Brannon, Trustee 300,000
Collins & Ware, Inc. 228,833
Robert W. McDonald 152,554
W.H. Hunt 152,554
Total 4,763,356
</TABLE>
-13-
<PAGE> 14
EXHIBIT B
PROXY
The undersigned hereby irrevocably appoints designees of The El Paso
Company, a Delaware corporation (the "Purchaser"), the attorneys, agents and
proxies, with full power of substitution, for the undersigned and in the name,
place and stead of the undersigned to vote in such manner as such attorneys,
agents and proxies or their substitutes shall in their sole discretion deem
proper and otherwise act, including the execution of written consents, with
respect to all voting equity securities (the "Securities"), of Cornerstone
Natural Gas, Inc., a Delaware corporation (the "Company"), which the
undersigned is or may be entitled to vote at any meeting of the Company held
after the date hereof, whether annual or special and whether or not an
adjourned meeting, or in respect of which the undersigned is or may be entitled
to act by written consent. This Proxy is coupled with an interest and shall be
irrevocable and binding on any successor in interest of the undersigned. This
Proxy shall operate to revoke any prior proxy as to the Securities heretofore
granted by the undersigned. This Proxy shall terminate upon the termination of
the Option Agreement dated as of April 20, 1996 among the undersigned, certain
other Holders, El Paso Natural Gas Company and the Purchaser.
Dated:
-14-
<PAGE> 1
================================================================================
AGREEMENT AND PLAN OF MERGER
among
EL PASO NATURAL GAS COMPANY,
THE EL PASO COMPANY
and
CORNERSTONE NATURAL GAS, INC.
Dated as of April 20, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Company Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3. Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. Certificate of Incorporation and By-laws of the Surviving Corporation . . . . . . . . . 5
3.1. Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2. By-laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Directors and Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . . 6
4.1. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Conversion of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1. Conversion of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6. Dissenting Shares; Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2. Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . 10
7.1. Existence; Good Standing; Corporate Authority; Compliance With Law . . . . . . . 10
7.2. Authorization, Validity and Effect of Agreements . . . . . . . . . . . . . . . . 11
7.3. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.5. Other Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.6. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.7. Proxy Statement; Offer Documents; Schedule 14D-1; Schedule 14D-9 . . . . . . . . 13
7.8. SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.9. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.10. Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.12. Certain Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.13. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.14. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.15. Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.16. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.17. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8. Representations and Warranties of Parent and Merger Sub . . . . . . . . . . . . . . . . 19
8.1. Existence; Good Standing; Corporate Authority; Compliance with Law . . . . . . . 19
8.2. Authorization, Validity and Effect of Agreements . . . . . . . . . . . . . . . . 19
8.3. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.4. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.5. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.6. Proxy Statement; Offer Documents; Schedule 14D-1; Schedule 14D-9 . . . . . . . . 20
9. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.1. No Solicitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . 21
9.2. Conduct of Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.3. Board Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.4. Meeting of the Company's Stockholders . . . . . . . . . . . . . . . . . . . . . 25
9.5. Filings; Other Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6. Inspection of Records; Access . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7. Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.8. Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.9. Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.10. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.11. Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.12. Certain Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13. Headquarters of the Surviving Corporation . . . . . . . . . . . . . . . . . . . 29
10. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.1. Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . 29
10.2. Conditions to Obligation of the Company to Effect the Merger . . . . . . . . . . 30
10.3. Conditions to Obligation of Parent and Merger Sub to Effect the Merger . . . . . 30
11. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1. Termination by Mutual Consent . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.2. Termination by Either Parent or the Company . . . . . . . . . . . . . . . . . . 30
11.3. Termination by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.4. Termination by Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.5. Effect of Termination and Abandonment . . . . . . . . . . . . . . . . . . . . . 32
11.6. Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.1. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . 33
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
12.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.3. Assignment; Binding Effect; Benefit . . . . . . . . . . . . . . . . . . . . . . 34
12.4. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.5. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.8. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.9. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.10. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.12. Enforcement of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
(iii)
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
April 20, 1996, among El Paso Natural Gas Company, a Delaware corporation
("Parent"), The El Paso Company, a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), and Cornerstone Natural Gas, Inc., a
Delaware corporation (the "Company").
RECITALS
A. The respective Boards of Directors of Parent, Merger Sub
and the Company have each approved the acquisition of the Company on the terms
and subject to the conditions set forth herein.
B. In furtherance of such acquisition, Parent agrees to cause
Merger Sub to make a tender offer to purchase all the issued and outstanding
shares of Common Stock, par value $.10 per share, of the Company (the "Common
Stock"), at a price of $6.00 per share net to the seller in cash, without
interest, upon the terms and subject to the conditions set forth herein (such
tender offer, as it may be amended or supplemented from time to time as
permitted under this Agreement, the "Offer"); and the Board of Directors of the
Company has adopted resolutions approving the Offer and recommending that the
Company's stockholders accept the Offer.
C. The respective Boards of Directors of Parent, Merger Sub
and the Company have each approved, upon the terms and subject to the
conditions set forth in this Agreement, the merger of Merger Sub with and into
the Company (the "Merger"), whereby each issued and outstanding share of Common
Stock not owned directly or indirectly by Parent or the Company, except shares
of Common Stock held by persons who object to the Merger and comply with all
provisions of Delaware law concerning the right of stockholders to dissent from
the Merger and require appraisal of their shares of Common Stock, will be
converted into the right to receive the per share consideration paid pursuant
to the Offer.
D. The Company has received a fairness opinion relating to
the transactions contemplated hereby as more fully described herein.
E. Parent and Merger Sub have required, as a condition to
entering into this Agreement, that, simultaneously with the execution and
delivery of this Agreement, certain holders of shares of Common Stock, stock
options or warrants of the Company enter into an agreement (the "Option
Agreement") with Parent and Merger Sub. Pursuant
<PAGE> 6
to the Option Agreement, such holders have agreed to tender their shares of
Common Stock in the Offer and have granted to Merger Sub an option to purchase
their shares of Common Stock, stock options and warrants upon the terms and
subject to the conditions set forth therein.
F. Parent, Merger Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Offer and the
Merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
1. The Offer.
1.1. The Offer. (a) Subject to the provisions of this
Agreement, as promptly as practicable (but in no event later than five business
days after the date of this Agreement), Merger Sub shall, and Parent shall
cause Merger Sub to, commence, within the meaning of Rule 14d-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Offer at
a cash price of $6.00 per share, net to the seller in cash, without interest.
The obligation of Merger Sub to, and of Parent to cause Merger Sub to,
consummate the Offer and accept for payment and pay for any shares of Common
Stock tendered shall be subject to the satisfaction of the conditions set forth
in Annex I and to the terms and conditions of this Agreement.
(b) On the date of commencement of the Offer, Parent and
Merger Sub shall file with the Securities and Exchange Commission (the "SEC")
with respect to the Offer a Tender Offer Statement on Schedule l4D-l (as
amended and supplemented from time to time, the "Schedule 14D-1"), which shall
comply in all material respects with the provisions of applicable federal
securities laws, and shall contain the offer to purchase relating to the Offer
and the form of the related letter of transmittal (which documents, as amended
or supplemented from time to time, are referred to collectively as the "Offer
Documents"). Parent shall deliver copies of the proposed forms of the Schedule
14D-1 and the Offer Documents to the Company within a reasonable time prior to
the commencement of the Offer for review and comment by the Company and its
counsel (who shall provide any comments thereon as soon as practicable).
Parent agrees to provide in writing to the Company and its counsel, promptly
after receipt thereof, any comments that either Parent, Merger Sub or their
counsel may receive from the SEC or its staff with respect to the Schedule
14D-1 or the Offer Documents. Parent and Merger Sub shall promptly correct any
information in the Schedule l4D-l or the Offer Documents that shall become
false or misleading in any material respect, and shall take all steps necessary
2
<PAGE> 7
to cause the Schedule 14D-1 or the Offer Documents as so corrected to be filed
with the SEC and disseminated to the stockholders of the Company as and to the
extent required by applicable laws.
(c) The Offer shall initially expire 20 business days after
the date of its commencement, unless this Agreement is terminated in accordance
with Article 11, in which case the Offer (whether or not previously extended in
accordance with the terms hereof) shall expire on such date of termination.
Neither Parent nor Merger Sub shall, without the prior written consent of the
Company, decrease the price per share of Common Stock payable in the Offer,
change the form of consideration payable in the Offer, decrease the number of
shares of Common Stock sought pursuant to the Offer, change or impose
additional conditions to the Offer or otherwise amend the Offer in any manner
adverse to the Company's stockholders. Notwithstanding the foregoing, Merger
Sub may, without the consent of the Company, extend the Offer (i) if at the
then scheduled expiration date of the Offer any of the conditions to Merger
Sub's obligation to accept for payment and pay for shares of Common Stock shall
not be satisfied or waived, until such time as such conditions are satisfied or
waived; (ii) for an aggregate period of not more than ten business days beyond
the initial expiration date of the Offer if all conditions have been satisfied
but less than 90% of the outstanding shares of Common Stock have been validly
tendered and not withdrawn (not including shares covered by notices of
guaranteed delivery); and (iii) for any period required by any rule,
regulation, interpretation or position of the SEC or the staff applicable to
the Offer. Assuming the prior satisfaction or waiver of the conditions of the
Offer and subject to clauses (ii) and (iii) of the preceding sentence, Merger
Sub shall, and Parent shall cause Merger Sub to, accept for payment and pay for
shares of Common Stock validly tendered and not withdrawn pursuant to the Offer
as soon as legally permitted after the commencement thereof.
(d) Parent shall provide or cause to be provided to Merger Sub
on a timely basis the funds necessary to purchase any shares of Common Stock
that Merger Sub becomes obligated to purchase pursuant to the Offer and shall
be liable on a direct and primary basis for the performance by Merger Sub of
its obligations under this Agreement.
1.2 Company Actions. (a) The Company hereby approves of and
consents to the Offer and represents that (i) the Board of Directors of the
Company, at a meeting duly called and held, has adopted resolutions (A)
determining that this Agreement and the terms of each of the Offer and the
Merger are fair to and in the best interests of the Company and its
stockholders, (B) approving the Offer, the Merger, this Agreement and the
transactions contemplated by the Option Agreement and acknowledging that such
approval is effective for purposes of Section 203 of the Delaware General
Corporation Law (the "DGCL") and Article Eleventh of the Company's
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Restated Certificate of Incorporation and (C) recommending acceptance of the
Offer and approval of the Merger and this Agreement by the Company's
stockholders and (ii) Salomon Brothers, Inc. has delivered to the Board of
Directors of the Company its opinion that the proposed consideration to be
received by the Company's stockholders pursuant to the Offer and the Merger is
fair to such stockholders from a financial point of view. The Company hereby
consents to the inclusion in the Offer Documents of the recommendation of the
Board of Directors of the Company described in the first sentence of this
Section 1.2(a) and Salomon Brothers, Inc. has consented to inclusion of its
opinion in the Offer Documents.
(b) The Company shall file with the SEC on the date of
commencement of the Offer a Solicitation/Recommendation Statement on Schedule
14D-9 (as amended and supplemented from time to time, the "Schedule 14D-9")
containing such recommendations of the Board of Directors of the Company with
respect to the Offer and the Merger and shall disseminate the Schedule 14D-9 to
stockholders of the Company as required by Rule 14d-9 promulgated under the
Exchange Act. The Schedule 14D-9 shall comply in all material respects with
the provisions of applicable federal securities laws. The Company shall
deliver copies of the proposed form of the Schedule 14D-9 to Parent within a
reasonable time prior to the filing thereof with the SEC for review and comment
by Parent and its counsel (who shall provide any comments thereon as soon as
practicable). The Company agrees to provide in writing to Parent and its
counsel, promptly after receipt thereof, any comments that the Company or its
counsel may receive from the SEC or its staff with respect to the Schedule
l4D-9. The Company shall promptly correct any information in the Schedule
l4D-9 that shall become false or misleading in any material respect, and shall
take all steps necessary to cause the Schedule 14D-9 as so corrected to be
filed with the SEC and disseminated to the stockholders of the Company as and
to the extent required by applicable laws.
(c) In connection with the Offer, the Company shall promptly
furnish Parent with (or cause Parent to be furnished with) mailing labels,
security position listings and any available listing or computer file
containing the names and addresses of the record holders of the shares of
Common Stock as of a recent date, and of those persons becoming record holders
after such date, and shall furnish Parent with such information and assistance
as Parent or its agents may reasonably request in communicating the Offer to
the stockholders of the Company. Subject to the requirements of applicable
law, and except for such steps as are necessary to disseminate the Offer
Documents and any other documents necessary to consummate the Merger, Parent
and Merger Sub shall, and shall cause each of their affiliates to, hold in
confidence the information contained in any of such labels, listings and files,
use such information only in connection with the Offer and the Merger, and, if
this Agreement is terminated, deliver to the Company all copies of such
information or extracts therefrom then in their possession or under their
control.
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ARTICLE 2
2. The Merger.
2.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 2.3), Merger Sub shall
be merged with and into the Company in accordance with this Agreement and the
separate corporate existence of Merger Sub shall thereupon cease. The Company
shall be the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation"). The Merger shall have the effects
specified in the DGCL.
2.2. The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place at the
offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New
York, New York, at 9:00 a.m., local time, on the first business day immediately
following the day on which the last to be fulfilled or waived of the conditions
set forth in Article 10 shall be fulfilled or waived in accordance herewith, or
at such other time, date or place as Parent and the Company may agree. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
2.3. Effective Time. If all the conditions to the Merger set
forth in Article 10 shall have been fulfilled or waived in accordance herewith
and this Agreement shall not have been terminated as provided in Article 11,
the parties hereto shall cause a Certificate of Merger meeting the requirements
of Sections 103 and 251 of the DGCL to be properly executed and filed in
accordance with such Sections on the Closing Date. The Merger shall become
effective at the time of filing of the Certificate of Merger with the Secretary
of State of the State of Delaware in accordance with the DGCL or at such later
time which the parties hereto shall have agreed upon and designated in such
filing as the effective time of the Merger (the "Effective Time").
ARTICLE 3
3. Certificate of Incorporation and By-laws of the Surviving
Corporation.
3.1. Certificate of Incorporation. The Certificate of
Incorporation of the Surviving Corporation shall be identical to the
Certificate of Incorporation of Merger Sub, except that the name of the
Surviving Corporation shall be "Cornerstone Natural Gas, Inc." and except as
provided in Section 9.11. At the Effective Time, the parties hereto shall take
all necessary action to cause the Certificate of Incorporation of the Surviving
Corporation to be amended to read as provided in the preceding sentence.
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3.2. By-laws. The By-laws of Merger Sub in effect immediately
prior to the Effective Time shall be the By-laws of the Surviving Corporation,
until duly amended in accordance with applicable law.
ARTICLE 4
4. Directors and Officers of the Surviving Corporation.
4.1. Directors. The directors of Merger Sub immediately prior
to the Effective Time shall be the directors of the Surviving Corporation as of
the Effective Time.
4.2. Officers. The officers of the Company immediately prior
to the Effective Time (other than those who have elected not to continue their
employment) shall be the officers of the Surviving Corporation as of the
Effective Time.
ARTICLE 5
5. Conversion of Company Stock.
5.1. Conversion of Company Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Merger Sub,
the Company or the holders of any of the following securities:
(a) each share of Common Stock held by the Company or any
subsidiary of the Company as treasury stock and each issued and outstanding
share of Common Stock owned by Parent, Merger Sub or any other subsidiary of
Parent shall be cancelled and retired and shall cease to exist, and no payment
or consideration shall be made with respect thereto;
(b) each issued and outstanding share of Common Stock, other
than (i) shares of Common Stock referred to in paragraph (a) above and (ii)
Dissenting Shares (as defined in Section 6.1) shall be converted into the right
to receive from the Surviving Corporation an amount in cash, without interest,
equal to the price per share of Common Stock paid pursuant to the Offer (the
"Merger Consideration"). At the Effective Time, all such shares of Common
Stock shall no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a certificate representing
any such shares of Common Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration, without
interest;
(c) each issued and outstanding share of capital stock of
Merger Sub shall be converted into one fully paid and nonassessable share of
common stock, par value $.10, of the Surviving Corporation; and
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(d) Immediately prior to the Effective Time, except as
described in the second succeeding sentence, all options (individually, an
"Option" and collectively, the "Options") then outstanding under the Company's
1993 Long Term Incentive Compensation Plan or any other incentive compensation
or stock option plan of the Company (the "Option Plans") and all warrants listed
on Schedule 5.1(d) attached hereto (the "Warrants"), whether or not then
exercisable, shall be canceled and each holder of an Option or Warrant will be
entitled to receive from the Company, for each share of Common Stock subject to
an Option or Warrant, an amount in cash equal to the excess, if any, of the
Merger Consideration over the per share exercise price of such Option or
Warrant. The Company will use its reasonable best efforts to obtain any
necessary consents from holders of Options or Warrants to the cancellation and
payment provided for in this Section 5.1(d). At the Effective Time, the
Company's obligations with respect to each outstanding Option set forth on
Schedule 5.1(d) shall be assumed by Parent. The Options assumed by Parent shall
continue to have, and be subject to, the same terms and conditions set forth in
the Option Plans and agreements pursuant to which such Options were issued as in
effect immediately prior to the Effective Time, except that (a) such Options
shall be exercisable for that number of whole shares of common stock, $.10 par
value, of Parent ("Parent Shares"), equal to the product of the number of shares
of Common Stock covered by the Option immediately prior to the Effective Time
multiplied by the quotient (the "Exchange Ratio") determined by dividing the
purchase price paid pursuant to the Offer by the average closing price of Parent
Shares for the ten trading days preceding the Effective Time, rounded up to the
nearest whole number of Parent Shares, (b) the per share exercise price for the
Parent Shares issuable upon the exercise of such assumed Option shall be equal
to the quotient determined by dividing the exercise price per share specified
for such Option under the applicable Option Plan immediately prior to the
Effective Time by the Exchange Ratio, rounding the resulting exercise price down
to the nearest whole cent and (c) all of the Options listed in Schedule 5.1(d)
shall be deemed vested automatically.. The date of grant shall be the date on
which the Option was originally granted. Parent shall (i) reserve for issuance
the number of Parent Shares that will become issuable upon the exercise of such
Options pursuant to this Section 5.1(d) and (ii) at the Effective Time, execute
a document evidencing the assumption by Parent of the Company's obligations with
respect thereto under this Section 5.1(d). As soon as practicable after the
Effective Time, Parent shall file a registration statement on Form S-8 (or any
successor form), or another appropriate form with respect to the Parent Shares
subject to such options and shall use its best efforts to maintain the
effectiveness of such registration statement (and maintain the current status of
the prospectus contained therein) for so long as such options remain
outstanding. From and after the date of this Agreement, no additional Options
shall be granted by the Company or its Subsidiaries (as defined in Section 12.9
hereof) under the Option Plans or otherwise.
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ARTICLE 6
6. Dissenting Shares; Exchange of Shares
6.1. Dissenting Shares. (a) Notwithstanding anything in this
Agreement to the contrary, shares of Common Stock which are held by any record
holder who has not voted in favor of the Merger or consented thereto in writing
and who has demanded appraisal rights in accordance with Section 262 of the
DGCL (the "Dissenting Shares") shall not be converted into the right to receive
the Merger Consideration but shall become the right to receive such
consideration as may be determined to be due in respect of such Dissenting
Shares pursuant to the DGCL; provided, however, that any holder of Dissenting
Shares who shall have failed to perfect or shall have withdrawn or lost such
holder's rights to appraisal of such Dissenting Shares, in each case under the
DGCL, shall forfeit the right to appraisal of such Dissenting Shares, and such
Dissenting Shares shall be deemed to have been converted into the right to
receive, as of the Effective Time, the Merger Consideration without interest.
Notwithstanding anything to the contrary contained in this Section 6.1, if (i)
the Merger is rescinded or abandoned or (ii) if the stockholders of the Company
revoke the authority to effect the Merger, then the right of any stockholder to
be paid the fair value of such stockholder's Dissenting Shares pursuant to
Section 262 of the DGCL shall cease. The Surviving Corporation shall comply
with all of its obligations under the DGCL with respect to holders of
Dissenting Shares.
(b) The Company shall give Parent (i) prompt notice of any
demands for appraisal, and any withdrawals of such demands, received by the
Company and any other related instruments served pursuant to the DGCL and
received by the Company, and (ii) the opportunity to direct all negotiations
and proceedings with respect to demands for appraisal under the DGCL. The
Company shall not, except with the prior written consent of Parent, make any
payment with respect to any demands for appraisal or offer to settle or settle
any such demands.
6.2. Exchange of Certificates. (a) Prior to the Effective
Time, Parent shall appoint a bank or trust company to act as paying agent
hereunder, which shall be The First National Bank of Boston, or such other
entity as Parent and the Company may mutually select (the "Paying Agent") for
the payment of the Merger Consideration upon surrender of certificates formerly
representing shares of Common Stock (the "Certificates"). All of the fees and
expenses of the Paying Agent shall be borne by Parent.
(b) On the Closing Date, Parent shall take all steps necessary
to enable and cause the Surviving Corporation to provide the Paying Agent with
cash in amounts necessary to pay the Merger Consideration, when and as such
amounts are needed by the Paying Agent (the "Exchange Fund").
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(c) As soon as reasonably practicable after the Effective
Time, the Paying Agent shall mail to each holder of record of Common Stock
immediately prior to the Effective Time (excluding any shares of Common Stock
which will be canceled pursuant to Section 5.1(a) and any Dissenting Shares)
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of such Certificates to the Paying Agent and shall be in such form and
have such other provisions as Parent shall reasonably specify) and (ii)
instructions for the use thereof in effecting the surrender of the Certificates
in exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by the Surviving Corporation, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Paying Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor a bank check in the amount of cash into which
the shares of Common Stock theretofore represented by such Certificate shall
have been converted pursuant to Section 5.1, and the Certificates so
surrendered shall forthwith be canceled. No interest will be paid or will
accrue on the cash payable upon the surrender of any Certificate. If payment
is to be made to a person other than the person in whose name the Certificate
so surrendered is registered, it shall be a condition of payment that such
Certificate shall be properly endorsed or otherwise in proper form for transfer
and, that the person requesting such payment shall pay any transfer or other
taxes required by reason of the transfer of such Certificate or establish to
the satisfaction of the Surviving Corporation that such tax has been paid or is
not applicable. Until surrendered as contemplated by this Section 6.2, each
Certificate (other than Certificates representing Dissenting Shares and
Certificates representing any shares of Common Stock to be canceled as set
forth in Section 5.1(a) shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the amount of cash,
without interest, into which the shares of Common Stock theretofore represented
by such Certificate shall have been converted pursuant to Section 5.1.
(d) Parent shall have the right to make additional rules, not
inconsistent with the terms of this Agreement, governing the payment of cash
for shares of Common Stock converted into the right to receive the Merger
Consideration.
(e) At or after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the shares of Common
Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for the Merger Consideration
deliverable in respect thereof pursuant to this Agreement in accordance with
the procedures set forth in this Article 6.
(f) Any portion of the Exchange Fund (including the proceeds
of any investments thereof) that remains unclaimed by the former stockholders
of the Company
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two (2) years after the Effective Time shall be delivered to the Surviving
Corporation. Any former stockholders of the Company who have not theretofore
complied with this Article 6 shall thereafter look only to the Surviving
Corporation and Parent for payment of the Merger Consideration deliverable in
respect of each share of Common Stock such stockholder holds as determined
pursuant to this Agreement, in each case, without any interest thereon.
(g) None of Parent, the Surviving Corporation, the Paying
Agent or any other person shall be liable to any former holder of shares of
Common Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(h) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Paying Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration, deliverable in respect thereof pursuant
to this Agreement.
ARTICLE 7
7. Representations and Warranties of the Company.
Except as set forth in the disclosure letter delivered by or on
behalf of the Company to Parent and Merger Sub at or prior to the execution of
this Agreement (the "Company Disclosure Letter"), the Company represents and
warrants to Parent and Merger Sub as follows:
7.1. Existence; Good Standing; Corporate Authority; Compliance
With Law. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of Delaware. The Company is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified would not have a material adverse effect on the financial condition,
operations, assets, liabilities or results of operations of the Company and its
Subsidiaries taken as a whole (a "Company Material Adverse Effect"). The
Company has all requisite corporate power and authority to own, operate and
lease its properties and carry on its business as now conducted. Each of the
Company's Subsidiaries is either (i) a corporation or limited liability company
duly organized, validly
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existing and in good standing under the laws of its respective jurisdiction of
incorporation or organization, or (ii) a partnership duly formed and validly
existing under the laws of its respective jurisdiction of formation. Each of
the Company's Subsidiaries has the requisite power and authority to own its
properties and to carry on its business as it is now being conducted, and is
duly qualified to do business and is in good standing in each jurisdiction in
which the ownership of its property or the conduct of its business requires
such qualification, except for jurisdictions in which such failure to be so
qualified or to be in good standing would not have a Company Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is in violation of any
order of any court, governmental authority or arbitration board or tribunal, or
any law, ordinance, governmental rule or regulation to which the Company or any
of its Subsidiaries or any of their respective properties or assets is subject,
except where such violation, individually or in the aggregate, is not and would
not reasonably be expected to have a Company Material Adverse Effect. The
Company and its Subsidiaries have obtained all licenses, permits and other
authorizations and have taken all actions required by applicable law or
governmental regulations in connection with their business as now conducted,
where the failure to obtain any such item or to take any such action,
individually or in the aggregate, is or would reasonably be expected to have a
Company Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is an "electric utility company" or "gas utility company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended. The
copies of the Company's Restated Certificate of Incorporation and By-laws
previously delivered to Parent are true and correct.
7.2. Authorization, Validity and Effect of Agreements. The
Company has the requisite corporate power and authority to execute and deliver
this Agreement and all agreements and documents contemplated hereby. Subject
only to the approval of the Merger by the holders of a majority of the
outstanding shares of Common Stock, the consummation by the Company of the
transactions contemplated hereby has been duly authorized by all requisite
corporate action. The Board of Directors has approved the transactions
contemplated by each of this Agreement, the Merger and the Option Agreement for
the purposes of Section 203 of the DGCL and Article Eleventh of the Company's
Restated Certificate of Incorporation. This Agreement constitutes, and all
agreements and documents contemplated hereby (when executed and delivered
pursuant hereto for value received) will constitute, the valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
7.3. Capitalization. The authorized capital stock of the
Company consists of 25,000,000 shares of Common Stock, and 5,000,000 shares of
preferred stock, par value $.10 per share (the "Preferred Stock"). As of April
1, 1996, there were 12,515,959 shares of Common Stock issued and outstanding
and no shares of Preferred Stock issued
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and outstanding. Since such date, no additional shares of capital stock of the
Company have been issued. The Company has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or,
except for Warrants and the Options, which are convertible into, exchangeable
for or exercisable for securities having the right to vote) with the
stockholders of the Company on any matter. All such issued and outstanding
shares of Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Other than as contemplated by
this Agreement, there are no options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate the Company or any of its Subsidiaries to issue, transfer or sell any
shares of capital stock of the Company or any of its Subsidiaries or any
securities exercisable for, exchangeable for or convertible into such capital
stock. After the Effective Time, the Surviving Corporation will have no
obligation to issue, transfer or sell any shares of capital stock of the
Company or the Surviving Corporation pursuant to any Company Benefit Plan (as
defined in Section 7.11).
7.4. Subsidiaries. The Company owns directly or indirectly
each of the outstanding shares of capital stock or other equity or ownership
interests of each of its Subsidiaries. Each of the outstanding shares of
capital stock or other equity or ownership interests of each of the Company's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable,
and is owned, directly or indirectly, by the Company free and clear of all
liens, pledges, security interests, claims or other encumbrances other than
liens imposed by local law which would not have a Company Material Adverse
Effect. The following information for each Subsidiary of the Company has been
previously provided to Parent, if applicable: (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock or other
equity or ownership interests; and (iii) the number of issued and outstanding
shares of capital stock or other equity or ownership interests.
7.5. Other Interests. Except for interests in its
Subsidiaries, neither the Company nor any of its Subsidiaries owns directly or
indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity.
7.6. No Violation. Neither the execution and delivery by the
Company of this Agreement nor the consummation by the Company of the
transactions contemplated hereby in accordance with the terms hereof will: (i)
conflict with or result in a breach of any provisions of the Restated
Certificate of Incorporation or By-laws of the Company; (ii) except as
disclosed in the Company Reports (as defined in Section 7.7), result in a
breach or violation of, a default under, or the triggering of any payment or
other material obligations pursuant to any of the Option Plans, or any grant or
award made under any of the foregoing, provided, however, that the consummation
of the Offer and the Merger will result in the acceleration of vesting of
Options under the Option Plans; (iii) violate, or
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conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the triggering of any payments or obligations under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
material properties of the Company or its Subsidiaries under, or result in
being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust or any material license, franchise, permit, lease, contract, agreement or
other instrument, commitment or obligation (collectively, "Contracts") to which
the Company or any of its Subsidiaries is a party, or by which the Company or
any of its Subsidiaries or any of their properties is bound or affected, except
for any of the foregoing matters which, individually or in the aggregate, are
not and would not reasonably be expected to have a Company Material Adverse
Effect; or (iv) other than the filings provided for in Article 2, certain
federal, state and local regulatory filings, filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the
Exchange Act, the Securities Act of 1933, as amended (the "Securities Act"), or
applicable state securities and "Blue Sky" laws or filings in connection with
the maintenance of qualification to do business in other jurisdictions
(collectively, the "Regulatory Filings"), require any consent, approval or
authorization of, or declaration, filing or registration with, any domestic
governmental or regulatory authority, the failure to obtain or make which would
have a Company Material Adverse Effect. There are no Contracts which the
Company or any of its Subsidiaries is a party or by which any of them is bound
pursuant to which any rights or obligations will be triggered or affected by
any stockholder, director, officer or employee of the Company or any of its
Subsidiaries ceasing to be a stockholder, director, officer or employee. Each
of the Contracts listed on Schedule 7.6 to the Company Disclosure Schedule is a
valid and binding Contract, enforceable in accordance with its terms, is in
full force and effect and no event has occurred which constitutes a default
(or, with notice or lapse of time or both would constitute a default) under, or
result in the termination of or in a right of termination or cancellation of,
or result in being declared void, voidable or without further binding effect,
any of the terms, conditions or provisions of such Contract.
7.7. Proxy Statement; Offer Documents; Schedule 14D-1; Schedule
14D-9. (a) The Schedule 14D-9 will not, at the time filed with the SEC, and,
as such Schedule 14D-9 may have been amended, upon expiration of the Offer,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by the Company with respect
to information supplied by Parent or Merger Sub in writing specifically for
inclusion in the Schedule 14D-9.
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(b) The Proxy Statement and the information supplied by the
Company in writing specifically for inclusion or incorporation by reference in
the Schedule 14D-1 and the Offer Documents will not, in the case of the
Schedule 14D-1 and the Offer Documents, at the time filed with the SEC and, as
such documents may have been amended from time to time, upon expiration of the
Offer or, in the case of the Proxy Statement, at the time it is mailed, at the
time of the special meeting of the stockholders of the Company to approve the
Merger (the "Meeting") or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
Parent or Merger Sub in writing specifically for inclusion or incorporation by
reference in the Proxy Statement. The letter to the stockholders, notice of
meeting, proxy statement and form of proxy, or the information statement, as
the case may be, if any, distributed to the stockholders of the Company in
connection with the Option and Merger, or any schedule required to be filed
with the SEC in connection therewith, are collectively referred to as the
"Proxy Statement." If, prior to the Effective Time, any event relating to the
Company or its Subsidiaries or any of their affiliates, officers or directors
is discovered by the Company that should be set forth in an amendment of or
supplement to the Schedule 14D-1 or the Offer Documents, the Company will
promptly inform Parent.
7.8. SEC Documents. The Company has delivered to Parent each
registration statement, report, proxy statement or information statement
prepared by it since December 31, 1994, each in the form (including exhibits
and any amendments thereto) filed with the SEC (collectively, the "Company
Reports"). As of their respective dates, the Company Reports (i) were prepared
in all material respects in accordance with the applicable requirements of the
Securities Act, the Exchange Act, and the respective rules and regulations
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. Each of the consolidated balance sheets of the
Company included in or incorporated by reference into the Company Reports
(including the related notes and schedules) fairly presents the consolidated
financial position of the Company and the Company's Subsidiaries as of its date
and each of the consolidated statements of income, retained earnings and cash
flows of the Company included in or incorporated by reference into the Company
Reports (including any related notes and schedules) fairly presents the results
of operations, retained earnings or cash flows, as the case may be, of the
Company and its Subsidiaries for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments which would
not be material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved, except as may be noted
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therein. Except as and to the extent set forth on the consolidated balance
sheet of the Company and its Subsidiaries at December 31, 1995, including all
notes thereto, or as set forth in the Company Reports, neither the Company nor
any of its Subsidiaries has any material liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise), except liabilities
arising in the ordinary course of business since such date. The Company and
its Subsidiaries have no obligations under any earnout or deferred payment
provisions of any agreement relating to the acquisition of stock or assets of
any person.
7.9. Litigation. Except as disclosed in the Company Reports
filed with the SEC prior to the date of this Agreement, there are no actions,
suits or proceedings pending against the Company or any of its Subsidiaries or,
to the actual knowledge of the executive officers of the Company, threatened
against the Company or any of its Subsidiaries, at law or in equity, or before
or by any federal or state commission, board, bureau, agency or
instrumentality, that, individually or in the aggregate, are or would
reasonably be expected to have a Company Material Adverse Effect.
7.10. Absence of Certain Changes. Except as disclosed in the
Company Reports filed with the SEC prior to the date of this Agreement, since
December 31, 1995, the Company has conducted its business only in the ordinary
course of such business consistent with past practice and there has not been
(i) any adverse change in the financial condition, operations, assets,
liabilities or results of operations of the Company and its Subsidiaries which
has or is reasonably likely to have a Company Material Adverse Effect, (ii) any
declaration, setting aside or payment of any dividend or other distribution
with respect to its capital stock or any redemption or repurchase of any shares
of its capital stock, (iii) any material change in its accounting principles,
practices or methods, (iv) any increase in the salaries or other compensation
payable to any officer, director or employee of the Company or any of its
Subsidiaries (except for normal increases in the ordinary course of business
consistent with past practice) or any increase in, or addition to, other
benefits to which any officer, director or employee may be entitled (except as
required by the terms of plans as in effect on the date of this Agreement or as
required by law), (v) any incurrence of indebtedness for borrowed money (except
in the ordinary course of business consistent with past practice), (vi) any
material adverse change or threat of a material adverse change in the Company's
or any of its Subsidiaries' relations with, or any loss or threat of loss of,
any of the Company's important suppliers or customers, the loss of which is
material to the Company and its Subsidiaries taken as a whole, (vii) any
termination, cancellation or waiver of any contract or other right material to
the operation of the business of the Company and its Subsidiaries taken as a
whole or (viii) any material damage, destruction or loss, whether or not
covered by insurance, adversely affecting the properties, business or prospects
of the Company and its Subsidiaries taken as a whole, or any deterioration in
the operating condition of the assets
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of the Company and its Subsidiaries which would have a Company Material Adverse
Effect.
7.11. Taxes. The Company and each of its Subsidiaries (i) have
timely filed all material federal, state and foreign tax returns required to be
filed by any of them for tax years ended prior to the date of this Agreement or
requests for extensions have been timely filed and any such request shall have
been granted and not expired and all such returns are complete in all material
respects, (ii) have paid or accrued all taxes that may be due and payable with
respect to such returns, (iii) have properly accrued in all material respects
all such taxes for such periods subsequent to the periods covered by such
returns, and (iv) have "open" years for federal income tax returns only as set
forth in the Company Reports. There is no tax examination, investigation,
audit, claim or assessment pending or, to the knowledge of the executives of
the Company, threatened, which would or would reasonably be expected to have a
Company Material Adverse Effect.
7.12. Certain Employee Plans. (a) Each employee benefit or
compensation plan or arrangement, including each "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") maintained by the Company or any of its Subsidiaries (the
"Company Benefit Plans") complies, and has been administered, in all material
respects in accordance with all applicable requirements of law, and no
"reportable event" or "prohibited transaction" (as such terms are defined in
ERISA) or termination has occurred with respect to any Company Benefit Plan
under circumstances which present a risk of liability by the Company or any of
its Subsidiaries to any governmental entity or other person, including a
Company Benefit Plan, which liability would have a Company Material Adverse
Effect. The Company Benefit Plans are listed on Schedule 7.11(a) and copies or
descriptions of all material Company Benefit Plans have previously been
provided to Parent.
(b) Each Company Benefit Plan intended to qualify under
Section 401(a) of the Code is so qualified and a determination letter has been
issued by the Internal Revenue Service ("IRS") with respect to the
qualification of each Company Benefit Plan and no circumstances exist which
would adversely affect such qualification. Each Company Benefit Plan which is
subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code
has been maintained in compliance with the minimum funding standards of ERISA
and the Code and no such Company Benefit Plan has incurred any "accumulated
funding deficiency" (as defined in Section 412 of the Code and Section 302 of
ERISA), whether or not waived. Neither the Company nor any of its Subsidiaries
has sought or received a waiver of its minimum funding requirements with
respect to any Company Benefit Plan. Neither the Company nor any of its
Subsidiaries has incurred, nor reasonably expects to incur, any liability in
respect of any Company Benefit Plan under Title IV of ERISA (other than with
respect to the payment of premiums), which
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liability would have a Company Material Adverse Effect. Neither the Company
nor any of its Subsidiaries has incurred any material withdrawal liability
under any "multiemployer plan" within the meaning of Section 3(37) of ERISA
which has not been satisfied in full nor do any of them reasonably expect to
incur such liability.
(c) Except as required by applicable law or as set forth on
Schedule 7.11(c), neither the Company nor any of its Subsidiaries provides any
health, welfare or life insurance benefits to any of their former or retired
employees.
(d) Except as disclosed on Schedule 7.11(d), no payment or
benefit which will or may be made by the Company or any of its Subsidiaries
will be characterized as an "excess parachute payment" within the meaning of
Section 280G(b)(1) of the Code.
7.13. Labor Matters. Neither the Company nor any of its
Subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization. There is no unfair labor practice or labor arbitration
proceeding pending or, to the actual knowledge of the executive officers of the
Company, threatened against the Company or its Subsidiaries relating to their
business, except for any such proceeding which, individually or in the
aggregate, is not and would not reasonably be expected to be material to the
Company and its Subsidiaries taken as a whole. To the actual knowledge of the
executive officers of the Company, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made
or threatened involving employees of the Company or any of its Subsidiaries.
7.14. No Brokers. The Company has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company or Parent to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except that the Company has retained Salomon Brothers,
Inc., the arrangements with which have been disclosed in writing to Parent
prior to the date hereof. Other than the foregoing arrangements, the Company
is not aware of any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
7.15. Fairness Opinion. The Company has received the opinion of
Salomon Brothers, Inc., to the effect that, as of the date of this Agreement,
the terms of the Offer and the Merger are fair from a financial point of view
to the holders of Common Stock.
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7.16. Environmental Matters.
(a) For the purposes of this Agreement:
"Environmental Matters" means any matter arising out of,
relating to or resulting from pollution, protection of the environment and
human health or safety, health or safety of employees, sanitation, and any
matters relating to emissions, discharges, releases or threatened releases of
Hazardous Materials or otherwise arising out of, resulting from or relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
"Environmental Costs" means, without limitation, any
actual or potential cleanup costs, remediation, removal, or other response
costs, investigation costs, losses, liabilities or obligations, payments,
damages, civil or criminal fines or penalties, judgments, and amounts paid in
settlement arising out of or relating to or resulting from any Environmental
Matter.
"Environmental Laws" means, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Sections 9601 et seq., the Emergency Planning and Community Right-to-Know Act
of 1986, 42 U.S.C. Sections 11001 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Sections 6901 et seq., the Toxic Substances Control
Act, 15 U.S.C. Sections 2601 et seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. Sections 136 et seq., the Clean Air Act, 42 U.S.C.
Sections 7401 et seq., the Clean Water Act (Federal Water Pollution Control
Act), 33 U.S.C. Sections 1251 et seq., the Safe Drinking Water Act, 42 U.S.C.
Sections 300f et seq., the Occupational Safety and Health Act, 29 U.S.C.
Sections 641 et seq., the Hazardous Materials Transportation Act, 49 U.S.C.
Sections 1801 et seq., as any of the above statutes have been or may be
amended from time to time, all rules and regulations promulgated pursuant to
any of the above statutes, and any other foreign, federal, state or local law,
statute, ordinance, rule or regulation governing Environmental Matters, as the
same have been or may be amended from time to time, including any common law
cause of action providing any right or remedy with respect to Environmental
Matters, and all applicable judicial and administrative decisions, orders, and
decrees relating to Environmental Matters.
"Hazardous Materials" means any pollutants, contaminants,
or hazardous or toxic substances, materials, wastes, constituents or chemicals
that are regulated by, or form the basis for liability under, any Environmental
Laws.
(b) (i) To the best knowledge of the management of
the Company, without due inquiry, the Company and each of its Subsidiaries is
in compliance in all material respects with all applicable Environmental Laws.
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(ii) The Company and each of its Subsidiaries has
obtained, and is in compliance in all material respects with, all permits,
licenses, authorizations, registrations and other governmental consents
("Environmental Permits") required to be obtained by it by applicable
Environmental Laws for the use, storage, treatment, transportation, release,
emission and disposal of raw materials, by-products, wastes and other
substances used or produced by or otherwise relating to its business.
(iii) All such Environmental Permits are in all
material respects in full force and effect, and the Company and each of its
Subsidiaries has made all appropriate filings for issuance or renewal of such
Environmental Permits.
(iv) There are no Hazardous Materials in amounts
required to be remediated under applicable Environmental Laws at, on, under or
within any real property owned, leased or occupied by the Company or any of its
Subsidiaries.
(v) There are no material claims, notices,
civil, criminal or administrative actions, suits, hearings, investigations,
inquiries or proceedings pending or threatened that are based on or related to
any Environmental Matters or the failure to have any required Environmental
Permits.
(vi) Neither the Company nor any of its
Subsidiaries has used any waste disposal site, or otherwise disposed of,
transported, or arranged for the transportation of, any Hazardous Materials to
any place or location, in violation of any Environmental Laws.
(vii) There are no underground storage tanks or
surface impoundments at, on, under or within any of real property owned, leased
or occupied by the Company or any of its Subsidiaries, or any portion thereof.
(viii) None of the Company or its Subsidiaries has
received any notice asserting that it may be a potentially responsible party at
any waste disposal site or other location used for the disposal of any
Hazardous Materials.
7.17. Related Party Transactions. There are no contracts,
arrangements or transactions in effect between the Company or any of its
Subsidiaries, on the one hand, and any officer, director or 5% stockholder of
the Company, or any affiliate or immediate family member of any of the
foregoing persons, on the other hand, except as set forth in the Company
Disclosure Letter.
ARTICLE 8
8. Representations and Warranties of Parent and Merger Sub.
Parent and Merger Sub represent and warrant to the Company as follows:
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8.1. Existence; Good Standing; Corporate Authority; Compliance
with Law. Each of Parent and Merger Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Parent has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted.
8.2. Authorization, Validity and Effect of Agreements. Each of
Parent and Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement and all agreements and documents
contemplated hereby. The consummation by Parent and Merger Sub of the
transactions contemplated hereby has been duly authorized by all requisite
corporate action. This Agreement constitutes, and all agreements and documents
contemplated hereby (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of Parent
and Merger Sub, enforceable in accordance with their respective terms, subject
to applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity.
8.3. No Violation. Neither the execution and delivery by
Parent and Merger Sub of this Agreement, nor the consummation by Parent and
Merger Sub of the transactions contemplated hereby in accordance with the terms
hereof, will: (i) conflict with or result in a breach of any provisions of the
Certificate of Incorporation or By-laws of Parent or Merger Sub; (ii) violate,
or conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of Parent or its Subsidiaries under, or
result in being declared void, voidable, or without further binding effect, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust or any material license, franchise, permit, lease, contract,
agreement or other instrument, commitment or obligation to which Parent or any
of its Subsidiaries is a party, or by which Parent or any of its Subsidiaries
or any of their properties is bound or affected, except for any of the
foregoing matters which would not reasonable be expected to have a material
adverse effect on the ability of Parent and Merger Sub to consummate the
transactions contemplated hereby (a "Parent Material Adverse Effect"); or (iii)
other than the Regulatory Filings, require any material consent, approval or
authorization of, or declaration, filing or registration with, any domestic
governmental or regulatory authority, the failure to obtain or make which would
have a Parent Material Adverse Effect.
8.4. No Brokers. Neither Parent nor any of its Subsidiaries
has entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of the Company or Parent to pay any
finder's fees, brokerage or agent's
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commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby,
except that Parent has retained Rodman & Renshaw, Inc. Other than the
foregoing arrangements, Parent is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
8.5. Financing. Parent and Merger Sub have and will have
sufficient funds to enable them to consummate the Offer and the Merger on the
terms contemplated by this Agreement.
8.6. Proxy Statement; Offer Documents; Schedule 14D-1; Schedule
14D-9. (a) The Schedule 14D-1 and the Offer Documents will not, in the case
of the Schedule 14D-1, at the time filed with the SEC, and, in the case of the
Offer Documents, when first published, sent or given to the stockholders of the
Company and, as such documents may have been amended, upon expiration of the
Offer, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by Parent or Merger Sub
with respect to information supplied by the Company in writing specifically for
inclusion in the Schedule 14D-1 or the Offer Documents.
(b) None of the information supplied by Parent, Merger Sub and
their respective affiliates in writing specifically for inclusion or
incorporation by reference in the Schedule 14D-9 and/or the Proxy Statement
will, in the case of the Schedule 14D-9, at the time filed with the SEC and, as
such Schedule 14D-9 may have been amended, upon expiration of the Offer, or, in
the case of the Proxy Statement, at the time the Proxy Statement is mailed, at
the time of the Meeting or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If, prior to the
Effective Time, any event relating to Parent, Merger Sub or any of their
affiliates, officers or directors is discovered by Parent that should be set
forth in an amendment of or supplement to the Schedule 14D-9 or the Proxy
Statement, Parent will promptly inform the Company.
ARTICLE 9
9. Covenants.
9.1. No Solicitation of Transactions. Neither the Company nor
any Subsidiary of the Company shall, directly or indirectly, through any
officer, director, employee, agent or otherwise, initiate, solicit or knowingly
encourage any inquiries or the
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making of any proposal that constitutes, or may reasonably be expected to lead
to, any "Proposal" (as defined below in this Section 9.1), or enter into
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain a Proposal, or agree to or endorse any Proposal, and the
Company shall notify Parent orally (within three business days) of the fact
that the Company has received any Proposal and the identity of the person
making such Proposal, but the Company shall not be required to disclose to
Parent or Merger Sub the terms of any Proposal which it or any such officer,
director, employee, agent or other representative may receive or to provide to
Parent or Merger Sub a copy of any such Proposal; and provided, however, that
nothing contained in this Section 9.1 shall prohibit the Company from: (i)
referring a third party to this Section 9.1; (ii) furnishing information to, or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited Proposal, if (A) the Board of Directors of the Company after
consultation with its counsel and financial advisor, determines consistent with
its fiduciary duties that such action should be pursued because it is
reasonably likely to result in the Company or its stockholders receiving a
"Superior Proposal" (as defined below in this Section 9.1) which is reasonably
likely to be consummated and (B) prior to furnishing such information to, or
entering into discussions or negotiations with, such person or entity, the
Company (x) provides reasonable notice to Parent to the effect that it is
furnishing information to, or entering into discussions or negotiations with,
such person or entity and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form; (iii) complying with
Rules 14e-2 and 14d-9 promulgated under the Exchange Act with regard to a
tender or exchange offer; (iv) failing to make or withdrawing or modifying its
recommendation referred to in Section 9.4 if there exists a Proposal and the
Board of Directors of the Corporation, after consultation with its counsel and
financial advisor, determines consistent with its fiduciary duties that such
Proposal is a Superior Proposal; (v) making such disclosures as are required by
applicable law; and (vi) after termination pursuant to Section 11.2, entering
into an agreement with respect to a Superior Proposal.
For purposes of this Agreement: "Proposal" shall mean any
proposal, offer or expression of interest by any person involving with respect
to the Company or any of its Subsidiaries any of the following: (i) any
merger, consolidation, share exchange, business combination, or other similar
transaction (other than any transaction contemplated hereby); (ii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of 15% or more
of the assets of such party and its Subsidiaries, taken as a whole, in a single
transaction or series of transactions; (iii) any tender offer or exchange offer
for 50% or more of the outstanding shares of capital stock of the Company or
the filing of a registration statement under the Securities Act in connection
therewith (other than the Offer); or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing; provided, however, that the transactions
contemplated by the Option Agreement and the transactions
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contemplated hereby shall not constitute a Proposal; and "Superior Proposal"
shall mean a bona fide Proposal from an unaffiliated third party that is more
favorable to the Company and its stockholders than the transactions
contemplated hereby and is reasonably likely to be consummated.
9.2. Conduct of Businesses. Prior to the Effective Time,
except as specifically set forth in the Company Disclosure Letter or as
contemplated by any other provision of this Agreement, unless Parent has
consented in writing thereto, the Company:
(a) shall, and shall cause each of its Subsidiaries to,
conduct its operations according to its usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(b) shall use its reasonable efforts, and shall cause
each of its respective Subsidiaries to use its reasonable efforts, to preserve
intact its business organization and goodwill, keep available the services of
its officers and employees and maintain satisfactory relationships with those
persons having business relationships with it;
(c) shall confer on a regular basis with one or more
representatives of Parent to report operational matters of materiality and any
proposals to engage in material transactions;
(d) shall not amend its organizational documents;
(e) shall promptly notify Parent of (i) any material
emergency or other material change in the condition (financial or otherwise) of
the Company's or any Subsidiary's business, properties, assets, liabilities,
prospects or the normal course of its businesses or in the operation of its
properties, (ii) any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or (iii) the breach in any material respect of any
representation or warranty or covenant contained herein;
(f) shall promptly deliver to Parent true and correct
copies of any report, statement or schedule filed by the Company with the SEC
subsequent to the date of this Agreement;
(g) shall not (i) issue any shares of its capital
stock, effect any stock split or otherwise change its capitalization as it
exists on the date of this Agreement, (ii) grant, confer or award any option,
warrant, conversion right or other right not existing on the date hereof to
acquire any shares of its capital stock from the Company, (iii) increase any
compensation or enter into or amend any employment, severance,
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termination or similar agreement with any of its present or future officers or
directors, except for normal increases in compensation to employees consistent
with past practice and the payment of cash bonuses to employees pursuant to and
consistent with existing plans or programs, or (iv) adopt any new employee
benefit plan (including any stock option, stock benefit or stock purchase plan)
or amend any existing employee benefit plan in any material respect, except for
changes which are less favorable to participants in such plans or as may be
required by applicable law;
(h) shall not (i) declare, set aside or pay any
dividend or make any other distribution or payment with respect to any shares
of its capital stock; (ii) directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock or capital stock of any of its
Subsidiaries, or make any commitment for any such action or (iii) split,
combine or reclassify any of its capital stock;
(i) shall not, and shall not permit any of its
Subsidiaries to sell, lease or otherwise dispose of any of its assets
(including capital stock of Subsidiaries) which are material, individually or
in the aggregate, except in the ordinary course of business;
(j) shall not (i) incur or assume any long-term or
short-term debt or issue any debt securities except for borrowings under
existing lines of credit (or any amendments thereto) in the ordinary course of
business; (ii) except for obligations of wholly owned Subsidiaries of the
Company, assume, guaranty, endorse or otherwise become liable or responsible
(whether directly, indirectly, contingently or otherwise) for the obligations
of any other person except in the ordinary course of business consistent with
past practices in an amount not material to the Company and its Subsidiaries,
taken as a whole; (iii) other than wholly owned Subsidiaries of the Company,
make any loans, advances or capital contributions to, or investments in, any
other person; (iv) modify in any material manner adverse to the Company or any
of its Subsidiaries any outstanding indebtedness or obligation of the Company
or any of its Subsidiaries; (v) pledge or otherwise encumber shares of capital
stock of the Company or its Subsidiaries; or (vi) mortgage or pledge any of its
material assets, tangible or intangible, or create or suffer to create any
material mortgage, lien, pledge, charge, security interest or encumbrance of
any kind in respect to such asset;
(k) shall not acquire, sell, lease or dispose of any
assets outside the ordinary course of business or any assets which in the
aggregate are material to the Company and its Subsidiaries taken as a whole, or
enter into any commitment or transaction outside the ordinary course of
business consistent with past practices which would be material to the Company
and its Subsidiaries taken as a whole;
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(l) shall not change any of the accounting principles
or practices used by the Company;
(m) shall not (i) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof or any equity interest therein; (ii) enter
into any contract or agreement other than in the ordinary course of business
consistent with past practice which would be material to the Company and its
Subsidiaries taken as a whole; (iii) authorize any new capital expenditure or
expenditures which, individually, is in excess of $50,000 or, in the aggregate,
are in excess of $150,000; or (iv) enter into or amend any contract, agreement,
commitment or arrangement providing for the taking of any action which would be
prohibited hereunder;
(n) shall not make any tax election or settle or
compromise any income tax liability material to the Company and its
Subsidiaries taken as a whole;
(o) shall not pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary course of business of liabilities reflected, reserved against or
disclosed in the consolidated financial statements (or the notes thereto) of
the Company and its Subsidiaries or incurred in the ordinary course of business
consistent with past practice;
(p) shall not settle or compromise any pending or
threatened suit, action or claim relating to the transactions contemplated
hereby; or
(q) shall not take, or agree in writing or otherwise to
take, any of the actions described in Section 9.2(a) through 9.2(p) or any
action that would make any of the representations and warranties of the Company
contained in this Agreement untrue or incorrect as of the date when made.
9.3. Board Representation. Promptly upon the purchase
of shares of Common Stock pursuant to the Offer, Merger Sub shall be entitled
to designate such number of directors, rounded up to the next whole number, on
the Board of Directors of the Company as will give Merger Sub, subject to
compliance with Section l4(f) of the Exchange Act and the rules and regulations
promulgated thereunder, representation on the Board of Directors equal to the
product of (a) the total number of directors on the Board of Directors and (b)
the percentage that the number of shares of Common Stock purchased by Merger
Sub bears to the number of shares of Common Stock outstanding, and the Company
shall, upon request by Merger Sub, promptly increase the size of the Board of
Directors and/or exercise its reasonable best efforts to secure the
resignations of such number of directors as is necessary to enable Merger Sub's
designees to be elected to
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the Board of Directors and shall cause Merger Sub's designees to be so elected.
The Company shall take, at its expense, all action required pursuant to Section
14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 9.3
and shall include in the Schedule 14D-9 or otherwise timely mail to its
stockholders such information with respect to the Company and its officers and
directors as is required by Section 14(f) and Rule 14f-l in order to fulfill
its obligations under this Section 9.3. Parent will supply to the Company in
writing and be solely responsible for any information with respect to itself
and its or Merger Sub's nominees, officers, directors and affiliates required
by Section 14(f) and Rule 14f-l. In the event that Merger Sub's designees are
elected to the Board of Directors of the Company, until the Effective Time, the
Board of Directors shall have at least one director who is a director on the
date hereof (the "Company Director"). In such event, if the Company Director
is unable to serve for any reason whatsoever, the other directors shall
designate a person to fill such vacancy who shall not be a designee,
stockholder or affiliate of Parent or Merger Sub and such person shall be
deemed to be a Company Director for purposes of this Agreement.
Notwithstanding anything in this Agreement to the contrary, in the event that
Merger Sub's designees are elected to the Board of Directors of the Company,
after the acceptance for payment of shares of Common Stock pursuant to the
Offer and prior to the Effective Time, the affirmative vote of the Company
Director shall be required to (a) amend or terminate this Agreement by the
Company, (b) exercise or waive any of the Company's rights, benefits or
remedies hereunder, (c) extend the time for performance of Parent's and Merger
Sub's respective obligations hereunder or (d) take any other action by the
Board of Directors of the Company under or in connection with this Agreement.
9.4. Meeting of the Company's Stockholders. (a) If required
by applicable law in order to consummate the Merger, the Company shall take all
action necessary in accordance with the DGCL and its Restated Certificate of
Incorporation and By-laws to convene the Meeting as promptly as practicable
following the purchase of shares of Common Stock in the Offer. At the Meeting,
all of the shares of Common Stock then owned by Parent, Merger Sub or any other
Subsidiary of Parent shall be voted to approve the Merger and this Agreement
(subject to applicable law and subject to the right of Parent, Merger Sub or
any other Subsidiary of Parent to vote such shares of Common Stock as they may
elect in the event of a Superior Proposal that is being recommended by the
Board of Directors of the Company in lieu of the Merger). Subject to the
provisions of Section 9.1, the Board of Directors of the Company shall
recommend that the Company's stockholders vote to approve the Merger and this
Agreement if such vote is sought, shall use its best efforts to solicit from
stockholders of the Company proxies in favor of the Merger and shall take all
other action in its judgment necessary and appropriate to secure the vote of
stockholders required by the DGCL to effect the Merger.
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(b) Parent and Merger Sub shall not, and shall cause their
Subsidiaries not to, sell, transfer, assign, encumber or otherwise dispose of
the shares of Common Stock acquired pursuant to the Offer or otherwise prior to
the Meeting; provided, that this Section 9.4(b) shall not apply to the sale,
transfer, assignment, encumbrance or other disposition of any or all of such
shares of Common Stock in transactions solely involving Parent, Merger Sub
and/or one or more of their wholly-owned Subsidiaries.
9.5. Filings; Other Action. Subject to the terms and
conditions herein provided, the Company and Parent shall: (a) promptly make
their respective filings and thereafter make any other required submissions
under the HSR Act with respect to the Offer or the Merger; (b) use all
reasonable efforts to cooperate with one another in (i) promptly determining
which filings are required to be made prior to the Effective Time with, and
which consents, approvals, permits or authorizations are required to be
obtained from, governmental or regulatory authorities of the United States, the
several states and foreign jurisdictions in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby and (ii) timely making all such filings and timely seeking
all such consents, approvals, permits or authorizations; and (c) use all
reasonable efforts to take, or cause to be taken, all other action and do, or
cause to be done, all other things necessary, proper or appropriate to promptly
consummate and make effective the transactions contemplated by this Agreement.
Each of Parent and the Company will use all reasonable efforts to resolve such
objections, if any, as may be asserted with respect to the Offer or the Merger
under the HSR Act or other antitrust laws. If, at any time after the Effective
Time, any further action is necessary or desirable to carry out the purpose of
this Agreement, the proper officers and directors of Parent and the Company
shall take all such necessary action.
9.6. Inspection of Records; Access. From the date of this
Agreement to the Effective Time, the Company shall allow all designated
officers, attorneys, accountants and other representatives of Parent ("Parent's
Representatives") access at all reasonable times to all employees, plants,
offices, warehouses, transmission facilities and other facilities and to the
records and files, correspondence, audits and properties, as well as to all
information relating to commitments, contracts, titles and financial position,
or otherwise pertaining to the business and affairs, of the Company and its
Subsidiaries; provided, however, that Parent's Representatives shall use their
reasonable best efforts to avoid unreasonably interfering with, hindering or
otherwise disrupting the employees of the Company in the execution of their
employment duties during any visit to, or inspection of, the Company's
facilities.
9.7. Publicity. The initial press release relating to this
Agreement shall be a joint press release and thereafter the Company and Parent
shall, subject to their respective legal obligations (including requirements of
stock exchanges and other similar regulatory bodies), consult with each other,
and use reasonable efforts to agree upon the
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text of any press release, before issuing any such press release or otherwise
making public statements with respect to the transactions contemplated hereby
and in making any filings with any federal or state governmental or regulatory
agency or with any national securities exchange with respect thereto.
9.8. Proxy Statement. If required under applicable law, the
Company shall prepare the Proxy Statement, file it with the SEC under the
Exchange Act as promptly as practicable after Merger Sub purchases shares of
Common Stock pursuant to the Offer, and use all reasonable efforts to have it
cleared by the SEC. Parent, Merger Sub and the Company shall cooperate with
each other in the preparation of the Proxy Statement, and the Company shall
notify Parent of the receipt of any comments of the SEC with respect to the
Proxy Statement and of any requests by the SEC for any amendment or supplement
thereto or for additional information and shall provide to Parent promptly
copies of all correspondence between the Company or any representative of the
Company and the SEC. The Company shall give Parent and its counsel the
opportunity to review the Proxy Statement prior to its being filed with the SEC
and shall give Parent and its counsel the opportunity to review all amendments
and supplements to the Proxy Statement and all responses to requests for
additional information and replies to comments prior to their being filed with,
or sent to, the SEC. Each of the Company, Parent and Merger Sub agrees to use
its reasonable best efforts, after consultation with the other parties hereto
to respond promptly to all such comments of and requests by the SEC. As
promptly as practicable after the Proxy Statement has been cleared by the SEC,
the Company shall mail the Proxy Statement to the stockholders of the Company.
If a Proxy Statement is not required to be disseminated to
stockholders of the Company under the federal securities laws in connection
with the Merger, the Company shall prepare and mail to stockholders of the
Company, as promptly as practicable following the purchase of shares of Common
Stock in the Offer, such notices and other materials as may be required under
the DGCL in connection with the consummation of the Merger. The Company shall
give Parent and its counsel the opportunity to review such notices and other
materials and all amendments and supplements thereto prior to their being
mailed.
9.9. Further Action. Each party hereto shall, subject to the
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the Offer or
the Merger.
9.10. Expenses. Whether or not the Merger is consummated,
except as provided in Section 11.5(b), all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses.
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9.11. Indemnification and Insurance.
(a) Parent shall cause the Surviving Corporation to
keep in effect provisions in its Certificate of Incorporation and By-laws
providing for exculpation of director and officer liability and indemnification
of the indemnified parties under the Company's Restated Certificate of
Incorporation and By-laws (the "Indemnified Parties") to the fullest extent
permitted under the DGCL, which provisions shall not be amended except as
required by applicable law or except to make changes permitted by law that
would enlarge the Indemnified Parties' right of indemnification.
(b) The provisions of this Section shall survive the
consummation of the Merger and expressly are intended to benefit each of the
Indemnified Parties.
(c) For a period of three years after the Effective
Time, Parent shall cause to be maintained officers' and directors' liability
insurance covering the parties who are currently covered, in their capacities
as officers and directors, by the Company's existing officers' and directors'
liability insurance policies on terms substantially no less advantageous to
such parties than such existing insurance; provided, however, that Parent shall
not be required, in order to maintain or procure such coverage, to pay premiums
in excess of $350,000 in the aggregate over such three year period (the "Cap");
and provided, further, that if equivalent coverage cannot be obtained, or can
be obtained only by paying an amount in excess of the Cap, Parent shall only be
required to obtain such coverage for such three-year period as can be obtained
by paying aggregate premiums equal to the Cap.
9.12. Certain Benefits.
(a) From and after the Effective Time, subject to
applicable law, Parent and its Subsidiaries will honor in accordance with their
terms, all Company Benefit Plans; provided, however, that nothing herein shall
preclude any change effected on a prospective basis in any Company Benefit
Plan.
(b) The Surviving Corporation shall employ at the
Effective Time all employees of the Company and its Subsidiaries who are
employed on the Closing Date on terms consistent with the Company's current
employment practices and at comparable levels of compensation and positions.
Subject to the obligations of the Surviving Corporation under existing
employment agreements, such employment shall be at will and Parent and the
Surviving Corporation shall be under no obligation to continue to employ any
individuals. For purposes of eligibility to participate in and vesting in
various benefits (but not for determination of benefits) provided to employees,
employees of the
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<PAGE> 34
Company and its Subsidiaries will be credited with their years of service with
the Company and its Subsidiaries.
9.13. Headquarters of the Surviving Corporation. Parent agrees
that, for one year following the Effective Time, the headquarters of the
Surviving Corporation (other than with respect to gas marketing operations)
will be located in Dallas, Texas.
ARTICLE 10
10. Conditions.
10.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Merger Sub shall have purchased pursuant to the
Offer a number of shares of Common Stock which satisfies the Minimum Condition;
(b) The waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated.
(c) Neither of the parties hereto shall be subject to
any order or injunction of a court of competent jurisdiction which prohibits
the consummation of the transactions contemplated by this Agreement.
(d) This Agreement and the Merger shall have been
approved by the stockholders of the Company in accordance with the DGCL and the
Company's Restated Certificate of Incorporation and By-laws.
10.2. Conditions to Obligation of the Company to Effect
the Merger. The obligation of the Company to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the condition
that Parent shall have performed its agreements contained in this Agreement
required to be performed on or prior to the Closing Date and the
representations and warranties of Parent and Merger Sub contained in this
Agreement shall be true and correct in all material respects as of the date
when made and (unless made as of a specified date) as of the Closing Date, and
the Company shall have received a certificate of the President or a Vice
President of Parent, dated the Closing Date, certifying to such effect.
10.3. Conditions to Obligation of Parent and Merger Sub
to Effect the Merger. The obligations of Parent and Merger Sub to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the condition that the Company shall have performed its agreements contained in
this Agreement required to be
30
<PAGE> 35
performed on or prior to the Closing Date and the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects as of the date when made and (unless made as of a
specified date) as of the Closing Date, and Parent shall have received a
certificate of the Company, dated the Closing Date, certifying to such effect.
ARTICLE 11
11. Termination.
11.1. Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned, notwithstanding the approval of the
stockholders entitled to vote thereon, at any time prior to the Effective Time
by the mutual consent of Parent and the Company.
11.2. Termination by Either Parent or the Company. This
Agreement may be terminated and the Merger may be abandoned at any time prior
to the Effective Time, notwithstanding the approval of the stockholders
entitled to vote thereon, by action of the Board of Directors of either Parent
or the Company if (a) the Offer shall have expired or been terminated in
accordance with its terms as the result of the failure of any of the conditions
set forth in Annex I hereto without Merger Sub having purchased any shares of
Common Stock pursuant to the Offer; provided, however, that the right to
terminate this Agreement pursuant to this Section 11.2 (a) shall not be
available to any party whose failure to fulfill any of its obligations under
this Agreement results in the failure of any such condition, (b) the Merger
shall not have been consummated by October 20, 1996 (the "Outside Closing
Date"), (c) the approval of the Company's stockholders required by Section
10.1(d) shall not have been obtained at a meeting duly convened therefor or at
any adjournment thereof; provided, however, that the right to terminate this
Agreement pursuant to this Section 11.2(c) shall not be available to Parent if
Parent or Merger Sub breaches its obligations under Section 9.4 of this
Agreement, (d) a United States federal or state court of competent jurisdiction
or United States federal or state governmental, regulatory or administrative
agency or commission shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, or ruling prevents the
Merger from being consummated on or before the Outside Closing Date; provided,
that the party seeking to terminate this Agreement pursuant to this clause (d)
shall have used all reasonable efforts to remove such injunction, order or
decree; and provided, in the case of a termination pursuant to clause (b)
above, that the terminating party shall not have breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger by the Outside
Closing Date, or (e) the Board of Directors of the Company shall have
recommended to the stockholders of the Company a Proposal which, after
consultation
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<PAGE> 36
with counsel and its investment advisor, the Board of Directors of the Company
had determined to be a Superior Proposal.
11.3. Termination by the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, notwithstanding the approval of the stockholders entitled to vote
thereon, by action of the Board of Directors of the Company (a) if the Offer
shall not have been timely commenced in accordance with Section 1.l; (b) if the
Offer shall have expired or have been terminated without any shares of Common
Stock being purchased thereunder or if no shares of Common Stock shall have
been purchased thereunder within 120 days following the date of this Agreement
unless failure to so purchase shares of Common Stock has been caused by or
results from a breach by the Company of this Agreement; (c) there has been a
breach by Parent or Merger Sub of any representation or warranty contained in
this Agreement which would have or would be reasonably likely to have a Parent
Material Adverse Effect or (d) there has been a material breach of any of the
covenants or agreements set forth in this Agreement or the Option Agreement on
the part of Parent or Merger Sub, which breach is not curable or, if curable,
is not cured within 30 days after written notice of such breach is given by the
Company to Parent or the Outside Closing Date, whichever is the earlier.
11.4. Termination by Parent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time,
notwithstanding the approval of the stockholders entitled to vote thereon, by
action of the Board of Directors of Parent, if (a) there has been a breach by
the Company of any representation or warranty contained in this Agreement which
would have or would be reasonably likely to have a Company Material Adverse
Effect, (b) there has been a material breach of any of the covenants or
agreements set forth in this Agreement on the part of the Company, which breach
is not curable or, if curable, is not cured within 30 days after written notice
of such breach is given by Parent to the Company or the Outside Closing Date,
whichever is the earlier, (c) the Board of Directors of the Company withdraws,
modifies or changes its recommendation of this Agreement, the Offer or the
Merger in a manner adverse to Parent or Merger Sub, (d) a tender offer or
exchange offer (other than the Offer) for 50% or more of the outstanding shares
of capital stock of the Company is commenced, and the Board of Directors of the
Company recommends that stockholders tender their shares into such tender or
exchange offer, (e) any person (other than Parent or Merger Sub) shall have
acquired beneficial ownership or the right to acquire beneficial ownership of,
or any "group" (as such terms defined under section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder), shall have been formed
which beneficially owns, or has the right to acquire beneficial ownership of,
more than 50% of the shares of capital stock of the Company on a fully diluted
basis or (f) the Board of Directors or the Transfer Review Committee or the
Transfer Review Officer shall authorize a Transfer by or to a 5% Holder (as such
terms are defined in the Company's Restated Certificate of
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Incorporation) of shares of Common Stock or the provisions of Article Eleventh
of the Restated Certificate of Incorporation shall otherwise be waived or
deemed inapplicable to any acquisition of beneficial ownership of more than 5%
of the shares of Common Stock (other than by Parent or Merger Sub).
11.5. Effect of Termination and Abandonment. (a) In the event
that this Agreement is terminated by either party pursuant to Section 11.2(a)
by reason of the failure of any of the conditions set forth in paragraph (e) or
(f) of the conditions of the Offer set forth in Annex I, by either party
pursuant to Section 11.2(e) or by Parent and Merger Sub pursuant to Section
11.4(c), (d) or (f) and, in any such case, any person shall have made a
Superior Proposal or the Company shall enter into an agreement in principle or
definitive agreement with respect to a Superior Proposal within 9 months
following such termination, then the Company shall simultaneously with such
termination or the execution of such agreement, as the case may be, pay Parent
a fee of $2,500,000 and shall reimburse Parent for all reasonable out-
of-pocket expenses incurred in connection with the transactions contemplated by
this Agreement up to a maximum of $1,000,000, which amount shall be payable by
wire transfer of same day funds. The Company acknowledges that the agreements
contained in this Section 11.5(a) are an integral part of the transactions
contemplated in this Agreement, and that, without these agreements, Parent and
Merger Sub would not enter into this Agreement; accordingly, if Company fails
to promptly pay the amount due pursuant to this Section 11.5(a), and, in order
to obtain such payment, Parent or Merger Sub commences a suit which results in
a judgment against Company for the fee set forth in this Section 11.5(a), the
Company shall pay to Parent its costs and expenses (including reasonable
attorneys' fees) in connection with such suit, together with interest on the
amount of the fee at the rate of 8% per annum.
(b) In the event of termination of this Agreement and the
abandonment of the Merger pursuant to this Article 11, all obligations of the
parties hereto shall terminate, except the obligations of the parties pursuant
to this Section 11.5 and except for the provisions of the Confidentiality
Agreement between the Company and Parent and Sections 12.3, 12.4, 12.6, 12.8,
12.9 and 12.12. Notwithstanding the foregoing, in the event of termination of
this Agreement pursuant to Section 11.3 (a), (b), (c) or (d) or 11.4(a) or (b),
nothing herein shall prejudice the ability of the non-breaching party from
seeking damages from any other party for any breach of this Agreement,
including without limitation, attorneys' fees and the right to pursue any
remedy at law for damages or in equity; provided that in the event Parent has
received the fee payable under Section 11.5(a) hereof, it shall not (i) assert
or pursue in any manner, directly or indirectly, any claim or cause of action
based in whole or in part upon alleged tortious or other interference with
rights under this Agreement against any entity or person submitting a Superior
Proposal or (ii) assert or pursue in any manner, directly or indirectly, any
claim or cause of action against the Company or any of its officers, directors,
attorneys,
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advisors, agents or employees based in whole or in part upon its or their
receipt, consideration, recommendation or approval of a Superior Proposal.
11.6. Extension; Waiver. At any time prior to the Effective
Time, any party hereto by action taken by its Board of Directors may, to the
extent legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (c) waive compliance
with any of the agreements or conditions for the benefit of such party
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE 12
12. General Provisions.
12.1. Survival of Representations and Warranties. Unless this
Agreement is terminated pursuant to Article 11, the representations and
warranties and covenants made in this Agreement shall terminate at the Closing,
except that any covenant herein which by its terms contemplates performance
after the Closing Date shall survive the Closing Date for the period
contemplated thereby.
12.2. Notices. Any notice required to be given hereunder shall
be sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to the Company: If to Parent or Merger Sub:
Cornerstone Natural Gas, Inc. El Paso Natural Gas Company
8080 North Central Express One Paul Kayser Center
Suite 1200 100 North Stanton Street
Dallas, Texas 75206 El Paso, Texas 79901
Attention: Ray Davis Attention: H. Brent Austin
Chairman of the Board Executive Vice President
and Chief Executive Officer and Chief Financial Officer
Facsimile: (214) 739-8251 Facsimile: (915) 541-5008
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With copies to: With a copy to:
Schlanger, Mills, Mayer Gary P. Cooperstein, Esq.
& Grossberg, L.L.P. Fried, Frank, Harris,
5847 San Felipe, Suite 1700 Shriver & Jacobson
Houston, Texas 77057 One New York Plaza
Attention: Clarence Mayer, Esq. New York, NY 10004
Facsimile: (713) 785-2091 Facsimile: (212) 747-1526
and
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Dallas, Texas 75201
Attention: Jack Stillwell, Esq.
Facsimile: (214) 969-4343
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
12.3. Assignment; Binding Effect; Benefit. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties; provided,
however, that Parent may assign this Agreement to any of its Subsidiaries
whether or not such Subsidiaries exist at the date hereof; provided, further,
that no such assignment shall relieve Parent of any of its obligations
hereunder. Subject to the preceding sentence, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Notwithstanding anything contained in this Agreement
to the contrary, except for the provisions of Section 9.10, which are expressly
intended to be enforceable by the beneficiaries thereof, nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
12.4. Entire Agreement. This Agreement, the Company Disclosure
Letter and the Confidentiality Agreement between the Company and Parent
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings (oral and
written) among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
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12.5. Amendment. This Agreement may be amended, at any time
prior to the Effective Time, to the fullest extent permitted by Section 251(d)
of the DGCL and notwithstanding the approval of the Agreement by the
Stockholders entitled to vote thereon, by the parties hereto by an instrument
in writing signed by or on behalf of each of the parties hereto.
12.6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, except that
Delaware law shall apply to those matters required to be governed by Delaware
law under applicable choice of law principles.
12.7. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies of this Agreement, each of which may be signed by less than
all of the parties hereto, but together all such copies are signed by all of
the parties hereto.
12.8. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
12.9. Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa. As used in this Agreement, the word "Subsidiary" when used
with respect to any party means any corporation or other organization, whether
incorporated or unincorporated, of which such party directly or indirectly owns
or controls at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions with respect to such corporation or
other organization, or any organization of which such party is a general
partner.
12.10. Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
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12.11. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
12.12. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof, this being in
addition to any other remedy to which they may be entitled at law or in equity.
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<PAGE> 42
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf as of the day and year
first written above.
EL PASO NATURAL GAS COMPANY
By: /s/ H. BRENT AUSTIN
-----------------------------------
Name: H. Brent Austin
Title: Executive Vice President and
Chief Financial Officer
THE EL PASO COMPANY
By: /s/ ROBERT G. PHILLIPS
-----------------------------------
Name: Robert G. Phillips
Title: Senior Vice President
CORNERSTONE NATURAL GAS, INC.
By: /s/ RAY C. DAVIS
-----------------------------------
Name: Ray C. Davis
Title: Chairman of the Board and
Chief Executive Officer
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ANNEX I
to
Agreement and Plan of Merger
Conditions to the Offer. Notwithstanding any other term of the Offer or
this Agreement, Merger Sub shall not be required to accept for payment or pay
for, subject to any applicable rules and regulations of the SEC, including Rule
14e-l(c) of the Exchange Act, any shares of Common Stock not theretofore
accepted for payment or paid for and may terminate the Offer unless (i) there
shall have been validly tendered and not withdrawn prior to the expiration of
the Offer that number of shares of Common Stock which, when added to the number
of shares of Common Stock then issuable upon the exercise of presently
exercisable Warrants subject to the Option Agreement and previously delivered
to Merger Sub in accordance with the terms of the Option Agreement, would
represent at least a majority of the outstanding shares of Common Stock on a
fully diluted basis (the "Minimum Condition") and (ii) any waiting period under
the HSR Act applicable to the purchase of shares of Common Stock pursuant to
the Offer shall have expired or been terminated. Furthermore, notwithstanding
any other term of the Offer or the Merger Agreement, Merger Sub shall not be
required to accept for payment or, subject as aforesaid, to pay for any shares
of Common Stock not theretofore accepted for payment or paid for, and may
terminate the Offer if at any time on or after the date of this Agreement and
before the acceptance of such shares of Common Stock for payment or the payment
therefor, any of the following conditions exist or shall occur and remain in
effect:
(a) there shall have been instituted or pending any action or
proceeding by or before any court or governmental, regulatory or
administrative agency, authority or tribunal, domestic or foreign, which
restrains or prohibits the making or consummation of the Offer or the
Merger or which would be reasonably likely to (i) result in material
liability or material damages being incurred by Parent or Merger Sub or
(ii) have a Company Material Adverse Effect; or
(b) there shall have been enacted, entered, enforced or deemed
applicable to the Offer or the Merger, by any state, federal or foreign
government or governmental authority or by any court, domestic or
foreign, any statute, rule, regulation, judgment, decree, order or
injunction, that prohibits or makes illegal the making or consummation
of the Offer or the Merger; or
(c) the Company and Merger Sub shall have reached an agreement
or understanding that the Offer or the Merger Agreement be terminated or
the Merger Agreement shall have been terminated in accordance with its
terms; or
A-1
<PAGE> 44
(d) (i) (A) any of the representations and warranties made by
the Company in Sections 7.1, 7.2, 7.3 or 7.4 of the Merger Agreement
shall not have been true and correct in all material respects when made,
or shall thereafter have ceased to be true and correct in all material
respects as if made as of such later time (other than representations
and warranties made as of a specified date) or (B) any of the other
representations and warranties made by the Company in the Merger
Agreement shall not have been true and correct when made or shall
thereafter have ceased to be true and correct as if made as of such
later time (other than representations and warranties made as of a
specified date), with the result that such failure to be true and
correct, either singly or in the aggregate with all other such failures,
has or would reasonably be expected to have a Company Material Adverse
Effect (it being understood that the foregoing shall not be construed as
applying an additional standard of materiality to any representation or
warranty which by its terms is qualified by materiality or by "Company
Material Adverse Effect")or (ii) after notice of default by Merger Sub
to the Company, the Company shall not, prior to the earlier of (A) the
expiration of the time period prescribed in Section 11.4(b) of the
Merger Agreement and (B) the expiration date of the Offer, in all
material respects have performed each obligation and agreement and
complied with each covenant to be performed and complied with by it
under the Merger Agreement ; or
(e) the Company's Board of Directors shall have modified or
amended its recommendation of the Offer in any manner adverse to Parent
and Merger Sub or shall have withdrawn its recommendation of the Offer,
or shall have recommended acceptance of any Proposal or shall have
resolved to do any of the foregoing, or shall have failed to reject any
Proposal within 10 business days after public announcement thereof; or
(f) so long as Parent and Merger Sub have not breached their
obligation to purchase shares of Common Stock pursuant to the Offer or
the Option Agreement, if (i) any person (other than Merger Sub) shall
have acquired beneficial ownership of 50% or more of the shares of
Common Stock on a fully diluted basis, or shall have been granted any
option or right, conditional or otherwise, to acquire 50% or more of the
shares of Common Stock on a fully diluted basis; (ii) any new group
shall have been formed which beneficially owns more than 50% of the
shares of Common Stock on a fully diluted basis; (iii) any person shall
have entered into an agreement in principle or definitive agreement with
the Company with respect to a tender or exchange offer for any shares of
Common Stock or a merger, consolidation or other business combination
with or involving the Company; or (iv) the Board of Directors or the
Transfer Review Committee or the Transfer Review Officer shall authorize
a Transfer by or to a 5% Holder (as such terms are defined in the
Company's Restated Certificate of
A-2
<PAGE> 45
Incorporation) of shares of Common Stock or the provisions of Article
Eleventh of the Restated Certificate of Incorporation shall otherwise be
waived or deemed inapplicable to any acquisition of beneficial ownership
of more than 5% of the shares of Common Stock (other than by Parent or
Merger Sub); or
(g) any of the agreements with each of Ben H. Cook, Ray C.
Davis and Kelcy L. Warren dated as of the date of this Agreement, shall
not be in full force and effect, or any of such persons shall have
contested the validity of any such agreement or denied that he is bound
by the terms thereof;
which, in the reasonable judgment of Parent and Merger Sub, in any case,
makes it inadvisable to proceed with the Offer or with such acceptance for
payment, purchase of, or payment for the shares of Common Stock.
The foregoing conditions are for the sole benefit of Merger Sub and may
be asserted by Merger Sub regardless of the circumstances giving rise to any
such condition and may be waived by Merger Sub, in whole or in part, at any
time and from time to time, in the sole discretion of Merger Sub. The failure
by Merger Sub at any time to exercise any of the foregoing rights will not be
deemed a waiver of any right, the waiver of such right with respect to any
particular facts or circumstances shall not be deemed a waiver with respect to
any other facts or circumstances, and each right will be deemed an ongoing
right which may be asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions, all
tendered shares of Common Stock not theretofore accepted for payment shall
forthwith be returned by the Paying Agent to the tendering stockholders.
A-3
<PAGE> 1
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT, made as of the 20th day of April,
1996, by and between Cornerstone Natural Gas, Inc., a Delaware corporation
("Cornerstone") and Ray C. Davis ("Individual").
WHEREAS, El Paso Natural Gas Company, a Delaware corporation
("EPG"), The El Paso Company, a Delaware corporation ("Purchaser"), and
Cornerstone have entered into an Agreement and Plan of Merger, dated as of
April 20, 1996 (the "Merger Agreement");
WHEREAS, Individual will sell his shares in Cornerstone to
Purchaser pursuant to the Merger Agreement and will receive from Purchaser
substantial payments for such shares by reason of such sale;
WHEREAS, in connection with and as an inducement for EPG and
Purchaser to enter into the Merger Agreement and to purchase the shares owned
by Individual, Individual agrees not to compete with Cornerstone for the
periods described herein; and
WHEREAS, it is a prerequisite to the consummation of the
transactions under the Merger Agreement that Individual and Cornerstone enter
into this Noncompetition Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, agreements and understandings contained herein, the parties
hereto agree as follows:
1. Covenants.
(a) Unauthorized Disclosure and Confidentiality. Individual
understands, acknowledges and agrees that the business, profitability and
goodwill of Cornerstone are dependent upon certain trade secrets and other
proprietary information which are unique and valuable property of Cornerstone;
<PAGE> 2
Individual further understands, acknowledges and agrees that such
trade secrets and other proprietary information, which for the purpose of this
Agreement are restricted to mean only the terms of contracts to which
Cornerstone and its subsidiaries are parties, including sources of supply under
such contracts (collectively known as "Trade Secrets"), shall be kept
confidential and agrees not to disclose any of such Trade Secrets to any
person, firm or corporation for any reason or purpose whatsoever, except to
authorized representatives of Cornerstone, except as required by law and except
to the extent that such Trade Secrets are or become publicly known other than
by reason of a breach of this provision by Individual.
(b) Noncompetition. In recognition of the above nature of
Cornerstone's Trade Secrets and the geographic scope of its business and
competition, Individual agrees, for the purpose of protecting the goodwill and
other legitimate business interests of Cornerstone, that he will not, directly
or indirectly, for his own account or for the account of others, as an officer,
director, stockholder, owner, partner, employee, promoter, consultant, manager,
or otherwise, contract, arrange or otherwise participate in any manner in the
business of processing or gathering oil, natural gas or natural gas liquids (x)
for three (3) years following the Effective Time (as defined in the Merger
Agreement) with respect to the areas listed in Part A of Appendix I attached
hereto, (y) for three (3) years following the Effective Time with respect to
any processing or gathering opportunity in any area within a 10 mile radius of
any existing processing or gathering system or facility of Cornerstone or any
of its subsidiaries or any point of any such system or facility as it presently
exists, unless the proposed processing or gathering activities do not compete
with any existing system or facility of Cornerstone or any of its subsidiaries
and Cornerstone and its subsidiaries have no plans to pursue the proposed
processing or gathering opportunity, and (z) for eighteen (18) months following
the Effective Time with respect to any gathering or processing systems or
facilities that will serve production from the Austin Chalk formation in the
areas listed in Part B of
2
<PAGE> 3
Appendix I; provided, however, that nothing herein shall prohibit Individual
and any entities controlled by him from owning not more than 2% of any class of
securities of a publicly traded entity which is engaged in any such business.
(c) Non-Solicitation. Individual agrees, for one (1) year
following the Effective Time, that neither he nor any entity directly or
indirectly controlled by him will interfere with the relationship of
Cornerstone or any of its subsidiaries or other entities owned or controlled by
Cornerstone (the "Subsidiaries") with, or endeavor to employ or entice away
from Cornerstone or any of the Subsidiaries, any individual, which is an
employee of Cornerstone or any of the Subsidiaries; provided that nothing
herein shall restrict Individual or any entity controlled by him from hiring
either (i) John Noland if John Noland is required by Cornerstone to relocate
from Dallas, Texas and declines to so relocate or (ii) Doug Dormer.
(d) Individual agrees that in the event of a breach or
threatened breach by Individual of this Noncompetition Agreement, Cornerstone
shall be entitled to an injunction restraining Individual from such breach or
threatened breach.
(e) Individual further agrees that Cornerstone may at any
time, provide a copy, or disclose the contents, of this Noncompetition
Agreement, to any new or prospective employer(s) or business associates of
Individual prior to the termination of this Noncompetition Agreement upon
determination by Cornerstone that Individual or the new or prospective employer
or business associate is engaging in or planning to engage in any action which
may breach or aid in the breach of any provision of this Noncompetition
Agreement.
(f) Individual understands that Cornerstone will pursue any and
all remedies at law or otherwise to recover from any new or prospective
employer of Individual for any loss, damage or costs which Cornerstone incurs
as a result of the breach or the inducement of the breach of this Agreement,
including, but not limited, to recovery for damages and expense resulting from
loss of business or profit
3
<PAGE> 4
(g) In the event that any provisions of this Noncompetition
Agreement shall be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable laws or court interpretations thereof,
such provisions deemed excessive shall be reformed, without affecting the
validity and enforceability of the provisions of this Agreement which are not
reformed, to the maximum time, geographic and occupational limitations which
shall be permitted.
2. Gathering System.
(a) Each of Individual and each affiliate he controls which has
any rights to purchase interests in the Oletha gathering system, whether
pursuant to Section 6 of the Bill of Sale, Assignment and Deed dated April 1,
1993 (the "Assignment") from Ben H. Cook, H&S Production, Inc., Palo Verde Oil
Company, Sandollar Oil & Gas, Inc., S&P Co. and Gary S. Swindell or otherwise
(the "Purchase Option") is, concurrently with the execution of this Agreement,
executing an irrevocable assignment (to the extent such rights are assignable)
effective as of the Effective Time in favor of EPG of any and all rights which
Individual and his affiliates have or may have under the Purchase Option, in
the form of Appendix II, if such assignment has not previously been effected.
Individual hereby covenants to use his best efforts (but without the
requirement to expend funds) to cause all other persons who may have rights
under the Purchase Option to irrevocably waive such rights or to assign such
rights to EPG, and to take such other actions as may be necessary or
appropriate to cause such Purchase Option to be terminated or otherwise to
prevent such Purchase Option becoming exercisable.
(b) Individual hereby agrees to indemnify and hold harmless EPG,
Cornerstone and their respective affiliates from and against all losses,
damages, including consequential damages, liabilities, costs and expenses,
including legal fees and expenses, which may be suffered or incurred arising
out of, resulting from or relating to Kelcy L. Warren ("Warren") ceasing to
perform the Required Functions (as defined in the Noncompetition Agreement
dated the date hereof between Cornerstone and Warren) for
4
<PAGE> 5
any reason other than (a) death or (b) physical or mental disability preventing
Warren from performing the Required Functions including, but not limited to
damages, costs or losses suffered or incurred by reason of the exercise of the
Purchase Option contained in paragraph 6 of the Assignment; provided, however,
in no event shall Individual have any liability for the failure of Warren to
actively serve as the President of Energy Transfer Corporation or perform the
Required Functions after the Purchase Option has, by its terms, terminated, or
has been waived or assigned to Cornerstone in its entirety.
3. New Ventures.
(a) If, within three years after the Effective Date, Individual
or any entity directly or indirectly controlled by him, either alone or
together with Ben H. Cook and/or Warren or any entities either of them
controls, directly or indirectly, forms or invests in any venture (whether a
corporation, partnership, joint venture, business trust or other entity) in the
business of processing or gathering of oil, natural gas or natural gas liquids,
for which third party equity financing is or has been received or is sought (a
"New Venture") (other than warrants or other equity "kickers" granted as a
yield enhancement as part of bona fide debt financing arrangements provided by
financial institutions whose primary business is providing debt financing
(which shall exclude any individual, corporation, partnership, joint venture,
business trust or other person or entity engaged in the oil and gas industry
whose primary business is not providing debt financing)) , then Cornerstone (or
its affiliates) shall have the option to acquire a one-eighth (1/8) equity or
ownership interest in each such New Venture, free of any promote or override to
which the equity interest acquired or to be acquired by such third party may be
subject. Individual shall notify Cornerstone promptly in writing of any New
Venture and provide all information reasonably available so that Cornerstone or
such affiliate can make an investment decision, and within 30 days following
receipt of such written notice, Cornerstone shall notify Individual in writing
of its election whether to exercise its option with respect to such New
Venture. The exercise of the option with respect to any New
5
<PAGE> 6
Venture shall take place as promptly as practicable following receipt by
Individual of an election by Cornerstone to exercise the option.
Notwithstanding the foregoing, if gathering or processing
facilities are being built as part of development of an oil or gas field in
which Individual has a working interest and the equity interests in such
facilities are owned solely by the working interest owners, so long as
Individual's investment in the wells or working interest exceeds his investment
in the gathering or processing facilities, such facilities shall not constitute
a New Venture within the meaning of this Agreement.
(b) In the event that any New Venture in respect of which
Cornerstone or an affiliate has exercised the option described in the preceding
paragraph intends to issue (i) any shares of capital stock or other equity
securities or ownership interests or (ii) securities or rights convertible
into, exchangeable for or exercisable for shares of capital stock or equity
securities or interests:
(A) such New Venture shall give Cornerstone (or
such affiliate) written notice of its intent to sell such securities or
interests, specifying the number thereof to be sold and the minimum
price and terms and conditions of such sale and offering to sell such
securities or interests to Cornerstone (or such affiliate);
(B) if Cornerstone (or such affiliate) shall
not, within 30 days after receipt of the notice given pursuant to clause
(A) above, accept such offer in writing with respect to the securities
or interests specified in such notice, then such New Venture shall be
free to sell the securities or interests specified in such notice (but
only those securities or interests) at a price equal to or above the
minimum price and on other terms and conditions no less favorable to
such New Venture than those specified in such notice, at any time after
the expiration of such 30-day period;
(C) if Cornerstone (or such affiliate) shall
accept such offer within 30 days after the notice given pursuant to
clause (A) above, then Cornerstone (or such affiliate) shall purchase
the securities or interests specified in such notice in accordance with
the terms of the offer.
6
<PAGE> 7
4. Certain Opportunities. Cornerstone agrees that, subject to
compliance by Individual with the provisions of Section 1 of this Agreement,
including, without limitation, the non-competition restrictions contained in
Section 1(b), Individual may pursue the business opportunities set forth on
Appendix III hereto, and Cornerstone hereby disclaims any interest in pursuing
such opportunities to the extent, if any, that such opportunities may be deemed
corporate opportunities of Cornerstone. EPG and Purchaser acknowledge that the
price paid to stockholders was not reduced by reason of the provisions of this
Section and that EPG and Purchaser would not have increased the price paid to
stockholders if this Section 4 did not exist.
5. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to Cornerstone: If to Individual:
Cornerstone Natural Gas, Inc. to the address set forth
8080 North Central Express on the signature page
Suite 1200 hereof
Dallas, Texas 75206
Attention: Chairman of the Board
and Chief Executive Officer
Facsimile: (214) 739-8251
With a copy to: With a copy to:
Gary P. Cooperstein, Esq. Clarence Mayer, Esq.
Fried, Frank, Harris, Schlanger, Mills, Mayer
Shriver & Jacobson & Grossberg, L.L.P.
One New York Plaza 5847 San Felipe, Suite 1700
New York, NY 10004 Houston, Texas 77057
Facsimile: (212) 747-1526 Facsimile: (713) 785-2091
7
<PAGE> 8
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
6. Binding Effect/Assignment. This Noncompetition Agreement
shall be binding upon the parties hereto and shall inure to the benefit of
Cornerstone and EPG and their respective successors and assigns. This
Noncompetition Agreement may be assigned by Cornerstone and EPG to their
respective affiliates. Neither this Noncompetition Agreement nor any right,
interest or obligation hereunder shall be assignable or transferable by
Individual, or such party's beneficiaries or legal representatives.
7. Miscellaneous. No provision of this Noncompetition Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Individual and Cornerstone. No
waiver by any party hereto at any time of any breach by any other party hereto
of, or compliance with, any condition or provision of this Noncompetition
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Noncompetition Agreement.
8. Effective Date. The term of this Agreement shall begin as of
the Effective Time, provided that this Agreement shall be null and void if the
Merger Agreement is terminated.
9. Entire Agreement. This Noncompetition Agreement sets forth
the entire understanding of the parties hereto with respect to the subject
matter hereof and thereof
8
<PAGE> 9
and supersede all prior agreements, written or oral, between them as to such
subject matter.
10. Headings. The headings contained herein are solely for the
purpose of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
11. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
12. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, without reference
to the principles of conflict of laws thereof.
13. Consent to Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the jurisdiction of the
courts of the State of Texas or of the United States of America located in the
State of Texas for any actions, suits or proceedings arising out of or relating
to this Noncompetition Agreement and the transactions contemplated hereby and
agrees not to commence any action, suit or proceeding relating hereto except in
such courts, and further agrees that service of any process, summons, notice or
document by United States registered or certified mail shall be effective
service of process for any action, suit or proceeding brought in any such
court. Each of the parties hereto hereby irrevocably and unconditionally
waives any objection to personal jurisdiction and the laying of venue of any
action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby, in the courts of the State of Texas or of the United
States of America located in the State of Texas, and hereby further irrevocably
and unconditionally waives and agrees not to plead or claim in
9
<PAGE> 10
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
14. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first written above.
CORNERSTONE NATURAL GAS, INC.
By: /s/ KELCY L. WARREN
-----------------------------------
Name: Kelcy L. Warren
---------------------------------
Title: President
--------------------------------
/s/ RAY C. DAVIS
--------------------------------------
Ray C. Davis
Address for notices:
10
<PAGE> 1
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT, made as of the 20th day of April,
1996, by and between Cornerstone Natural Gas, Inc., a Delaware corporation
("Cornerstone") and Ben H. Cook ("Individual").
WHEREAS, El Paso Natural Gas Company, a Delaware corporation
("EPG"), The El Paso Company, a Delaware corporation ("Purchaser"), and
Cornerstone have entered into an Agreement and Plan of Merger, dated as of
April 20, 1996 (the "Merger Agreement");
WHEREAS, Individual will sell his shares in Cornerstone to
Purchaser pursuant to the Merger Agreement and will receive from Purchaser
substantial payments for such shares by reason of such sale;
WHEREAS, in connection with and as an inducement for EPG and
Purchaser to enter into the Merger Agreement and to purchase the shares owned
by Individual, Individual agrees not to compete with Cornerstone for the
periods described herein; and
WHEREAS, it is a prerequisite to the consummation of the
transactions under the Merger Agreement that Individual and Cornerstone enter
into this Noncompetition Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, agreements and understandings contained herein, the parties
hereto agree as follows:
1. Covenants.
(a) Unauthorized Disclosure and Confidentiality. Individual
understands, acknowledges and agrees that the business, profitability and
goodwill of Cornerstone are dependent upon certain trade secrets and other
proprietary information which are unique and valuable property of Cornerstone;
<PAGE> 2
Individual further understands, acknowledges and agrees that such
trade secrets and other proprietary information, which for the purpose of this
Agreement are restricted to mean only the terms of contracts to which
Cornerstone and its subsidiaries are parties, including sources of supply under
such contracts (collectively known as "Trade Secrets"), shall be kept
confidential and agrees not to disclose any of such Trade Secrets to any
person, firm or corporation for any reason or purpose whatsoever, except to
authorized representatives of Cornerstone, except as required by law and except
to the extent that such Trade Secrets are or become publicly known other than
by reason of a breach of this provision by Individual.
(b) Noncompetition. In recognition of the above nature of
Cornerstone's Trade Secrets and the geographic scope of its business and
competition, Individual agrees, for the purpose of protecting the goodwill and
other legitimate business interests of Cornerstone, that he will not, directly
or indirectly, for his own account or for the account of others, as an officer,
director, stockholder, owner, partner, employee, promoter, consultant, manager,
or otherwise, contract, arrange or otherwise participate in any manner in the
business of processing or gathering oil, natural gas or natural gas liquids (x)
for three (3) years following the Effective Time (as defined in the Merger
Agreement) with respect to the areas listed in Part A of Appendix I attached
hereto, (y) for three (3) years following the Effective Time with respect to
any processing or gathering opportunity in any area within a 10 mile radius of
any existing processing or gathering system or facility of Cornerstone or any
of its subsidiaries or any point of any such system or facility as it presently
exists, unless the proposed processing or gathering activities do not compete
with any existing system or facility of Cornerstone or any of its subsidiaries
and Cornerstone and its subsidiaries have no plans to pursue the proposed
processing or gathering opportunity, and (z) for eighteen (18) months following
the Effective Time with respect to any gathering or processing systems or
facilities that will serve production from the Austin Chalk formation in the
areas listed in Part B of
2
<PAGE> 3
Appendix I; provided, however, that nothing herein shall prohibit Individual
and any entities controlled by him from owning not more than 2% of any class of
securities of a publicly traded entity which is engaged in any such business.
(c) Non-Solicitation. Individual agrees, for one (1) year
following the Effective Time, that neither he nor any entity directly or
indirectly controlled by him will interfere with the relationship of
Cornerstone or any of its subsidiaries or other entities owned or controlled by
Cornerstone (the "Subsidiaries") with, or endeavor to employ or entice away
from Cornerstone or any of the Subsidiaries, any individual, which is an
employee of Cornerstone or any of the Subsidiaries; provided that nothing
herein shall restrict Individual or any entity controlled by him from hiring
either (i) John Noland if John Noland is required by Cornerstone to relocate
from Dallas, Texas and declines to so relocate or (ii) Doug Dormer.
(d) Individual agrees that in the event of a breach or
threatened breach by Individual of this Noncompetition Agreement, Cornerstone
shall be entitled to an injunction restraining Individual from such breach or
threatened breach.
(e) Individual further agrees that Cornerstone may at any
time, provide a copy, or disclose the contents, of this Noncompetition
Agreement, to any new or prospective employer(s) or business associates of
Individual prior to the termination of this Noncompetition Agreement upon
determination by Cornerstone that Individual or the new or prospective employer
or business associate is engaging in or planning to engage in any action which
may breach or aid in the breach of any provision of this Noncompetition
Agreement.
(f) Individual understands that Cornerstone will pursue any and
all remedies at law or otherwise to recover from any new or prospective
employer of Individual for any loss, damage or costs which Cornerstone incurs
as a result of the breach or the inducement of the breach of this Agreement,
including, but not limited, to recovery for damages and expense resulting from
loss of business or profit
3
<PAGE> 4
(g) In the event that any provisions of this Noncompetition
Agreement shall be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable laws or court interpretations thereof,
such provisions deemed excessive shall be reformed, without affecting the
validity and enforceability of the provisions of this Agreement which are not
reformed, to the maximum time, geographic and occupational limitations which
shall be permitted.
2. Gathering System.
(a) Each of Individual and each affiliate he controls which has
any rights to purchase interests in the Oletha gathering system, whether
pursuant to Section 6 of the Bill of Sale, Assignment and Deed dated April 1,
1993 (the "Assignment") from Ben H. Cook, H&S Production, Inc., Palo Verde Oil
Company, Sandollar Oil & Gas, Inc., S&P Co. and Gary S. Swindell or otherwise
(the "Purchase Option") is, concurrently with the execution of this Agreement,
executing an irrevocable assignment (to the extent such rights are assignable)
effective as of the Effective Time in favor of EPG of any and all rights which
Individual and his affiliates have or may have under the Purchase Option, in
the form of Appendix II, if such assignment has not previously been effected.
Individual hereby covenants to use his best efforts (but without the
requirement to expend funds) to cause all other persons who may have rights
under the Purchase Option to irrevocably waive such rights or to assign such
rights to EPG, and to take such other actions as may be necessary or
appropriate to cause such Purchase Option to be terminated or otherwise to
prevent such Purchase Option becoming exercisable.
(b) Individual hereby agrees to indemnify and hold harmless EPG,
Cornerstone and their respective affiliates from and against all losses,
damages, including consequential damages, liabilities, costs and expenses,
including legal fees and expenses, which may be suffered or incurred arising
out of, resulting from or relating to Kelcy L. Warren ("Warren") ceasing to
perform the Required Functions (as defined in the Noncompetition Agreement
dated the date hereof between Cornerstone and Warren) for
4
<PAGE> 5
any reason other than (a) death or (b) physical or mental disability preventing
Warren from performing the Required Functions including, but not limited to
damages, costs or losses suffered or incurred by reason of the exercise of the
Purchase Option contained in paragraph 6 of the Assignment; provided, however,
in no event shall Individual have any liability for the failure of Warren to
actively serve as the President of Energy Transfer Corporation or perform the
Required Functions after the Purchase Option has, by its terms, terminated, or
has been waived or assigned to Cornerstone in its entirety.
3. New Ventures.
(a) If, within three years after the Effective Date, Individual
or any entity directly or indirectly controlled by him, either alone or
together with Ben H. Cook and/or Warren or any entities either of them
controls, directly or indirectly, forms or invests in any venture (whether a
corporation, partnership, joint venture, business trust or other entity) in the
business of processing or gathering of oil, natural gas or natural gas liquids,
for which third party equity financing is or has been received or is sought (a
"New Venture") (other than warrants or other equity "kickers" granted as a
yield enhancement as part of bona fide debt financing arrangements provided by
financial institutions whose primary business is providing debt financing
(which shall exclude any individual, corporation, partnership, joint venture,
business trust or other person or entity engaged in the oil and gas industry
whose primary business is not providing debt financing)) , then Cornerstone (or
its affiliates) shall have the option to acquire a one-eighth (1/8) equity or
ownership interest in each such New Venture, free of any promote or override to
which the equity interest acquired or to be acquired by such third party may be
subject. Individual shall notify Cornerstone promptly in writing of any New
Venture and provide all information reasonably available so that Cornerstone or
such affiliate can make an investment decision, and within 30 days following
receipt of such written notice, Cornerstone shall notify Individual in writing
of its election whether to exercise its option with respect to such New
Venture. The exercise of the option with respect to any New
5
<PAGE> 6
Venture shall take place as promptly as practicable following receipt by
Individual of an election by Cornerstone to exercise the option.
Notwithstanding the foregoing, if gathering or processing
facilities are being built as part of development of an oil or gas field in
which Individual has a working interest and the equity interests in such
facilities are owned solely by the working interest owners, so long as
Individual's investment in the wells or working interest exceeds his investment
in the gathering or processing facilities, such facilities shall not constitute
a New Venture within the meaning of this Agreement.
(b) In the event that any New Venture in respect of which
Cornerstone or an affiliate has exercised the option described in the preceding
paragraph intends to issue (i) any shares of capital stock or other equity
securities or ownership interests or (ii) securities or rights convertible
into, exchangeable for or exercisable for shares of capital stock or equity
securities or interests:
(A) such New Venture shall give Cornerstone (or
such affiliate) written notice of its intent to sell such securities or
interests, specifying the number thereof to be sold and the minimum
price and terms and conditions of such sale and offering to sell such
securities or interests to Cornerstone (or such affiliate);
(B) if Cornerstone (or such affiliate) shall
not, within 30 days after receipt of the notice given pursuant to clause
(A) above, accept such offer in writing with respect to the securities
or interests specified in such notice, then such New Venture shall be
free to sell the securities or interests specified in such notice (but
only those securities or interests) at a price equal to or above the
minimum price and on other terms and conditions no less favorable to
such New Venture than those specified in such notice, at any time after
the expiration of such 30-day period;
(C) if Cornerstone (or such affiliate) shall
accept such offer within 30 days after the notice given pursuant to
clause (A) above, then Cornerstone (or such affiliate) shall purchase
the securities or interests specified in such notice in accordance with
the terms of the offer.
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<PAGE> 7
4. Certain Opportunities. Cornerstone agrees that, subject to
compliance by Individual with the provisions of Section 1 of this Agreement,
including, without limitation, the non-competition restrictions contained in
Section 1(b), Individual may pursue the business opportunities set forth on
Appendix III hereto, and Cornerstone hereby disclaims any interest in pursuing
such opportunities to the extent, if any, that such opportunities may be deemed
corporate opportunities of Cornerstone. EPG and Purchaser acknowledge that the
price paid to stockholders was not reduced by reason of the provisions of this
Section and that EPG and Purchaser would not have increased the price paid to
stockholders if this Section 4 did not exist.
5. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to Cornerstone: If to Individual:
Cornerstone Natural Gas, Inc. to the address set forth
8080 North Central Express on the signature page
Suite 1200 hereof
Dallas, Texas 75206
Attention: Chairman of the Board
and Chief Executive Officer
Facsimile: (214) 739-8251
With a copy to: With a copy to:
Gary P. Cooperstein, Esq. Clarence Mayer, Esq.
Fried, Frank, Harris, Schlanger, Mills, Mayer
Shriver & Jacobson & Grossberg, L.L.P.
One New York Plaza 5847 San Felipe, Suite 1700
New York, NY 10004 Houston, Texas 77057
Facsimile: (212) 747-1526 Facsimile: (713) 785-2091
7
<PAGE> 8
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
6. Binding Effect/Assignment. This Noncompetition Agreement
shall be binding upon the parties hereto and shall inure to the benefit of
Cornerstone and EPG and their respective successors and assigns. This
Noncompetition Agreement may be assigned by Cornerstone and EPG to their
respective affiliates. Neither this Noncompetition Agreement nor any right,
interest or obligation hereunder shall be assignable or transferable by
Individual, or such party's beneficiaries or legal representatives.
7. Miscellaneous. No provision of this Noncompetition Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Individual and Cornerstone. No
waiver by any party hereto at any time of any breach by any other party hereto
of, or compliance with, any condition or provision of this Noncompetition
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Noncompetition Agreement.
8. Effective Date. The term of this Agreement shall begin as of
the Effective Time, provided that this Agreement shall be null and void if the
Merger Agreement is terminated.
9. Entire Agreement. This Noncompetition Agreement sets forth
the entire understanding of the parties hereto with respect to the subject
matter hereof and thereof
8
<PAGE> 9
and supersede all prior agreements, written or oral, between them as to such
subject matter.
10. Headings. The headings contained herein are solely for the
purpose of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
11. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
12. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, without reference
to the principles of conflict of laws thereof.
13. Consent to Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the jurisdiction of the
courts of the State of Texas or of the United States of America located in the
State of Texas for any actions, suits or proceedings arising out of or relating
to this Noncompetition Agreement and the transactions contemplated hereby and
agrees not to commence any action, suit or proceeding relating hereto except in
such courts, and further agrees that service of any process, summons, notice or
document by United States registered or certified mail shall be effective
service of process for any action, suit or proceeding brought in any such
court. Each of the parties hereto hereby irrevocably and unconditionally
waives any objection to personal jurisdiction and the laying of venue of any
action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby, in the courts of the State of Texas or of the United
States of America located in the State of Texas, and hereby further irrevocably
and unconditionally waives and agrees not to plead or claim in
9
<PAGE> 10
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
14. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first written above.
CORNERSTONE NATURAL GAS, INC.
By: /s/ RAY C. DAVIS
-----------------------------------
Name: Ray C. Davis
---------------------------------
Title: Chief Executive Officer
--------------------------------
/s/ BEN H. COOK
--------------------------------------
Ben H. Cook
Address for notices:
10
<PAGE> 1
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT, made as of the 20th day of April,
1996, by and between Cornerstone Natural Gas, Inc., a Delaware corporation
("Cornerstone") and Kelcy L. Warren ("Individual").
WHEREAS, El Paso Natural Gas Company, a Delaware corporation
("EPG"), The El Paso Company, a Delaware corporation ("Purchaser"), and
Cornerstone have entered into an Agreement and Plan of Merger, dated as of
April 20, 1996 (the "Merger Agreement");
WHEREAS, Individual will sell his shares in Cornerstone to
Purchaser pursuant to the Merger Agreement and will receive from Purchaser
substantial payments for such shares by reason of such sale;
WHEREAS, in connection with and as an inducement for EPG and
Purchaser to enter into the Merger Agreement and to purchase the shares owned
by Individual, Individual agrees not to compete with Cornerstone for the
periods described herein; and
WHEREAS, it is a prerequisite to the consummation of the
transactions under the Merger Agreement that Individual and Cornerstone enter
into this Noncompetition Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, agreements and understandings contained herein, the parties
hereto agree as follows:
1. Covenants.
(a) Unauthorized Disclosure and Confidentiality. Individual
understands, acknowledges and agrees that the business, profitability and
goodwill of Cornerstone are dependent upon certain trade secrets and other
proprietary information which are unique and valuable property of Cornerstone;
<PAGE> 2
Individual further understands, acknowledges and agrees that such
trade secrets and other proprietary information, which for the purpose of this
Agreement are restricted to mean only the terms of contracts to which
Cornerstone and its subsidiaries are parties, including sources of supply under
such contracts (collectively known as "Trade Secrets"), shall be kept
confidential and agrees not to disclose any of such Trade Secrets to any
person, firm or corporation for any reason or purpose whatsoever, except to
authorized representatives of Cornerstone, except as required by law and except
to the extent that such Trade Secrets are or become publicly known other than
by reason of a breach of this provision by Individual.
(b) Noncompetition. In recognition of the above nature of
Cornerstone's Trade Secrets and the geographic scope of its business and
competition, Individual agrees, for the purpose of protecting the goodwill and
other legitimate business interests of Cornerstone, that he will not, directly
or indirectly, for his own account or for the account of others, as an officer,
director, stockholder, owner, partner, employee, promoter, consultant, manager,
or otherwise, contract, arrange or otherwise participate in any manner in the
business of processing or gathering oil, natural gas or natural gas liquids (x)
for three (3) years following the Effective Time (as defined in the Merger
Agreement) with respect to the areas listed in Part A of Appendix I attached
hereto, (y) for three (3) years following the Effective Time with respect to
any processing or gathering opportunity in any area within a 10 mile radius of
any existing processing or gathering system or facility of Cornerstone or any
of its subsidiaries or any point of any such system or facility as it presently
exists, unless the proposed processing or gathering activities do not compete
with any existing system or facility of Cornerstone or any of its subsidiaries
and Cornerstone and its subsidiaries have no plans to pursue the proposed
processing or gathering opportunity, and (z) for eighteen (18) months following
the Effective Time with respect to any gathering or processing systems or
facilities that will serve production from the Austin Chalk formation in the
areas listed in Part B of
2
<PAGE> 3
Appendix I; provided, however, that nothing herein shall prohibit Individual
and any entities controlled by him from owning not more than 2% of any class of
securities of a publicly traded entity which is engaged in any such business.
(c) Non-Solicitation. Individual agrees, for one (1) year
following the Effective Time, that neither he nor any entity directly or
indirectly controlled by him will interfere with the relationship of
Cornerstone or any of its subsidiaries or other entities owned or controlled by
Cornerstone (the "Subsidiaries") with, or endeavor to employ or entice away
from Cornerstone or any of the Subsidiaries, any individual, which is an
employee of Cornerstone or any of the Subsidiaries; provided that nothing
herein shall restrict Individual or any entity controlled by him from hiring
either (i) John Noland if John Noland is required by Cornerstone to relocate
from Dallas, Texas and declines to so relocate or (ii) Doug Dormer.
(d) Individual agrees that in the event of a breach or
threatened breach by Individual of this Noncompetition Agreement, Cornerstone
shall be entitled to an injunction restraining Individual from such breach or
threatened breach.
(e) Individual further agrees that Cornerstone may at any
time, provide a copy, or disclose the contents, of this Noncompetition
Agreement, to any new or prospective employer(s) or business associates of
Individual prior to the termination of this Noncompetition Agreement upon
determination by Cornerstone that Individual or the new or prospective employer
or business associate is engaging in or planning to engage in any action which
may breach or aid in the breach of any provision of this Noncompetition
Agreement.
(f) Individual understands that Cornerstone will pursue any and
all remedies at law or otherwise to recover from any new or prospective
employer of Individual for any loss, damage or costs which Cornerstone incurs
as a result of the breach or the inducement of the breach of this Agreement,
including, but not limited, to recovery for damages and expense resulting from
loss of business or profit
3
<PAGE> 4
(g) In the event that any provisions of this Noncompetition
Agreement shall be deemed to exceed the time, geographic or occupational
limitations permitted by the applicable laws or court interpretations thereof,
such provisions deemed excessive shall be reformed, without affecting the
validity and enforceability of the provisions of this Agreement which are not
reformed, to the maximum time, geographic and occupational limitations which
shall be permitted.
2. Gathering System.
(a) Each of Individual and each affiliate he controls which has
any rights to purchase interests in the Oletha gathering system, whether
pursuant to Section 6 of the Bill of Sale, Assignment and Deed dated April 1,
1993 (the "Assignment") from Ben H. Cook, H&S Production, Inc., Palo Verde Oil
Company, Sandollar Oil & Gas, Inc., S&P Co. and Gary S. Swindell or otherwise
(the "Purchase Option") is, concurrently with the execution of this Agreement,
executing an irrevocable assignment (to the extent such rights are assignable)
effective as of the Effective Time in favor of EPG of any and all rights which
Individual and his affiliates have or may have under the Purchase Option, in
the form of Appendix II, if such assignment has not previously been effected.
Individual hereby covenants to use his best efforts (but without the
requirement to expend funds) to cause all other persons who may have rights
under the Purchase Option to irrevocably waive such rights or to assign such
rights to EPG, and to take such other actions as may be necessary or
appropriate to cause such Purchase Option to be terminated or otherwise to
prevent such Purchase Option becoming exercisable. In connection with the
foregoing, Individual shall continue to be and actively serve as the President
of Energy Transfer Corporation ("ETC"), without compensation, for as long as
EPG may request and, at the direction of EPG, will perform the following
functions (the "Required Functions"):
Individual will have all powers and duties usually associated with the
office of President (subject to such limitations or extensions set by
the Board of Directors) and will not delegate any such powers or duties;
as President of ETC, Warren will
4
<PAGE> 5
continue to be the senior officer of ETC answering only to the Board of
Directors of ETC and will be responsible for the general and active
management of ETC; among other things, Individual will be responsible
for (i) making sure that new gas is correctly and promptly connected to
the Oletha gathering system, (ii) the marketing of gas from the system
and (iii) causing the system to be maintained.
(b) Individual hereby agrees to indemnify and hold harmless EPG,
Cornerstone and their respective affiliates from and against all losses,
damages, including consequential damages, liabilities, costs and expenses,
including legal fees and expenses, which may be suffered or incurred arising
out of, resulting from or relating to Individual's ceasing to perform the
Required Functions for any reason other than (a) death or (b) physical or
mental disability preventing Individual from performing the Required Functions
including, but not limited to damages, costs or losses suffered or incurred by
reason of the exercise of the Purchase Option contained in paragraph 6 of the
Assignment; provided, however, in no event shall Individual have any liability
for the failure to actively serve as the President of ETC or perform the
Required Functions after the Purchase Option has, by its terms, terminated, or
has been waived or assigned to Cornerstone in its entirety.
3. New Ventures.
(a) If, within three years after the Effective Date, Individual
or any entity directly or indirectly controlled by him, either alone or
together with Ben H. Cook and/or Ray C. Davis or any entities either of them
controls, directly or indirectly, forms or invests in any venture (whether a
corporation, partnership, joint venture, business trust or other entity) in the
business of processing or gathering of oil, natural gas or natural gas liquids,
for which third party equity financing is or has been received or is sought (a
"New Venture") (other than warrants or other equity "kickers" granted as a
yield enhancement as part of bona fide debt financing arrangements provided by
financial institutions whose primary business is providing debt financing
(which shall exclude any individual, corporation, partnership, joint venture,
business trust or other person or entity
5
<PAGE> 6
engaged in the oil and gas industry whose primary business is not providing
debt financing)) , then Cornerstone (or its affiliates) shall have the option
to acquire a one-eighth (1/8) equity or ownership interest in each such New
Venture, free of any promote or override to which the equity interest acquired
or to be acquired by such third party may be subject. Individual shall notify
Cornerstone promptly in writing of any New Venture and provide all information
reasonably available so that Cornerstone or such affiliate can make an
investment decision, and within 30 days following receipt of such written
notice, Cornerstone shall notify Individual in writing of its election whether
to exercise its option with respect to such New Venture. The exercise of the
option with respect to any New Venture shall take place as promptly as
practicable following receipt by Individual of an election by Cornerstone to
exercise the option.
Notwithstanding the foregoing, if gathering or processing
facilities are being built as part of development of an oil or gas field in
which Individual has a working interest and the equity interests in such
facilities are owned solely by the working interest owners, so long as
Individual's investment in the wells or working interest exceeds his investment
in the gathering or processing facilities, such facilities shall not constitute
a New Venture within the meaning of this Agreement.
(b) In the event that any New Venture in respect of which
Cornerstone or an affiliate has exercised the option described in the preceding
paragraph intends to issue (i) any shares of capital stock or other equity
securities or ownership interests or (ii) securities or rights convertible
into, exchangeable for or exercisable for shares of capital stock or equity
securities or interests:
(A) such New Venture shall give Cornerstone (or
such affiliate) written notice of its intent to sell such securities or
interests, specifying the number thereof to be sold and the minimum
price and terms and conditions of such sale and offering to sell such
securities or interests to Cornerstone (or such affiliate);
6
<PAGE> 7
(B) if Cornerstone (or such affiliate) shall
not, within 30 days after receipt of the notice given pursuant to clause
(A) above, accept such offer in writing with respect to the securities
or interests specified in such notice, then such New Venture shall be
free to sell the securities or interests specified in such notice (but
only those securities or interests) at a price equal to or above the
minimum price and on other terms and conditions no less favorable to
such New Venture than those specified in such notice, at any time after
the expiration of such 30-day period;
(C) if Cornerstone (or such affiliate) shall
accept such offer within 30 days after the notice given pursuant to
clause (A) above, then Cornerstone (or such affiliate) shall purchase
the securities or interests specified in such notice in accordance with
the terms of the offer.
4. Certain Opportunities. Cornerstone agrees that, subject to
compliance by Individual with the provisions of Section 1 of this Agreement,
including, without limitation, the non-competition restrictions contained in
Section 1(b), Individual may pursue the business opportunities set forth on
Appendix III hereto, and Cornerstone hereby disclaims any interest in pursuing
such opportunities to the extent, if any, that such opportunities may be deemed
corporate opportunities of Cornerstone. EPG and Purchaser acknowledge that the
price paid to stockholders was not reduced by reason of the provisions of this
Section and that EPG and Purchaser would not have increased the price paid to
stockholders if this Section 4 did not exist.
5. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
7
<PAGE> 8
If to Cornerstone: If to Individual:
Cornerstone Natural Gas, Inc. to the address set forth
8080 North Central Express on the signature page
Suite 1200 hereof
Dallas, Texas 75206
Attention: Chairman of the Board
and Chief Executive Officer
Facsimile: (214) 739-8251
With a copy to: With a copy to:
Gary P. Cooperstein, Esq. Clarence Mayer, Esq.
Fried, Frank, Harris, Schlanger, Mills, Mayer
Shriver & Jacobson & Grossberg, L.L.P.
One New York Plaza 5847 San Felipe, Suite 1700
New York, NY 10004 Houston, Texas 77057
Facsimile: (212) 747-1526 Facsimile: (713) 785-2091
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
6. Binding Effect/Assignment. This Noncompetition Agreement
shall be binding upon the parties hereto and shall inure to the benefit of
Cornerstone and EPG and their respective successors and assigns. This
Noncompetition Agreement may be assigned by Cornerstone and EPG to their
respective affiliates. Neither this Noncompetition Agreement nor any right,
interest or obligation hereunder shall be assignable or transferable by
Individual, or such party's beneficiaries or legal representatives.
7. Miscellaneous. No provision of this Noncompetition Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Individual and Cornerstone. No
waiver by any party hereto at any time of any breach by any other party hereto
of, or compliance with, any condition or
8
<PAGE> 9
provision of this Noncompetition Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth in this
Noncompetition Agreement.
8. Effective Date. The term of this Agreement shall begin as of
the Effective Time, provided that this Agreement shall be null and void if the
Merger Agreement is terminated.
9. Entire Agreement. This Noncompetition Agreement sets forth
the entire understanding of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior agreements, written or oral,
between them as to such subject matter.
10. Headings. The headings contained herein are solely for the
purpose of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
11. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
12. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, without reference
to the principles of conflict of laws thereof.
13. Consent to Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the jurisdiction of the
courts of the State of
9
<PAGE> 10
Texas or of the United States of America located in the State of Texas for any
actions, suits or proceedings arising out of or relating to this Noncompetition
Agreement and the transactions contemplated hereby and agrees not to commence
any action, suit or proceeding relating hereto except in such courts, and
further agrees that service of any process, summons, notice or document by
United States registered or certified mail shall be effective service of
process for any action, suit or proceeding brought in any such court. Each of
the parties hereto hereby irrevocably and unconditionally waives any objection
to personal jurisdiction and the laying of venue of any action, suit or
proceeding arising out of this Agreement or the transactions contemplated
hereby, in the courts of the State of Texas or of the United States of America
located in the State of Texas, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
14. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same Agreement.
15. Consulting Agreement. If requested by Cornerstone at any
time prior to the Effective Time, Individual agrees to enter into the
Consulting Agreement, the form of which is attached as Appendix IV hereto. EPG
and Purchaser have required, as a condition to their willingness to enter into
the Merger Agreement, that Individual agrees to provide the consulting services
under the Consulting Agreement if requested. At no time has individual
requested such Consulting Agreement; in fact, Individual declined a more
attractive employment offer from Cornerstone and EPG.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first written above.
CORNERSTONE NATURAL GAS, INC.
By: /s/ RAY C. DAVIS
-----------------------------------
Name: Ray C. Davis
---------------------------------
Title: Chief Executive Officer
--------------------------------
/s/ KELCY L. WARREN
--------------------------------------
Kelcy L. Warren
11
