<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
CRYSTAL GAS STORAGE, INC.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies: CRYSTAL
GAS STORAGE, INC. COMMON STOCK, $.01 PAR VALUE PER SHARE
2. Aggregate number of securities to which transaction applies: 2,668,122
3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11: $57.00 (DETERMINED THROUGH NEGOTIATION)
4. Proposed maximum aggregate value of transaction: $152,082,954.00
5. Total fee paid: $30,416.59
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
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[CRYSTAL GAS STORAGE LOGO]
CRYSTAL GAS STORAGE, INC.
229 MILAM STREET
SHREVEPORT, LOUISIANA 71101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
DECEMBER , 1999
Notice is hereby given that a Special Meeting of Shareholders of Crystal
Gas Storage, Inc., a Louisiana corporation ("Crystal"), will be held on December
, 1999, at 9:00 a.m., Houston, Texas time, at 1301 McKinney, Suite 5100,
Houston, Texas, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of October 15, 1999, among El Paso
Energy Corporation ("El Paso Energy"), El Paso Energy Acquisition Co., a
subsidiary of El Paso Energy ("El Paso Sub"), and Crystal pursuant to which
Crystal will be merged into El Paso Sub.
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement of the special meeting.
Dissenting shareholders who comply with the procedural requirements of the
Business Corporation Law of Louisiana will be entitled to receive payment of the
fair cash value of their shares if the merger or consolidation is effected upon
approval by less than eighty percent of the corporation's total voting power.
The procedural requirements are summarized under "Dissenters' Rights" in the
accompanying proxy statement.
The accompanying notice of meeting and proxy statement explain the proposed
merger and provide specific information concerning the special meeting. Please
read these materials carefully.
Only those persons who were holders of record of Crystal common stock at
the close of business on November , 1999, will be entitled to notice of, and
to vote at, the special meeting and any adjournment or postponement of the
special meeting.
THE CRYSTAL BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER.
The Crystal Board of Directors welcomes the personal attendance of
shareholders at the meeting. However, whether or not you expect to be present at
the meeting, please fill in, date and sign the enclosed proxy and return it to
Crystal in the enclosed envelope, which requires no postage if mailed in the
United States.
By Order of the Board of Directors,
/s/ J. A. Ballew
J. A. Ballew
Secretary
Dated: November , 1999
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CRYSTAL GAS STORAGE, INC.
229 MILAM STREET
SHREVEPORT, LOUISIANA 71101
------------------------------------
PROXY STATEMENT
------------------------------------
NOVEMBER , 1999
This proxy statement is being furnished in connection with a solicitation
of proxies by the Board of Directors of Crystal Gas Storage, Inc., a Louisiana
corporation ("Crystal"), to be used at a Special Meeting of Shareholders of
Crystal to be held on December , 1999, at 9:00 a.m., Houston, Texas time, at
1301 McKinney, Suite 5100, Houston, Texas, for approval of a proposed merger
with El Paso Energy Acquisition Co. ("El Paso Sub"), a wholly owned subsidiary
of El Paso Energy Corporation ("El Paso Energy").
Under the terms of the merger, the shareholders of Crystal will receive
$57.00 in cash, without interest, in exchange for each share of common stock,
par value $.01 per share, of Crystal they own on December , 1999. In the
merger, Crystal will be merged into El Paso Sub, with El Paso Sub being the
surviving corporation and a wholly owned subsidiary of El Paso Energy.
It is expected that prior to the date of the special meeting, Crystal will
send a notice of redemption to the holders of Crystal's outstanding $.06 Senior
Convertible Voting Preferred Stock, par value $.01 per share, and will deposit
funds necessary to redeem the preferred stock so that, under Louisiana law, the
preferred stock will not be considered to be outstanding for voting purposes at
the special meeting. Under the terms of the preferred stock, Crystal has the
right to redeem each share for $1.00 per share upon not less than 30 days
written notice.
Under Louisiana law and Crystal's Amended and Restated Articles of
Incorporation, as amended, two-thirds of the outstanding voting power of Crystal
must vote in favor of the merger if it is to be approved. The shares of Crystal
common stock subject to the Shareholders Agreements described herein and the
shares owned by directors and executive officers of Crystal represent
approximately 65.1% of Crystal's total outstanding voting power as of October
25, 1999. Therefore, if the directors and executive officers vote their shares,
representing approximately 1.1% of Crystal's total outstanding voting power, for
the merger (as they have indicated they will) and the shares subject to the
Shareholders Agreements, representing approximately 64% of Crystal's outstanding
voting power, are voted by the holders thereof for the merger (as required by
the Shareholders Agreements), only the approval of approximately an additional
1.6% of Crystal's total voting power will be required to approve the merger.
The Crystal Board of Directors unanimously recommends that you vote FOR the
approval and adoption of the Agreement and Plan of Merger.
Crystal common stock trades on the American Stock Exchange under the symbol
"COR." On October 29, 1999, the closing sale price of the Crystal common stock
was $54, as reported by the American Stock Exchange.
This proxy statement and the related materials are first being mailed to
the shareholders of Crystal on or about November , 1999.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers About the
Merger................................. 3
Summary................................ 6
The Companies........................ 6
The Special Meeting.................. 7
The Merger........................... 9
The Companies.......................... 12
Crystal Gas Storage, Inc............. 12
El Paso Energy Corporation........... 12
El Paso Energy Acquisition Co........ 12
The Special Meeting.................... 13
General.............................. 13
Record Date and Voting............... 13
Required Vote........................ 13
Shareholders Agreements.............. 14
Proxies; Revocation.................. 14
Adjournments or Postponements........ 15
The Merger............................. 16
Background of the Merger............. 16
Crystal's Reasons for the Merger;
Recommendation of the Crystal
Board............................. 16
Opinion of Goldman Sachs............. 18
Material Federal Income Tax
Consequences...................... 23
Governmental and Regulatory
Approvals......................... 24
Accounting Treatment................. 24
Interests of Certain Persons in the
Merger; Possible Conflicts of
Interest.......................... 25
The Merger Agreement................... 27
Structure and Effective Time......... 27
Merger Consideration................. 27
Payment Procedures................... 27
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Treatment of Crystal Stock Options... 27
Directors and Officers............... 27
Representations and Warranties....... 28
Covenants; Conduct of the Crystal
Business Prior to the Merger...... 29
No Solicitation of Acquisition
Transactions...................... 30
Employee Benefits.................... 31
Best Efforts......................... 32
Indemnification...................... 32
Conditions to the Merger............. 33
Termination or Amendment............. 34
Termination Fees..................... 34
Expenses............................. 35
Amendment and Waiver................. 35
Dissenters' Rights..................... 36
Summary Historical Financial Data...... 38
Price Range of Common Stock............ 39
Principal Shareholders................. 40
Security Ownership of Management....... 42
Forward-Looking Statements............. 44
Where You Can Find More Information.... 44
Incorporation of Certain Documents By
Reference............................ 44
Shareholder Proposals.................. 45
Other Information...................... 45
Annex A -- Merger Agreement............ A-1
Annex B -- Opinion of Goldman,
Sachs & Co........................... B-1
Annex C -- Selected Provisions of the
Louisiana Business Corporations
Act.................................. C-1
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers highlight selected information
regarding the merger described in this proxy statement. These questions and
answers may not address all questions that may be important to you as a Crystal
shareholder. Please refer to the more detailed information contained elsewhere
in this proxy statement and the documents referred to or incorporated by
reference in this proxy statement. In this proxy statement, "we", "our" and "us"
refer to Crystal Gas Storage, Inc.
Q: WHAT IS THE PROPOSED TRANSACTION?
A: Crystal Gas Storage, Inc. will be merged into El Paso Sub, with El Paso
Sub surviving as a wholly owned subsidiary of El Paso Energy.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: As a holder of Crystal common stock, you will receive $57.00 in cash,
without interest, in exchange for each share of Crystal common stock that you
own.
Q: WHY IS THE BOARD OF DIRECTORS OF CRYSTAL RECOMMENDING THAT I VOTE IN FAVOR
OF THE MERGER?
A: In the opinion of Crystal's Board of Directors, the merger is in the
best interests of Crystal and its shareholders. A more detailed description of
the background and reasons for the merger appears on pages 16 to 18. Therefore,
the Crystal Board of Directors unanimously recommends that you vote FOR the
approval and adoption of the Agreement and Plan of Merger.
Q: WILL I OWE TAXES AS A RESULT OF THE MERGER?
A: The merger will be a taxable transaction for all holders of Crystal
common stock. As a result, the cash you receive in the merger for your shares of
Crystal common stock and any cash you receive from exercising your dissenters'
rights will be subject to United States federal income tax and also may be taxed
under applicable state, local and other tax laws. In general, you will recognize
gain or loss equal to the difference between (1) the amount of cash you receive
and (2) the tax basis of your shares of Crystal common stock. Refer to the
section entitled "The Merger -- Material Federal Income Tax Consequences" on
pages 23 and 24 of this proxy statement for a more detailed explanation of the
tax consequences of the merger. You should consult your tax advisor on how
specific tax consequences of the merger apply to you.
Q: WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?
A: Holders of record of Crystal common stock as of the close of business on
November , 1999 are entitled to vote at the special meeting. Each Crystal
shareholder has one vote for each share of Crystal common stock owned on
November , 1999.
Q: WHAT VOTE IS REQUIRED FOR THE CRYSTAL SHAREHOLDERS TO APPROVE THE MERGER?
A: In order for the merger to be approved, the holders of at least a
majority of the outstanding shares of Crystal common stock must be present in
person or by proxy at the special meeting and the holders of at least two-thirds
of the Crystal common stock outstanding must vote FOR the merger.
Q: WHAT WILL HAPPEN TO THE CRYSTAL PREFERRED STOCK?
A: We expect that, prior to date of the special meeting, we will send a
notice of redemption to the holders of outstanding Crystal $.06 Senior
Convertible Voting Preferred Stock, par value $.01 per share, and will deposit
funds necessary to redeem the preferred stock so that, under Louisiana law, the
preferred stock will not be considered to be outstanding for voting purposes at
the special meeting. Therefore, each share of preferred stock issued and
outstanding at the effective time of the merger will be converted into one share
of
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senior preferred stock of the surviving corporation having terms identical to
the terms of the Crystal preferred stock.
Q: WHAT HAVE CRYSTAL'S MAJORITY SHAREHOLDERS SAID REGARDING THE MERGER?
A: George Soros and Soros Fund Management LLC ("SFM LLC"), as investment
advisor to Quantum Fund N.V. and Quantum Partners LDC, have each entered into a
Shareholders Agreement dated October 15, 1999 (the "Shareholders Agreements")
relating to an aggregate of 1,708,713 shares of Crystal common stock and
3,971,260 shares of Crystal preferred stock held by them. The shares of Crystal
common stock subject to the Shareholders Agreement represent approximately 64%
of Crystal's outstanding voting power. Pursuant to the Shareholders Agreements,
Mr. Soros and SFM LLC have agreed that, unless certain exceptions apply, they
will vote their shares in favor of the merger.
Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. The
merger cannot be completed until a number of conditions are satisfied. The most
important conditions are approval by Crystal shareholders at the special meeting
and compliance with United States federal antitrust laws.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in
this proxy statement, please vote your shares of Crystal common stock as soon as
possible. You may vote your shares (1) by signing and returning the enclosed
proxy card in the enclosed prepaid envelope as soon as possible or (2) by
appearing at the special meeting. Your proxy materials include detailed
information on how to vote. Because approval of the merger requires the
affirmative vote of two-thirds of Crystal's total outstanding voting power, a
non-vote is effectively a vote against the merger.
Q: SHOULD I SEND MY CRYSTAL STOCK CERTIFICATES NOW?
A: No. After the merger is completed, the surviving corporation in the
merger will send you written instructions for exchanging your shares of Crystal
common stock. You must return your Crystal stock certificates as described in
the instructions. You will receive your cash payment as soon as practicable
after El Paso Energy receives your Crystal stock certificates, together with the
documents requested in the instructions.
Q: IF MY SHARES ARE HELD FOR ME BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR
ME?
A: Your broker will vote your shares only if you provide instructions to
your broker on how to vote. Your broker will contact you regarding the
procedures necessary to vote your shares. You should follow the directions
provided by your broker regarding how to instruct your broker to vote your
shares. If you do not tell your broker how to vote, your shares will not be
voted, which will have the same effect as a vote against the merger.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at
the special meeting. You may revoke your proxy by notifying the Secretary of
Crystal in writing or by submitting a new proxy, in each case, dated after the
date of the proxy being revoked. In addition, your proxy may be revoked by
attending the special meeting and voting in person. However, simply attending
the special meeting will not revoke your proxy. If you have instructed a broker
to vote your shares, you must follow the instructions received from your broker
to change your vote.
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Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A: Crystal does not expect to ask you to vote on any other matters at the
special meeting.
Q: DO I NEED TO ATTEND THE SPECIAL MEETING IN PERSON?
A: No. So long as you return your properly completed proxy, it is not
necessary for you to attend the special meeting in order to vote your shares,
although you are welcome to attend.
Q: WILL I HAVE THE RIGHT TO HAVE MY SHARES APPRAISED IF I DISSENT FROM THE
MERGER?
A: Possibly. Louisiana law does provide you, as a shareholder of a
Louisiana corporation, the right to have your shares appraised if you follow the
procedures set forth on Annex C, which includes dissenting from the merger.
However, if the holders of at least 80% of the outstanding Crystal common stock
vote in favor of the merger, under Louisiana law you will not have a right to
have your shares appraised.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger after reading this proxy
statement, you should contact J. A. Ballew at Crystal at (318) 222-7791.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT CRYSTAL AND EL PASO ENERGY?
A: Information is available as filed with the Securities and Exchange
Commission, the New York Stock Exchange (with respect to El Paso Energy) and the
American Stock Exchange (with respect to Crystal).
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SUMMARY
This summary highlights selected information from this proxy statement and
may not contain all of the information that is important to you as a Crystal
shareholder. To understand the merger more fully, you should carefully read this
entire document and the documents to which we have referred you.
THE COMPANIES
CRYSTAL GAS STORAGE, INC.
229 Milam Street
Shreveport, Louisiana 71101
(318) 222-7791
Crystal is primarily engaged in the natural gas storage business, serving
our customers' peaking needs for natural gas. Peaking natural gas storage is
used when demand for natural gas exceeds the steady supply from producers and
seasonal storage operations. We provide these services through our wholly-owned
subsidiaries' ownership and operation of two high deliverability natural gas
storage facilities. The first facility, acquired by the Company in 1995, is
comprised of 73 acres outside of Hattiesburg, Mississippi, and consists of three
salt caverns with storage capacity of 5.5 billion cubic feet, or Bcf, of natural
gas. The Hattiesburg facility is designed to handle 3.5 Bcf of working gas
capacity (that capacity available to customers) and 2.0 Bcf of base gas (that
capacity necessary to be in the facility to maintain the deliverability
pressure). The second facility, acquired in March 1998, is comprised of 16.5
acres less than one mile from the Hattiesburg facility near Petal, Mississippi
and consists of a single high-deliverability natural gas storage cavern with a
working gas capacity of approximately 3.2 Bcf. Crystal's customers are primarily
well-established utility and local distribution companies with which we have
firm storage contracts.
In addition to our natural gas storage operations, one of our subsidiaries
holds various interests in natural gas properties primarily in Louisiana and
Arkansas.
Crystal is a Louisiana corporation that was originally organized in
Maryland in 1926 and reincorporated in Louisiana in 1984. In June 1999, we
changed our name from "Crystal Oil Company" to "Crystal Gas Storage, Inc." to
more accurately reflect the nature of our business.
EL PASO ENERGY CORPORATION
1001 Louisiana Street
Houston, Texas 77002
(713) 420-2131
El Paso Energy's principal operations include the interstate and intrastate
transportation, gathering and processing of natural gas; the marketing of
natural gas, power, and other energy-related commodities; power generation; and
the development and operation of energy infrastructure facilities worldwide. It
owns or has interests in over 40,000 miles of interstate and intrastate pipeline
connecting the nation's principal natural gas supply regions to the four largest
consuming regions in the United States, namely the Gulf Coast, California, the
Northeast and the Midwest. El Paso Energy's natural gas transmission operations
include one of the nation's largest mainline natural gas transmission systems
which is comprised of the Eastern Pipeline Group and El Paso Natural Gas
Company. The Eastern Pipeline Group, representing 30,000 miles of pipe, is
comprised of Tennessee Gas Pipeline Company, subsidiary Midwestern Gas
Transmission and Southern Natural Gas Company. El Paso Natural Gas Company and
its subsidiary Mojave Pipeline Company include about 10,200 miles of pipe. In
addition to its interstate transmission services, the company provides related
services, including natural gas gathering, products extraction, dehydration,
purification, compression, and intrastate transmission. El Paso Energy's
marketing activities include the marketing and trading of natural gas, power,
and petroleum products, as well as providing integrated price risk management
services associated with these commodities. The company also participates in the
development and ownership of domestic power generation facilities, and other
power-related assets and joint ventures.
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On October 25, 1999, El Paso Energy completed its merger with Sonat, Inc.
("Sonat") in a transaction accounted for as a pooling of interests. Sonat was a
diversified energy holding company engaged in domestic oil and natural gas
exploration and production, the transmission and storage of natural gas, and
natural gas and power marketing.
On August 1, 1998, El Paso Energy Corporation succeeded El Paso Natural Gas
Company as a publicly traded parent corporation in a holding company
reorganization. In the reorganization, El Paso Natural Gas Company, a Delaware
corporation formed in 1928, and its subsidiaries became direct and indirect
subsidiaries of El Paso Energy. El Paso Energy, also a Delaware corporation, was
incorporated in 1998.
EL PASO ENERGY ACQUISITION CO.
1001 Louisiana Street
Houston, Texas 77002
(713) 420-2131
El Paso Sub is a wholly owned subsidiary of El Paso Energy and was formed
for the sole purpose of acquiring Crystal through the merger. El Paso Sub is a
Delaware corporation that was organized in 1999.
THE SPECIAL MEETING
DATE, TIME AND PLACE (PAGE 13)
The special meeting will be held on December , 1999 at 9:00 a.m.,
Houston, Texas time, at 1301 McKinney, Suite 5100, Houston, Texas.
PURPOSE (PAGE 13)
You will be asked to consider and vote upon a proposal to approve the
merger agreement. A copy of the merger agreement is attached to this proxy
statement as Annex A. The merger agreement provides that Crystal will be merged
into El Paso Sub, a subsidiary of El Paso Energy, and each outstanding share of
Crystal common stock will be converted into the right to receive $57.00 in cash,
without interest. Shares held by Crystal, El Paso Energy or El Paso Sub, or any
of their subsidiaries, will be canceled.
The persons named in the accompanying proxy also will have discretionary
authority to vote upon other business, if any, that properly comes before the
special meeting and any adjournments or postponements of the special meeting,
including any adjournments or postponements for the purpose of soliciting
additional proxies to approve the merger.
RECORD DATE AND VOTING POWER (PAGE 13)
You are entitled to vote at the special meeting if you owned shares of
Crystal common stock at the close of business on November , 1999, the record
date for the special meeting. You will have one vote for each share of Crystal
common stock you owned on the record date. There are shares of Crystal
common stock entitled to be voted.
VOTE REQUIRED (PAGE 13)
Approval of the merger requires the affirmative vote of the holders of
two-thirds of the outstanding shares of Crystal common stock. In addition, a
majority of the votes actually cast will decide any other matter properly
brought before the special meeting for a vote of the shareholders unless
otherwise required by law or Crystal's Amended and Restated Articles of
Incorporation, as amended.
The shares of Crystal common stock subject to the Shareholders Agreements
described herein and the shares owned by directors and executive officers of
Crystal represent approximately 65.1% of Crystal's total outstanding voting
power as of October 25, 1999. Therefore, if the directors and executive officers
vote their shares, representing approximately 1.1% of Crystal's total
outstanding voting power, for the merger (as they have indicated they will) and
the shares subject to the Shareholders Agreements, representing approximately
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64% of Crystal's outstanding voting power, are voted for the merger (as required
by the Shareholders Agreements unless certain exceptions apply), only the
approval of approximately an additional 1.6% of Crystal's total outstanding
voting power will be required to approve the merger.
It is expected that Crystal will mail a notice of redemption and deposit
funds for the redemption of its $.06 Senior Convertible Voting Preferred Stock
prior to the date of the special meeting. In that case, the holders of preferred
stock will have no voting rights and the preferred shares shall no longer be
considered outstanding for voting purposes at the time of the special meeting.
If, however, the process of redeeming the preferred stock is not begun prior to
the special meeting, each share of common stock shall be entitled to one vote
and each holder of the outstanding shares of preferred stock on the
record date shall be entitled to .001 of a vote per share.
SHARE OWNERSHIP OF DIRECTOR, EXECUTIVE OFFICERS AND CERTAIN MAJOR SHAREHOLDERS
(PAGE 40)
As of October 25, 1999, the directors and executive officers of Crystal
owned 1.1% of the shares of Crystal common stock entitled to vote at the special
meeting. Each of them has advised us that he plans to vote all of his shares in
favor of the merger.
George Soros and Soros Fund Management LLC ("SFM LLC"), as investment
advisor to Quantum Fund N.V. and Quantum Partners LDC, have each entered into a
Shareholders Agreement dated October 15, 1999 (the "Shareholders Agreements")
relating to an aggregate of 1,708,713 shares of Crystal common stock and
3,971,260 shares of Crystal $.06 Convertible Voting Preferred Stock held by
them. The shares of Crystal common stock subject to the Shareholders Agreement
represent approximately 64% of Crystal's total outstanding voting power.
Pursuant to the Shareholders Agreements, Mr. Soros and SFM LLC have agreed that,
unless certain exceptions apply, they will vote their shares in favor of the
merger.
VOTING AND PROXIES (PAGE 14)
Any Crystal shareholder entitled to vote may vote (1) by returning the
enclosed proxy or (2) by appearing at the special meeting.
REVOCABILITY OF PROXY (PAGE 14)
Any Crystal shareholder who executes and returns a proxy may revoke that
proxy at any time before it is voted in any one of the following three ways:
- filing with the Secretary of Crystal, at or before the special meeting, a
written notice of revocation which is dated a later date than the proxy;
- sending a later-dated proxy relating to the same shares to the Secretary
of Crystal, at or before the special meeting; or
- attending the special meeting and voting in person by ballot.
Simply attending the special meeting will not constitute revocation of a
proxy.
CRYSTAL'S RECOMMENDATION TO SHAREHOLDERS (PAGE 16)
The Crystal Board of Directors has approved the merger agreement and
determined that the merger is advisable, fair to and in the best interests of
Crystal and its shareholders. The Board has received an opinion from Goldman,
Sachs & Co. to the effect that, as of October 15, 1999, the $57.00 per share in
cash to be received by the holders of outstanding shares of Crystal common stock
pursuant to the merger agreement was fair from a financial point of view to
those holders. The Board recommends that shareholders vote FOR approval of the
merger at the special meeting. Officers and directors have interests in the
merger that are different from, or in addition to, their interests as Crystal
shareholders, including the receipt of certain payments, which may create
possible conflicts of interest. These interests are summarized under "The
Merger -- Interests of Certain Persons in the Merger; Possible Conflicts of
Interest."
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THE MERGER
STRUCTURE OF THE MERGER (PAGE 27)
Upon the terms and conditions of the merger agreement, Crystal will be
merged into El Paso Sub, a wholly owned subsidiary of El Paso Energy.
MERGER CONSIDERATION (PAGE 27)
Upon completion of the merger, each share of Crystal common stock will be
converted into the right to receive $57.00 in cash, without interest. Treasury
shares, shares with respect to which dissenters' rights are perfected (if such
rights are available) and shares owned by Crystal, El Paso Energy, El Paso Sub
or any of their subsidiaries will not be converted into the right to receive
$57.00 per share merger consideration.
Although shares of Crystal's $.06 Senior Convertible Voting Preferred Stock
will not be considered outstanding for voting purposes at the time of the
special meeting if the notice of redemption and deposit of funds are timely
made, the preferred stock will otherwise remain outstanding until the redemption
is completed. Therefore, each share of preferred stock issued and outstanding at
the effective time of the merger will be converted into one share of senior
preferred stock of the surviving corporation having terms identical to the terms
of the Crystal preferred stock.
CLOSING OF THE MERGER (PAGE 33)
Before we can complete the merger, we must satisfy a number of conditions.
These include:
- approval of the merger agreement by the Crystal shareholders;
- receipt of all necessary consents and approvals and the expiration or
early termination of applicable time periods under United States federal
antitrust laws;
- the absence of any legal prohibitions against the merger;
- material compliance with our representations and agreements under the
merger agreement;
- the closing of Crystal's case under Chapter 11 of the Bankruptcy Code,
which had been reopened in 1998 to assist in the administration of
environmental claims against Crystal; and
- the completion of an internal restructuring of Crystal's subsidiaries.
We expect to merge shortly after all of the conditions to the merger have
been satisfied or waived. We expect to complete the merger in the fourth quarter
of 1999 or the first quarter of 2000, but we cannot be certain when or if the
conditions will be satisfied or waived.
EXCHANGE PROCEDURES (PAGE 27)
The exchange agent will mail a letter of transmittal with instructions to
all record holders of Crystal common stock as of the time of the completion of
the merger. You should not surrender your certificates until you have received
the letter of transmittal and instructions.
TREATMENT OF CRYSTAL STOCK OPTIONS (PAGE 27)
The merger agreement provides that all outstanding Crystal stock options
will be canceled at the effective time of the merger. Each holder of an option
will receive a cash payment of an amount equal to the excess of $57.00 over the
exercise price for each share covered by the option, multiplied by the number of
shares subject to the option, less applicable withholding taxes. As of October
25, 1999, 192,875 shares of Crystal common stock were issuable upon exercise of
outstanding Crystal stock options at a weighted average exercise price of
$32.13.
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OPINION OF GOLDMAN, SACHS & CO. (PAGE 18 AND ANNEX B)
Goldman Sachs delivered an opinion to the Crystal Board to the effect that,
as of October 15, 1999, the $57.00 per share in cash to be received by the
holders of outstanding shares of Crystal common stock pursuant to the merger
agreement was fair from a financial point of view to those holders. The opinion
of Goldman Sachs does not constitute a recommendation as to how any holder of
Crystal common stock should vote with respect to the transaction contemplated by
the merger agreement. THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS IS
ATTACHED AS ANNEX B. YOU SHOULD READ THE OPINION IN ITS ENTIRETY.
TERMINATION OF THE MERGER AGREEMENT (PAGE 34)
Crystal and El Paso Energy may agree in writing to terminate the merger
agreement at any time without completing the merger, even after the shareholders
of Crystal have approved it. The merger agreement may also be terminated at any
time prior to the effective time of the merger, in some circumstances,
including:
- if the Crystal shareholders fail to approve the merger at the special
meeting;
- if the merger is not completed by March 31, 2000;
- if any court or governmental agency issues a final order preventing the
merger;
- if, under certain circumstances, the Crystal Board, prior to shareholder
approval of the merger, changes its recommendation of the merger
agreement or approves a more favorable proposal for which financing is
reasonably likely to be available; and
- if a party to the merger agreement materially breaches its
representations or agreements and fails to cure its breach in 30 days.
TERMINATION FEE IF MERGER NOT COMPLETED (PAGE 34)
We must pay El Paso Energy a termination fee of $7.5 million if the merger
agreement is terminated because the Crystal Board changes its recommendation of
the merger or approves a more favorable proposal. We must also pay the $7.5
million termination fee if the merger agreement is terminated following receipt
or announcement of a takeover proposal and the competing transaction is
completed or an agreement for the transaction is signed within 18 months
following the termination of the merger agreement.
In addition, if (1) the merger agreement is terminated by El Paso Energy or
Crystal pursuant to certain provisions of the merger agreement or (2) El Paso
Energy is entitled to the $7.5 million fee described above, then Crystal shall
assume and pay, or reimburse El Paso Energy for, all reasonable and documented
fees and expenses incurred by El Paso Energy or El Paso Sub through the date of
the termination related to the merger, the merger agreement and the matters
contemplated by the merger agreement. These fees shall not exceed a total of
$1,000,000 (or $500,000 in the event the $7.5 million fee described above is
paid).
INTERESTS OF CERTAIN PERSONS IN THE MERGER; POSSIBLE CONFLICTS OF INTEREST (PAGE
25)
Some members of Crystal management and the Crystal Board have interests in
the merger that are different from or in addition to the interests of Crystal
shareholders generally. These interests may create potential conflicts of
interest. These different or additional interests relate to provisions in the
merger agreement or Crystal employee benefit plans and arrangements regarding:
- certain change in control severance payments;
- payments related to non-competition agreements;
- the treatment of outstanding Crystal stock options;
- the vesting of benefits under certain Crystal employee benefits plans by
reason of the merger; and
- the indemnification and provision of liability insurance for Crystal
directors and officers.
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<PAGE> 13
All of these additional interests, to the extent material, are described
below. Except as described below, these persons have, to the knowledge of
Crystal, no material interest in the merger apart from those of the Crystal
shareholders generally. The Crystal Board was aware of these interests and
considered them, among other matters, in approving the merger agreement and the
transactions contemplated thereby.
REGULATORY MATTERS (PAGE 24)
Under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, the merger may not be completed until Quantum Fund N.V. and
Quantum Partners LDC, as the ultimate parent entities of Crystal, and El Paso
Energy have made filings with the Federal Trade Commission and the United States
Department of Justice and the applicable waiting periods have expired or been
terminated. On November , 1999, El Paso Energy and the Quantum entities filed
notification reports under the HSR Act with the Federal Trade Commission and the
Department of Justice. Under the HSR Act, the merger may not be completed until
30 days after the filing if no further information requests are made, unless the
30 day period is earlier terminated by the Department of Justice and the Federal
Trade Commission. We cannot assure you that a challenge to the merger on
antitrust grounds will not be made or, if such a challenge is made, of the
result.
ACCOUNTING TREATMENT (PAGE 24)
The merger will be treated as a "purchase" for accounting purposes.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 23)
The merger will be a taxable transaction to you. For United States federal
income tax purposes, you will generally recognize gain or loss in the merger in
an amount determined by the difference between the cash you receive and your tax
basis in Crystal common stock. Because determining the tax consequences of the
merger can be complicated, you should consult your own tax advisor in order to
fully understand how the merger will affect you.
DISSENTERS' RIGHTS (PAGE 36 AND ANNEX C)
Under Louisiana law, dissenters' rights will not be available to Crystal
shareholders if the merger is approved by 80% or more of Crystal's total voting
power. If dissenters' rights are available, Crystal shareholders who do not vote
in favor of the merger may perfect their dissenters' rights by following the
procedures required by Louisiana law to receive, in cash, the fair value of
their shares of Crystal common stock in lieu of the $57 merger consideration.
MARKET PRICE OF CRYSTAL COMMON STOCK (PAGE 39)
Our common stock is listed on the American Stock Exchange under the symbol
"COR." On October 14, 1999, the last full trading day prior to the public
announcement of the merger agreement, the closing price of Crystal common stock
as reported by the American Stock Exchange was $45. On October 29, 1999, the
last full trading day prior to the date of this proxy statement, the closing
price for Crystal common stock as reported by the American Stock Exchange was
$54.
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<PAGE> 14
THE COMPANIES
CRYSTAL GAS STORAGE, INC.
Crystal is primarily engaged in the natural gas storage business, serving
our customers' peaking needs for natural gas. Peaking natural gas storage is
used when demand for natural gas exceeds the steady supply from producers and
seasonal storage operations. We provide these services through our wholly-owned
subsidiaries' ownership and operation of two high deliverability natural gas
storage facilities. The first facility, acquired by the Company in 1995, is
comprised of 73 acres outside of Hattiesburg, Mississippi, and consists of three
salt caverns with storage capacity of 5.5 Bcf of natural gas. The Hattiesburg
facility is designed to handle 3.5 Bcf of working gas capacity (that capacity
available to customers) and 2.0 Bcf of base gas (that capacity necessary to be
in the facility to maintain the deliverability pressure). The second facility,
acquired in March 1998, is comprised of 16.5 acres less than one mile from the
Hattiesburg facility near Petal, Mississippi and consists of a single
high-deliverability natural gas storage cavern with a working gas capacity of
approximately 3.2 Bcf. The Hattiesburg facility has interconnects to Transco,
Tennessee, Koch Gateway and AIM pipelines. The Petal facility has interconnects
to Tennessee and Koch Gateway pipelines. Crystal's customers are primarily
well-established utility and local distribution companies with which we have
firm storage contracts.
In addition to our natural gas storage operations, Crystal subsidiaries
also hold various interests in natural gas properties primarily in Louisiana and
Arkansas.
Crystal is a Louisiana corporation that was originally organized in
Maryland in 1926 and reincorporated in Louisiana in 1984. In June 1999, we
changed our name from "Crystal Oil Company" to "Crystal Gas Storage, Inc." to
more accurately reflect the nature of our business.
EL PASO ENERGY CORPORATION
El Paso Energy's principal operations include the interstate and intrastate
transportation, gathering and processing of natural gas; the marketing of
natural gas, power, and other energy-related commodities power generation; and
the development and operation of energy infrastructure facilities worldwide. It
owns or has interests in over 40,000 miles of interstate and intrastate pipeline
connecting the nation's principal natural gas supply regions to the four largest
consuming regions in the United States, namely the Gulf Coast, California, the
Northeast and the Midwest. El Paso Energy's natural gas transmission operations
include one of the nation's largest mainline natural gas transmission systems
which is comprised of the Eastern Pipeline Group and El Paso Natural Gas
Company. The Eastern Pipeline Group, representing about 30,000 miles of pipe, is
comprised of Tennessee Gas Pipeline Company, subsidiary Midwestern Gas
Transmission and Southern Natural Gas Company. El Paso Natural Gas Company and
its subsidiary Mojave Pipeline Company include about 10,200 miles of pipe. In
addition to its interstate transmission services, the company provides related
services, including natural gas gathering, products extraction, dehydration,
purification, compression, and intrastate transmission. El Paso Energy's
marketing activities include the marketing and trading of natural gas, power,
and petroleum products, as well as providing integrated price risk management
services associated with these commodities. The company also participates in the
development and ownership of domestic power generation facilities, and other
power-related assets and joint ventures.
On October 25, 1999, El Paso Energy completed its merger with Sonat, Inc.
("Sonat") in a transaction accounted for as a pooling of interests. Sonat was a
diversified energy holding company is engaged in domestic oil and natural gas
exploration and production, the transmission and storage of natural gas, and
natural gas and power marketing.
On August 1, 1998, El Paso Energy Corporation succeeded El Paso Natural Gas
Company as the publicly traded parent corporation in a holding company
reorganization. In the reorganization, El Paso Natural Gas Company, a Delaware
corporation formed in 1928, and its subsidiaries became direct and indirect
subsidiaries of El Paso Energy. El Paso Energy, also a Delaware corporation, was
incorporated in 1998.
EL PASO ENERGY ACQUISITION CO.
El Paso Sub is a wholly owned subsidiary of El Paso Energy and was formed
for the sole purpose of acquiring Crystal through the merger. El Paso Sub is a
Delaware corporation that was organized in 1999.
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<PAGE> 15
THE SPECIAL MEETING
GENERAL
This proxy statement is being furnished to Crystal shareholders as part of
the solicitation of proxies by the Crystal Board for use at a special meeting to
be held on December , 1999, starting at 9:00 a.m., Houston, Texas time, at
1301 McKinney, Suite 5100, Houston, Texas. The purpose of the special meeting is
for the Crystal shareholders to consider and vote upon a proposal to approve the
Agreement and Plan of Merger, dated as of October 15, 1999, among El Paso
Energy, El Paso Sub and Crystal. A copy of the merger agreement is attached to
this proxy statement as Annex A. This proxy statement and the enclosed form of
proxy are first being mailed to Crystal shareholders on November , 1999.
RECORD DATE AND VOTING
The holders of record of Crystal common stock as of the close of business
on November , 1999, are entitled to receive notice of, and to vote at, the
special meeting. On the record date, there were shares of Crystal
common stock outstanding.
REQUIRED VOTE
Each outstanding share of Crystal common stock on November , 1999,
entitles the holder to one vote at the special meeting. Completion of the merger
requires the approval of the merger proposal by the affirmative vote of the
holders of shares representing two-thirds of the outstanding shares of Crystal
common stock voting together with the holders of any preferred stock still
outstanding, to the extent the process of redeeming the preferred stock has not
begun as described above. In addition, a majority of the votes actually cast
will decide any other matter properly brought before the special meeting for a
vote of the shareholders unless otherwise required by law or Crystal's Amended
and Restated Articles of Incorporation, as amended.
You must vote your shares (1) by returning the enclosed proxy or (2) by
appearing at the special meeting. As of October 25, 1999, the directors and
executive officers of Crystal owned, in the aggregate, 30,085 shares of Crystal
common stock, or 1.1% of the outstanding shares of Crystal common stock on that
date. The directors and executive officers have informed Crystal that they
intend to vote all of their shares of Crystal common stock FOR the merger
proposal.
The shares of Crystal common stock subject to the Shareholders Agreements
represent approximately 64% of Crystal's total outstanding voting power as of
October 25, 1999. Therefore, if the directors and executive officers vote for
the merger (as they have indicated they will) and the shares subject to the
Shareholders Agreements are voted for the merger (as required by the
Shareholders Agreements unless certain exceptions apply), only the approval of
another approximately 1.6% of Crystal's total outstanding voting power will be
required to approve the merger.
Under the rules of the American Stock Exchange, Inc., brokers who hold
shares in street name for customers have the authority to vote on "routine"
proposals when they have not received instructions from beneficial owners. Under
the rules of the American Stock Exchange, brokers are precluded from exercising
their voting discretion with respect to the approval of non-routine matters such
as the merger proposal, and thus, absent specific instructions from the
beneficial owner of those shares, brokers are not empowered to vote them with
respect to the approval of this type of proposal (i.e., "broker non-votes").
Abstentions and properly executed broker non-votes will be treated as shares
that are present and entitled to vote at the special meeting for purposes of
determining whether a quorum exists and will have the same effect as votes
against approval of the merger proposal. With respect to all other matters,
shares not voted as a result of abstentions will be considered present at the
special meeting for purposes of determining whether a majority of the shares
present were voted in favor of those matters, but broker non-votes will not be
considered as voted for purposes of determining whether or not a majority of
votes were cast for such matters.
It is expected that Crystal will mail a notice of redemption of its $.06
Senior Convertible Voting Preferred Stock to holders of the preferred stock
prior to the date of the special meeting. At the same time, Crystal plans to
deposit a sum sufficient to redeem the preferred shares with a bank or trust
company with irrevocable
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<PAGE> 16
instruction and authority to pay the redemption price to the holders thereof
upon surrender of certificates therefor, in accordance with Section 75 of the
Louisiana Business Corporation Law. In that case, the holders of preferred stock
will have no voting rights and the preferred shares shall no longer be
considered outstanding for voting purposes at the time of the special meeting.
If, however, the process of redeeming the preferred stock is not begun prior to
the special meeting, each share of the preferred stock shall be entitled to .001
of a vote.
SHAREHOLDERS AGREEMENTS
George Soros and SFM LLC, as investment advisor to Quantum Fund N.V. and
Quantum Partners LDC, have each entered into a Shareholders Agreement dated
October 15, 1999 relating to an aggregate 1,708,713 shares of Crystal common
stock and 3,971,260 shares of Crystal $.06 Convertible Voting Preferred Stock
held by them. Pursuant to the Shareholders Agreements, each of Mr. Soros and SFM
LLC agree that they will (1) vote their shares in favor of the merger, (2) not
vote their shares in favor of any action or agreement which would result in a
breach in any material respect of any covenant, representation or warranty or
other obligation of Crystal under the merger agreement, and (3) vote their
shares against any action or agreement which would impede, interfere with or
attempt to discourage the merger. In addition, Mr. Soros and SFM LLC have each
granted a proxy with regard to their shares to designees of El Paso Sub. The
Shareholders Agreements (and proxies) expire on the earliest of (1) the
effective time of the merger, (2) the termination of the merger agreement, (3)
March 31, 2000, or (4) upon the amendment or waiver of any provision of the
merger agreement that would have any adverse effect on Mr. Soros or SFM LLC.
The shares of Crystal common stock subject to the Shareholder Agreements
and the shares owned by directors and executive officers of Crystal represent
over 65% of the total voting power of the outstanding shares of Crystal common
stock as of October 25, 1999. Therefore, if the directors and executive officers
vote for the merger (as they have indicated they will) and the shares subject to
the Shareholders Agreements are voted for the merger (as they are required by
the Shareholders Agreements unless certain exceptions apply), only the approval
of another approximately 1.6% of Crystal's total outstanding voting power will
be required to approve the merger.
PROXIES; REVOCATION
If you vote your shares of Crystal common stock by signing a proxy, your
shares will be voted at the special meeting as you indicate on your proxy card.
If no instructions are indicated on your signed proxy card, your shares of
Crystal common stock will be voted FOR approval of the merger.
You may revoke your proxy at any time before the proxy is voted at the
special meeting. A proxy may be revoked prior to the vote at the special meeting
by submitting a written revocation to the Secretary of Crystal at 229 Milam
Street, Shreveport, Louisiana, 71101 or by submitting a new proxy, in either
case, dated after the date of the proxy that is being revoked. In addition, a
proxy may also be revoked by voting in person at the special meeting. However,
simply attending the special meeting will not revoke a proxy.
The Crystal Board is not currently aware of any other business to be
brought before the special meeting. If, however, other matters are properly
brought before the special meeting or any adjournment or postponement of the
special meeting, the persons appointed as proxies will have discretionary
authority to vote the shares represented by duly executed proxies in accordance
with their discretion and judgment.
Crystal will pay the costs associated with printing and filing this proxy
statement and soliciting proxies for the special meeting. Officers and employees
of Crystal may solicit proxies by telephone or in person. However, they will not
be paid for soliciting proxies. Crystal also will request that persons and
entities holding shares in their names or in the names of their nominees that
are beneficially owned by others send proxy materials to and obtain proxies from
those beneficial owners, and Crystal will reimburse those holders for their
reasonable expenses in performing those services. Crystal has retained Morrow &
Company to assist it in the solicitation of proxies, using the means referred to
above, at an anticipated cost of $3,500, plus reimbursement of out-of-pocket
expenses.
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<PAGE> 17
ADJOURNMENTS OR POSTPONEMENTS
Although it is not expected, the special meeting may be adjourned or
postponed for the purpose of soliciting additional proxies. Any adjournment or
postponement may be made without notice, other than by an announcement at the
special meeting, by approval of the holders of a majority of the outstanding
shares of Crystal common stock present in person or represented by proxy at the
special meeting, whether or not a quorum exists. Any signed proxies received by
Crystal will be voted in favor of an adjournment or postponement in these
circumstances unless a written note on the proxy by the shareholder directs
otherwise. Any adjournment or postponement of the special meeting for the
purpose of soliciting additional proxies will allow Crystal shareholders who
have already sent in their proxies to revoke them at any time prior to their
use.
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THE MERGER
BACKGROUND OF THE MERGER
Crystal has been principally engaged in the natural gas storage business
since its sale of substantially all of its crude oil and natural gas production
assets in December 1994. In 1997 and in 1999, Crystal acquired various interests
in natural gas properties in northwest Louisiana and southwest Arkansas. Prior
to the sale of the assets, Crystal was engaged primarily in the exploration and
production of crude and natural gas since 1926.
Crystal has concentrated its efforts on developing its natural gas storage
assets and the favorable and stable cash flows associated with these assets.
Although Crystal has acquired additional interest in natural gas properties
since the sale in 1994, it has considered its most favorable assets to be its
natural gas storage assets and has utilized available net operating loss
carryforwards to enhance the value of these assets and thereby increase their
ultimate worth. Through its efforts in building the value of storage assets,
Crystal's Board and management have always considered their main goal to be
enhancing shareholder value.
In recent years, Crystal has been approached from time to time by other
companies in the energy industry expressing interest in negotiating with Crystal
with respect to its natural gas storage assets. Preliminary discussions with
those companies did not result in any offer or otherwise produce the possibility
of any transaction that Crystal's Board and management believed merited further
or serious considerations.
In May 1999, Crystal announced the signing of a Precedent Agreement with
Southern Company Services, Inc. that would provide Southern with natural gas
storage at Crystal's Petal Gas Storage facility. Subsequent to that
announcement, Crystal received several unsolicited offers to purchase either the
natural gas storage assets or the entire company. Crystal's Board and management
determined that it was in the best interest of shareholders to engage a
financial advisor to assist Crystal in evaluating all strategic alternatives
relating to the future of Crystal. Accordingly, on July 19, 1999, Crystal
engaged Goldman Sachs & Co. and, subsequently, invited a select group of
companies to bid in a sale of Crystal. Data room visits were scheduled in August
and September 1999 and bids were eventually submitted. On August 27, 1999,
Crystal issued a press release stating that it was reviewing certain strategic
alternatives and that it had hired Goldman Sachs to assist it with the strategic
review.
After consideration of the bids, the Board decided to negotiate with El
Paso Energy. On October 15, 1999, Crystal and El Paso Energy entered into a
definitive agreement whereby El Paso Energy agreed to acquire all of the
outstanding stock of Crystal in a cash merger for $57.00 in cash, without
interest, per share.
Prior to approving the merger, Crystal's Board considered various
alternatives to the merger, including continuing to hold and operate Crystal's
assets and to continue its business plan to expand its natural gas storage
facilities. The Board determined that the proposed facilities expansion would
require a substantial increase in Crystal's debt. In approving the merger, the
Board concluded that the sale of Crystal at the price negotiated was the best
course of action for Crystal and its shareholders at this time and would have
the effect of enhancing shareholder value to its fullest.
Representatives of Quantum and Mr. Soros participated in discussions with
representatives of Crystal and El Paso Energy in regard to the tax implications
of the transaction as well as Quantum's and Mr. Soros' willingness to support a
transaction if one were to occur.
CRYSTAL'S REASONS FOR THE MERGER; RECOMMENDATION OF THE CRYSTAL BOARD
AT A SPECIAL MEETING ON OCTOBER 15, 1999, THE CRYSTAL BOARD DETERMINED THAT
THE MERGER IS ADVISABLE, FAIR TO, AND IN THE BEST INTERESTS OF CRYSTAL AND ITS
SHAREHOLDERS AFTER CONSIDERING THE MATERIAL FACTORS DESCRIBED IN THE NEXT
PARAGRAPH. In addition, the Board has received an opinion from Goldman Sachs
described below to the effect that, as of October 15, 1999, the $57.00 per share
in cash to be received by the holders of outstanding shares of Crystal common
stock pursuant to the merger agreement was fair from a financial point of view
to those holders (the full text of the written opinion of Goldman Sachs, dated
October 15, 1999, which identifies assumptions made, matters considered and
limitations on the review
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<PAGE> 19
undertaken in connection with the opinion, is attached as Annex B, is
incorporated by reference in this proxy statement and should be read by you in
its entirety). ACCORDINGLY, THE CRYSTAL BOARD RECOMMENDS THAT CRYSTAL
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER AT THE
SPECIAL MEETING. Some members of the Crystal Board have additional interests in
the merger which may create possible conflicts of interest (see "Interests of
Certain Persons in the Merger; Possible Conflicts of Interest").
In reaching its decision to approve the merger agreement and to recommend
that Crystal shareholders vote to approve the merger agreement, the Crystal
Board considered the following material factors:
- the alternative of continuing as an independent company and Crystal's
opportunity to achieve comparable or better shareholder value through
that course rather than pursuant to the merger;
- the current and historical market prices of Crystal common stock relative
to those of other industry participants and general market indices, and
the fact that the $57.00 per share merger consideration represents a 27%
premium over the closing price of Crystal common stock on the last
trading day prior to the public announcement of the merger agreement;
- the fact that the merger consideration is all cash, which provides
certainty of value to Crystal's shareholders compared to a stock
transaction; the Crystal Board was aware that an all cash transaction
would be immediately taxable to Crystal shareholders for federal income
tax purposes whereas an all stock transaction might not be immediately
taxable for federal income tax purposes;
- the Crystal Board's familiarity with the business, operations,
properties, assets, financial condition, competitive position, business
strategy and prospects of Crystal (as well as the risks involved in
achieving those prospects), the nature of the industry in which Crystal
competes, and current industry, economic and market conditions, both on a
historical and on a prospective basis;
- the fact that a broad-based search was conducted for potential acquirors,
including identifying the likely strategic bidders resulting in El Paso
Energy's bid of $57.00 per share in cash to be received by the holders of
outstanding shares of Crystal common stock, which, together with the
terms of the merger agreement, represented the most favorable alternative
available to Crystal;
- the information garnered from dealing with other potential bidders in the
process that led to the merger;
- the opinion of Goldman Sachs described below to the effect that, as of
October 15, 1999, the $57.00 per share in cash to be received by the
holders of outstanding shares of Crystal common stock pursuant to the
merger agreement was fair from a financial point of view to those
holders;
- the terms of the merger agreement, as reviewed by the Crystal Board with
its legal advisors;
- the interests of Crystal's officers and directors in the merger described
under "Interests of Certain Persons in the Merger; Possible Conflicts of
Interest";
- the effects of the merger on Crystal's employees and other
constituencies, and the terms of the merger agreement relating to those
matters; and
- the business, operations, financial condition, operating results and
prospects of El Paso Energy, giving effect to the merger, and the
potential for cost savings and synergies that could be created by
combining the two companies and the benefit to Crystal's shareholders
(reflected in the $57.00 per share price), resulting from specific
synergies.
The foregoing discussion addresses the material information and factors
considered by the Crystal Board in its consideration of the merger, including
factors that support the merger as well as those that may weigh against it. In
view of the variety of factors and the amount of information considered, the
Crystal Board did not find it practicable to and did not make specific
assessments of, quantify or otherwise assign relative weights to the specific
factors and analyses considered in reaching its determination, nor did the
Crystal Board specifically identify those factors and analyses that supported
fairness or its recommendation and those that may not. The determination to
approve the merger was made after consideration of all the factors and
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<PAGE> 20
analyses as a whole. In addition, individual members of the Crystal Board may
have given different weights to different factors.
OPINION OF GOLDMAN SACHS
On October 15, 1999, Goldman Sachs delivered its oral opinion to the
Crystal Board to the effect that, as of that date, the $57.00 per share in cash
to be received by the holders of outstanding shares of Crystal common stock
pursuant to the merger agreement was fair from a financial point of view to
those holders. Goldman Sachs subsequently confirmed its oral opinion by delivery
of its written opinion dated October 15, 1999.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED OCTOBER 15,
1999, WHICH IDENTIFIES ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX B AND
IS INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT. YOU SHOULD READ THE
OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
- the merger agreement;
- Annual Reports to Shareholders and Annual Reports on Form 10-K of Crystal
for the five years ended December 31, 1998;
- interim reports to shareholders and Quarterly Reports on Form 10-Q of
Crystal;
- other communications from Crystal to its shareholders;
- the reserve report by Coutret and Associates, dated August 1, 1999, or
the Appraisal; and
- internal financial analyses and forecasts for Crystal prepared by its
management.
Goldman Sachs also held discussions with members of the senior management
of Crystal regarding its past and current business operations, financial
condition and future prospects. In addition, Goldman Sachs:
- reviewed the reported price and trading activity for Crystal common
stock;
- compared selected financial and stock market information for Crystal with
similar information for other companies the securities of which are
publicly traded;
- reviewed the financial terms of recent business combinations in the
natural gas salt dome storage industry specifically and in other
industries generally; and
- performed other studies and analyses that Goldman Sachs considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed this accuracy and
completeness for purposes of rendering its opinion. Goldman Sachs did not make
an independent evaluation or appraisal of the assets and liabilities of Crystal
or any of its subsidiaries and, except for the Appraisal, was not furnished with
any such evaluation or appraisal. The advisory services referred to in this
document and the opinion of Goldman Sachs were provided for the information and
assistance of the Crystal Board in connection with its consideration of the
transaction contemplated by the merger agreement, and the opinion does not
constitute a recommendation as to how any holder of Crystal common stock should
vote with respect to the transaction.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion to the Crystal Board on
October 15, 1999.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
(1) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for Crystal common stock. In addition,
Goldman Sachs analyzed the per share consideration of $57.00 in cash to be
received by holders of Crystal common stock pursuant to the merger agreement in
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<PAGE> 21
relation to the closing price for Crystal common stock on, and the average
closing price for Crystal common stock for specified periods ending on, August
26, 1999, one day prior to Crystal's public announcement that it had retained
Goldman Sachs to evaluate Crystal's strategic alternatives. This analysis
indicated that the per share consideration of $57.00 in cash would represent the
following premiums to recent market prices:
<TABLE>
<CAPTION>
RECENT PRICES PREMIUM
- ------------- -------
<S> <C>
Market Price as of August 26, 1999.......................... 64.0%
Thirty-day Average from August 26, 1999..................... 71.2%
Ninety-day Average from August 26, 1999..................... 72.9%
One Year Average from August 26, 1999....................... 59.9%
Three Year Average from August 26, 1999..................... 53.0%
</TABLE>
(2) Public Market Valuation. Goldman Sachs reviewed and compared selected
financial information for Crystal to corresponding financial information, ratios
and public market multiples for the following ten publicly-traded natural gas
local distribution companies: Atmos Energy Corporation; New Jersey Resources
Corporation; Energen Corporation; Northwest Natural Gas Company; Laclede Gas
Company; NUI Corporation; South Jersey Industries, Inc.; SEMCO Energy, Inc.;
Cascade Natural Gas Corporation; and Southwestern Energy Company; and for the
following seven publicly-traded pipeline companies: El Paso Energy; The Coastal
Corporation; Columbia Energy Group; Consolidated Natural Gas Company; Enron
Corp.; Questar Corporation; and The Williams Companies, Inc.; and for the
following five other publicly-traded companies: Dynegy Inc.; Western Gas
Resources, Inc; TransMontaigne Inc.; EnergySouth, Inc.; and Virginia Gas
Company.
Goldman Sachs calculated and compared various financial multiples and
ratios for the selected companies. The multiples and ratios were calculated, as
applicable, using the closing price for the common stock of Crystal and each of
the selected companies on October 14, 1999 and, except as noted below, were
based on the most recent publicly available information. Goldman Sachs' analyses
of the selected companies compared the following to the results for Crystal:
- closing share price on October 14, 1999 as a percentage of 52-week high
share price;
- estimated price/earnings ratios, or P/E Ratios, for years 1999 and 2000
(based on median estimates provided by Institutional Brokers Estimate
System, or IBES, except with respect to Crystal for which all estimates
were based on Crystal management's Base Case Projections as described
below);
- ratio of levered value, which is equity market capitalization based on
fully diluted shares outstanding, or Equity Market Capitalization, plus
total debt, deferred revenues and preferred securities less cash and cash
equivalents, to latest twelve months earnings before income, taxes,
depreciation and amortization, or EBITDA;
- ratio of levered value to estimated EBITDA for years 1999 and 2000 (based
on median estimates provided by IBES, except with respect to Crystal for
which all estimates were based on Crystal management's Base Case
Projections);
- ratio of Equity Market Capitalization to book value;
- dividend yield;
- estimated annualized five-year earnings per share, or EPS, growth rate
(based on median estimates provided by IBES, except with respect to
Crystal for which all estimates were based on Crystal management's Base
Case Projections);
- ratio of estimated 1999 P/E Ratio to estimated annualized five-year
earnings per share growth rate; and
- net debt, defined as total debt plus deferred revenues and preferred
securities less cash and cash equivalents, as a percentage of total book
capitalization, which is total debt plus deferred revenues, preferred
securities and book value.
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<PAGE> 22
The results of these analyses are summarized as follows:
<TABLE>
<CAPTION>
NATURAL GAS LOCAL
DISTRIBUTION PIPELINE OTHER
COMPANIES COMPANIES COMPARABLES CRYSTAL
----------------- --------------- --------------- -------
RATIO/MULTIPLE MEAN MEDIAN MEAN MEDIAN MEAN MEDIAN
- -------------- ------ ------- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
October 14, 1999 Closing Share Price as a Percentage
of 52-Week High Share Price......................... 84.7% 83.5% 89.0% 89.5% 82.9% 87.5% 96.3%
Estimated P/E Ratio for Year 1999(1)................ 15.6x 14.9x 26.6x 19.6x 18.3x 17.3x N.M.(2)
Estimated P/E Ratio for Year 2000(1)................ 13.3x 13.0x 19.7x 16.1x 23.2x 16.5x 19.1x
Ratio of Levered Value to Latest Twelve Months
EBITDA(1)......................................... 8.1x 7.6x 12.0x 10.5x 14.5x 17.6x 10.2x
Ratio of Levered Value to Estimated EBITDA for Year
1999(1)........................................... 7.8x 7.7x 10.1x 9.1x 10.3x 11.2x 10.4x
Ratio of Levered Value to Estimated EBITDA for Year
2000(1)........................................... 7.3x 7.2x 9.2x 8.3x 8.8x 9.1x 7.4x
Ratio of Equity Market Capitalization to Book
Value............................................. 1.5x 1.5x 2.6x 2.4x 1.5x 1.6x 1.0x
Dividend Yield...................................... 4.7% 4.8% 2.0% 1.6% 1.2% 0.2% 0.0%
Estimated 5-Year Earnings Per Share Growth
Rate(1)........................................... 6.7% 6.0% 11.7% 12.0% 7.6% 6.5% 27.5%
Estimated 1999 P/E Ratio to Estimated 5-Year
Earnings Per Share Growth Rate(1)................. 2.9x 2.8x 2.2x 1.8x 1.8x 1.8x N.M.(2)
Net Debt as a Percentage of Total Book
Capitalization.................................... 52.9% 53.6% 55.4% 57.3% 50.7% 50.2% 30.3%
</TABLE>
- -------------------------
(1) Based on median IBES estimates, except with respect to Crystal for which all
estimates were based on Crystal management's Base Case Projections.
(2) Not meaningful.
(3) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis for Crystal using:
- Crystal management's projections of estimated unlevered free cash flow
including estimated cash flow from the initial Petal facility expansion
that Crystal management expects to be completed by mid-year 2001 and that
Crystal management expects to increase Crystal's existing working gas
storage capacity from 6.7 Bcf to 13.5 Bcf, or the Base Case Projections;
and
- Base Case Projections plus Crystal management's projections of the
estimated unlevered free cash flow generated by three additional 5.0 Bcf
working gas capacity caverns at the Petal facility and one additional 1.3
Bcf working gas capacity cavern at the Hattiesburg facility that Crystal
management assumes will be brought on line from 2003 to 2005, or the
Upside Case Projections.
Using each of the Base Case Projections and the Upside Case Projections,
Goldman Sachs calculated a present value of estimated unlevered free cash flows
for the years 1999 through 2009. Goldman Sachs used discount rates of 9.0% to
10.0% for the estimated storage cash flows associated with all facilities
through the expected initial Petal expansion. Estimated marketing and hub
services cash flows were discounted at rates 3.0% higher than those applied to
estimated storage cash flows. In addition, under the Upside Case Projections,
all cash flows associated with the projected additional expansions in 2003 and
thereafter were discounted at a rate of 25%. Goldman Sachs calculated Crystal's
terminal values in the year 2009 based on multiples ranging from 8.0x to 9.0x
estimated 2009 natural gas storage, marketing and hub services EBITDA and $0.75
per million cubic feet equivalent, or Mcfe, reserves remaining in 2009 for
Crystal's natural gas assets. These terminal values were then discounted to
present value using discount rates from 9.0% to 10.0% for the terminal value
associated with the storage facilities through the expected initial Petal
facility expansion, 9.0% to 10.0% for the terminal value associated with the
natural gas reserves, 12.0% to 13.0% for the terminal value associated with the
estimated marketing and hub services, and 25% for the terminal value associated
with the projected additional expansions in 2003 and thereafter. This analysis
produced implied equity values per share of Crystal common stock ranging from
$35.02 to $45.18 under the Base Case Projections, and ranging from $50.47 to
$62.22 under the Upside Case Projections.
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<PAGE> 23
(4) Selected Transactions Analysis. Goldman Sachs analyzed information
relating to selected transactions in the salt dome gas storage industry,
including the acquisition by:
- Energy USA Inc., a subsidiary of NiSource Inc., of Market Hub Partners,
L.P. and its facilities, or the MHP Facilities, from PacifiCorp;
- AEP Resources, Inc. of the Jefferson Island Storage facilities from
Equitable Resources, Inc.;
- Crystal of the Petal facility from CMS Gas Transmission and Storage
Company, an affiliate of CMS Energy Corp.;
- Centana Energy Corporation of the Spindletop facility;
- Crystal of the Hattiesburg facility from First Reserve Secured Energy
Assets, Limited Partnership, and First Reserve Fund V, Limited
Partnership; and
- HNG Storage of the North Dayton facility.
Goldman Sachs, based on estimates provided by International Gas
Consultants, or IGC, except for estimates with respect to the MHP Facilities
EBITDA, which is based on Market Hub Partners, L.P.'s Form 10-K for the fiscal
year ended December 31, 1998, compared the levered consideration paid in the
selected transactions as a multiple of facility EBITDA.
The results of these analyses are summarized below:
<TABLE>
<CAPTION>
SELECTED SALT DOME GAS STORAGE
TRANSACTIONS
-------------------------------
MULTIPLE(1) RANGE MEAN MEDIAN
----------- ----------- ----- -------
<S> <C> <C> <C>
Levered Consideration as a Multiple of Facility EBITDA...... 5.2x-15.1x 9.5x 8.4x
</TABLE>
- -------------------------
(1) Based on IGC estimates, except with respect to the MHP Facilities EBITDA,
which is based on Market Hub Partners L.P.'s Form 10-K for the fiscal year
ended December 31, 1998.
With respect to Crystal's natural gas reserves, Goldman Sachs also analyzed
information relating to selected transactions involving Louisiana gulf coast
onshore acquisitions with transaction values less than $50 million that have
closed from the first quarter of 1997 through the second quarter of 1999,
including the acquisition by:
- EXCO Resources, Inc. and Venus Exploration, Inc. of assets of Apache
Corporation;
- Harken Energy Corporation of assets of Bargo Energy Company and St.
Martinville Partners, Ltd.;
- Optima Petroleum Corporation of American Explorer, L.L.C.;
- Texoil, Inc. of Cliffwood Oil & Gas Corporation;
- Texoil, Inc. of assets of Sonat Exploration Company, a subsidiary of
Sonat;
- The Houston Exploration Company of assets of an undisclosed private
concern;
- Crystal of assets of Sawyer Energy, Inc.;
- Rio Grande, Inc. of assets of Brechtel Energy Corporation; and
- Titan Exploration, Inc. of Carrollton Resources, L.L.C.
Goldman Sachs, using estimates provided by John S. Herold, Inc. as of
October 10, 1999, compared the consideration paid in the selected transactions
per Mcfe of proved reserves.
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<PAGE> 24
The results of these analyses are summarized below:
<TABLE>
<CAPTION>
SELECTED LOUISIANA GULF COAST ONSHORE
ASSET ACQUISITIONS
---------------------------------------
RANGE MEAN MEDIAN
-------------- -------- ---------
<S> <C> <C> <C>
Consideration Per Mcfe(1)................................... $0.42-$1.18 $0.76 $0.70
</TABLE>
- -------------------------
(1) Based on estimates of John S. Herold, Inc. as of October 10, 1999.
Based on these analyses, Goldman Sachs calculated the implied value per
share of Crystal common stock using natural gas storage, marketing and hub
services EBITDA multiples of 8.0x and 10.0x and a proved reserve multiple of
$0.75 per Mcfe. Using the Base Case Projections, EBITDA was adjusted using
estimated year 2000 storage, marketing and hub services EBITDA, plus estimated
year 2002 storage, marketing and hub services EBITDA attributable to the
expected initial Petal facility expansion (the first full year that Crystal
management assumes the expected initial Petal facility expansion will be
operating) discounted back to January 1, 2000 using a discount rate of 10%.
Multiples were applied to the adjusted EBIDTA and a value for the natural gas
properties was added using the proved reserve multiple of $0.75 per Mcfe based
on the Appraisal. From this total the estimated cost for the expected initial
Petal facility expansion based on Crystal management's projections of externally
generated capital costs needed for the initial expansion, and corporate
adjustments equal to total debt, plus deferred revenue and preferred securities,
less cash and marketable securities as reported in Crystal's Form 10-Q for the
quarterly period ended June 30, 1999, were subtracted. Based on this analysis,
the implied value per share of Crystal common stock was $29.42 (based on a
natural gas storage, marketing and hub services EBITDA multiple of 8.0x and a
proved reserve multiple of $0.75 per Mcfe) and $50.42 (based on a natural gas
storage, marketing and hub services EBITDA multiple of 10.0x and a proved
reserve multiple of $0.75 per Mcfe).
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all these analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Crystal or El Paso Energy or the contemplated transaction.
Goldman Sachs prepared these analyses solely for purposes of providing an
opinion to the Crystal Board as to the fairness from a financial point of view
of the $57.00 per share in cash to be received by the holders of outstanding
shares of Crystal common stock pursuant to the merger agreement. The analyses do
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by these analyses.
Because these analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or their respective
advisors, none of Crystal, El Paso Energy, Goldman Sachs or any other person
assumes responsibility if future results are materially different from those
forecast.
As described above, Goldman Sachs' opinion to the Crystal Board was one of
many factors taken into consideration by the Crystal Board in making its
determination to approve the merger agreement. This summary does not purport to
be a complete description of the analyses performed by Goldman Sachs. You should
read in its entirety the written opinion of Goldman Sachs attached as Annex B.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Crystal having acted as its financial advisor in connection with,
and having participated in certain negotiations leading to, the merger
agreement. Goldman Sachs also has provided certain investment banking services
to El Paso Energy and its affiliates from time to time, including having acted
as co-manager of a public offering of $200,000,000
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<PAGE> 25
aggregate principal amount of 6 3/4% Notes due 2003 and $200,000,000 aggregate
principal amount of 7 1/2% Debentures due 2026 of El Paso Energy in November
1996, as co-manager of a public offering of 2,750,000 shares of common stock of
El Paso Energy in February 1997, and as co-manager of a public offering of
6,500,000 shares of 4 3/4% Trust Convertible Preferred Securities of El Paso
Energy Capital Trust I in March 1998.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Crystal or El Paso Energy for its own account and for the accounts of
customers. Goldman Sachs may provide investment banking services to El Paso
Energy and its affiliates in the future.
Pursuant to a letter agreement dated July 19, 1999, Crystal engaged Goldman
Sachs to act as its financial advisor in connection with the possible sale of
all or a portion of the stock or assets of Crystal. Pursuant to the terms of
this letter agreement, Crystal has agreed to pay Goldman Sachs upon consummation
of the merger a transaction fee equal to approximately $4.45 million. Crystal
also has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket
expenses, including attorneys' fees, and to indemnify Goldman Sachs against
certain liabilities, including certain liabilities under the federal securities
laws.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material United States federal income tax
consequences of the merger to Crystal shareholders. This summary is based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable current and proposed United States Treasury Regulations, judicial
authority, and administrative rulings and practice. Legislative, judicial or
administrative rules and interpretations are subject to change, possibly on a
retroactive basis, at any time. Therefore, the following statements and
conclusions could be altered or modified. It is assumed that the shares of
Crystal common stock are held as capital assets by a United States person (i.e.,
a citizen or resident of the United States or a domestic corporation). This
discussion does not address all aspects of United States federal income taxation
that may be relevant to a particular Crystal shareholder in light of that
Crystal shareholder's personal investment circumstances, or those Crystal
shareholders subject to special treatment under the United States federal income
tax laws (for example, insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, United States expatriates, foreign corporations,
nonresident alien individuals, foreign partnerships or foreign estates or trusts
as to the United States, and dealers in securities or foreign currency or
persons that have a "functional currency" other than U.S. dollars), Crystal
shareholders who hold shares of Crystal common stock as part of a hedging,
"straddle," "constructive sale", "conversion transaction" or other integrated
transaction, or Crystal shareholders who acquired their shares of Crystal common
stock through the exercise of employee stock options or other compensation
arrangements. In addition, the discussion does not address any aspect of
foreign, state or local taxation or estate and gift taxation that may be
applicable to a Crystal shareholder.
CONSEQUENCES OF THE MERGER TO CRYSTAL SHAREHOLDERS
The receipt of the merger consideration in the merger (including any cash
amounts received by Crystal shareholders that exercise dissenters' rights) will
be a taxable transaction for United States federal income tax purposes (and also
may be a taxable transaction under applicable state, local or other tax laws).
In general, for United States federal income tax purposes, a holder of Crystal
common stock will recognize gain or loss equal to the difference between his or
her adjusted tax basis in Crystal common stock converted in the merger or
subject to dissenters' rights, and the amount of cash received. Gain or loss
will be calculated separately for each block of shares converted in the merger
(i.e., shares acquired at the same cost in a single transaction). The gain or
loss will be capital gain or loss (other than, with respect to the exercise of
dissenters' rights, amounts, if any, which are or are deemed to be interest for
federal income tax purposes, which amounts will be taxed as ordinary income),
and will be short-term gain or loss if, at the effective time of the merger, the
shares of Crystal common stock so converted were held for one year or less. If
the shares were
23
<PAGE> 26
held for more than one year, the gain or loss would be long-term. In the case of
shareholders who are individuals, long-term capital gain will be subject to tax
at a maximum United States federal income tax rate of 20%. There are certain
limitations on the deductibility of capital losses.
BACKUP TAX WITHHOLDING
Under the United States federal income tax backup withholding rules, unless
an exemption applies, El Paso Energy is required to and will withhold 31% of all
payments to which a Crystal shareholder or other payee is entitled in the
merger, unless the Crystal shareholder or other payee provides a tax
identification number (social security number, in the case of an individual, or
employer identification number in the case of other shareholders), and certifies
under penalty of perjury that the number is correct. Each Crystal shareholder
and, if applicable, each other payee, should complete and sign the substitute
Form W-9 that will be a part of the letter of transmittal to be returned to the
exchange agent (or other agent) in order to provide the information and
certification necessary to avoid backup withholding, unless an applicable
exemption exists and is otherwise proved in a manner satisfactory to the
exchange agent (or other agent). The exemptions provide that certain Crystal
shareholders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, however, he or she must submit a signed statement (such as a
Certificate of Foreign Status on Form W-8) attesting to his or her exempt
status. Any amounts withheld will be allowed as a credit against the holder's
United States federal income tax liability for that year.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS TO DETERMINE THE UNITED STATES
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO YOU IN VIEW
OF YOUR OWN PARTICULAR CIRCUMSTANCES.
GOVERNMENTAL AND REGULATORY APPROVALS
Transactions such as the merger are reviewed by the United States
Department of Justice and the United States Federal Trade Commission to
determine whether they comply with applicable antitrust laws. Under the
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR Act")
applicable to the merger, the merger may not be completed until applicable
waiting period requirements have been satisfied. Quantum Fund N.V. and Quantum
Partners LDC, as the ultimate parent entities of Crystal, and El Paso Energy
have each filed notification reports with the Department of Justice and the
Federal Trade Commission under the HSR Act on November , 1999. Under the HSR
Act, the merger may not be consummated until 30 days after the filing if no
further information requests are made, unless the 30 day period is earlier
terminated by the Department of Justice and the Federal Trade Commission.
The Department of Justice and the Federal Trade Commission frequently
scrutinize the legality under the antitrust laws of transactions such as the
merger. At any time before or after the merger, the Department of Justice or the
Federal Trade Commission could take action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
merger or seeking divestiture of substantial assets of El Paso Energy or Crystal
or their subsidiaries. Private parties and state attorneys general may also
bring an action under the antitrust laws under certain circumstances. There can
be no assurance that a challenge to the merger on antitrust grounds will not be
made or, if such a challenge is made, of the result.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations," as amended. Under this method of accounting, the purchase price
will be allocated to assets acquired and liabilities assumed based on their
estimated fair values at the effective time of the merger (with the excess of
the purchase price after those allocations being recorded as goodwill).
24
<PAGE> 27
INTERESTS OF CERTAIN PERSONS IN THE MERGER; POSSIBLE CONFLICTS OF INTEREST
GENERAL
Some of Crystal's executive officers and Board members have certain
interests in the merger that are different from or in addition to the interests
of Crystal shareholders generally. These interests may create potential
conflicts of interest. These different or additional interests relate to
provisions in the merger agreement or Crystal employee benefit plans and
arrangements regarding:
- certain change in control severance payments;
- payments related to non-competition agreements;
- the treatment of outstanding Crystal stock options;
- the vesting of benefits under certain Crystal employee benefits plans by
reason of the merger; and
- the indemnification and provision of liability insurance for Crystal
directors and officers.
All of these additional interests, to the extent material, are described
below. Except as described below, Crystal's executive officers and the Crystal
Board have, to the knowledge of Crystal, no material interest in the merger
apart from those of the Crystal shareholders generally. The Crystal Board was
aware of these interests and considered them, among other matters, in approving
the merger agreement and the transactions contemplated thereby.
SEVERANCE ARRANGEMENTS AND OTHER PAYMENTS
Crystal has entered into Amended and Restated Executive Compensation and
Severance Agreements with its four executive officers. In general, the Executive
Compensation and Severance Agreements provide for (1) a cash payment to the
executive immediately following the change in control of Crystal equal to a
multiple of the executive's most recent base salary and (2) an extension of
health and insurance benefits for a period of time if the employment of the
executive is terminated within one year following the change in control. The
merger will constitute a change in control of Crystal. Under the terms of the
Executive Compensation and Severance Agreements, the amount of any payments and
length of these benefits will vary depending on the executive, with Crystal's
President receiving three times his annual salary and three years of benefits,
Crystal's Executive Vice President and Senior Vice President each receiving
two-and-a-half times his annual salary and 30 months of benefits and Crystal's
Vice President receiving one-and-a-half times his annual salary and 18 months of
benefits. The amount of payments that will be made under these agreements to
J.N. Averett, Jr., J.A. Ballew, David L. Hayden and Paul E. Holmes are $810,000,
$442,500, $320,000 and $157,500, respectively.
The Employment Agreement between Crystal and J.N. Averett, Jr., contains a
provision that requires Crystal to pay him $100,000 following a change in
control of Crystal and a subsequent termination, or constructive termination, of
his employment with the Company.
Crystal has entered into gross-up agreements with its four executive
officers which provide that, to the extent any amount or benefits described
above and paid to those executives in connection with a change in control of
Crystal are subject to "golden parachute" excise taxes, those amounts and
benefits are grossed up to cover and excise tax and any applicable taxes on the
gross-up amount.
Immediately prior to the merger, Crystal intends to make a payment to each
of its two outside directors, George P. Giard, Jr. and Donald G. Housley, in the
amount of $25,000 each, in recognition of their extraordinary efforts in
connection with the merger.
NONCOMPETITION AGREEMENTS
Crystal has also entered into Covenant Not to Compete Agreements with its
four executive officers, effective as of the effective time of the merger,
pursuant to which each of those executives shall receive a cash payment from
Crystal in exchange for his agreement not to compete with Crystal in the United
States natural
25
<PAGE> 28
gas storage business for the term of his employment with Crystal and for one
year following termination. The sole source of the funds for the payments shall
be Crystal's majority shareholders, Quantum Fund N.V. and Quantum Partners LDC,
who will make a cash capital contribution to Crystal in the aggregate amount
necessary to fund these obligations in full. Neither Quantum Fund N.V. nor
Quantum Partners LDC will receive any shares of Crystal capital stock or other
consideration on account of or in connection with the contribution and will not
be entitled to repayment by Crystal, El Paso Energy, El Paso Sub or any of their
affiliates of the amount of the capital contribution. The amount of payment that
will be made under these agreements to J.N. Averett, Jr., J.A. Ballew, David L.
Hayden and Paul E. Holmes are $600,000, $180,000, $120,000 and $60,000,
respectively.
STOCK INCENTIVE PLANS
The executive officers and certain key employees of Crystal hold stock
options to purchase Crystal common stock. At the effective time of the Merger,
all outstanding stock options (both vested and unvested) will be canceled, and
in consideration of the cancellation of the options, optionholders will receive
a cash payment of an amount equal to the excess of $57.00 over the exercise
price for each share covered by any option, multiplied by the number of shares
subject to the option, less applicable withholding taxes. As of October 25,
1999, 192,875 shares of Crystal common stock were issuable to the executive
officers and certain key employees of Crystal upon exercise of outstanding stock
options at a weighted average exercise price of $32.13. As of October 25, 1999,
J.N. Averett, Jr., J.A. Ballew, David L. Hayden and Paul E. Holmes held options
exercisable for 110,025, 37,250, 22,500 and 13,500 shares of Crystal common
stock, respectively. The payment to be made to each of these individuals
relating to the cancellation of the options will be $2,980,082, $861,250,
$487,874 and $282,188, respectively.
The consummation of the merger will also cause an acceleration in the
vesting periods under Crystal's Employee Stock Ownership Plan. As of October 25,
1999, the Employee Stock Ownership Plan held 10,549 shares of Crystal common
stock subject to future vesting that will be accelerated upon consummation of
the merger, of which 1,492, 1,098, 807 and 756 shares will be allocated to the
accounts of Messrs. Averett, Ballew, Hayden and Holmes, respectively.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
El Paso Energy has agreed that, following the effective time of the merger,
it shall indemnify, defend and hold harmless each present and former officer or
director of Crystal or any of its subsidiaries or, to a limited extent, each
employee of Crystal or its subsidiaries who acts as a fiduciary under any of
Crystal's benefit plans, against losses, claims, damages, costs, expenses
(including attorney's fees), liabilities or judgments or amounts that are paid
in settlement with the approval of El Paso Energy (which approval shall not be
unreasonably withheld) of or in connection with any threatened or actual claim,
action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that any of the foregoing
individuals is or was a director, officer or employee of Crystal or any of its
subsidiaries.
El Paso Energy has agreed to cause the surviving corporation in the merger
to continue, for acts and omissions occurring prior to the completion of the
merger, the indemnification rights of officers and directors and employees who
act as fiduciaries under any of Crystal's benefit plans, to a limited extent,
now existing for these persons as provided in the charter documents or by-laws
of Crystal or its subsidiaries or any indemnification agreement.
The merger agreement requires that, for a period of six years after
completion of the merger, El Paso Energy will generally maintain in effect
policies that provide at least the same coverage as the directors' and officers'
liability insurance maintained by Crystal on October 15, 1999.
26
<PAGE> 29
THE MERGER AGREEMENT
The following is a summary of all the material terms of the merger
agreement. The summary is qualified in its entirety by reference to the merger
agreement, a copy of which is attached to this proxy statement as Annex A.
STRUCTURE AND EFFECTIVE TIME
The merger agreement provides for the merger of Crystal with and into El
Paso Sub, a subsidiary of El Paso Energy. El Paso Sub will survive the merger
and continue to exist after the merger as a wholly owned subsidiary of El Paso
Energy. The merger will become effective at the time a certificate of merger is
filed with the Delaware and Louisiana Secretaries of State (or at a later time
that El Paso Sub and Crystal shall agree should be specified in the certificates
of merger). The parties will file the certificates of merger promptly after the
satisfaction or waiver of all conditions in the merger agreement. We cannot
assure you when, or if, all conditions to completion of the merger will be
satisfied or waived. See "Conditions to the Merger." We expect, however, to
complete the merger in the fourth quarter of 1999 or the first quarter of 2000.
MERGER CONSIDERATION
The merger agreement provides that each share of Crystal common stock
outstanding immediately prior to the effective time of the merger will be
converted at the effective time of the merger into the right to receive $57.00
in cash from El Paso Energy, without interest. All treasury shares, shares owned
by any wholly owned subsidiary of Crystal and shares owned by El Paso Energy, El
Paso Sub or any other wholly owned subsidiary of El Paso Energy will be canceled
at the effective time of the merger and no payment will be made for those
shares. If dissenters' rights for any Crystal shares are perfected by any
Crystal shareholders, then those shares will be treated as described under
"Dissenters' Rights."
To the extent the process of redeeming the shares of Crystal's preferred
stock has not begun prior to the merger, each share of preferred stock issued
and outstanding at the effective time of the merger will be converted into one
share of senior preferred stock of the surviving corporation having terms
identical to the terms of the Crystal preferred stock.
PAYMENT PROCEDURES
El Paso Energy will appoint a paying agent that will make payment of the
merger consideration upon the surrender of certificates representing shares of
Crystal common stock. El Paso Sub shall provide the paying agent on a timely
basis funds necessary to pay for the shares of Crystal common stock surrendered.
Promptly after the completion of the merger, the paying agent will send Crystal
shareholders a letter of transmittal and instructions explaining how to send
their Crystal stock certificates to the paying agent. The paying agent will pay
the appropriate merger consideration, less any withholding taxes required by
law, to Crystal shareholders promptly following its receipt and processing of
Crystal stock certificates and properly completed transmittal documents.
TREATMENT OF CRYSTAL STOCK OPTIONS
The merger agreement provides that all outstanding Crystal stock options
will be canceled at the effective time of the merger. Each holder of an option
will receive a cash payment of an amount equal to the excess of $57.00 over the
exercise price for each share covered by the option, multiplied by the number of
shares subject to the option, less applicable withholding taxes. As of October
25, 1999, 192,875 shares of Crystal common stock were issuable upon exercise of
outstanding Crystal stock options at a weighted average exercise price of
$32.13.
DIRECTORS AND OFFICERS
The merger agreement provides that the directors and officers of El Paso
Sub immediately before the effective time of the merger will be the directors of
the surviving corporation.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by
Crystal to El Paso Energy, including representations and warranties relating to:
- due organization, standing and power, and other corporate matters;
- subsidiaries;
- capital structure;
- authorization, execution, delivery and enforceability of the merger
agreement;
- conflicts under charter documents, violations of any instrument or law,
and required consents and approvals;
- reports and financial statements filed with the Securities and Exchange
Commission (the "SEC") and the accuracy of the information in those
documents;
- accuracy and completeness of information supplied;
- absence of certain material changes or events relating to Crystal and its
subsidiaries;
- the application of state takeover statutes and shareholder approval
required for the merger;
- brokers' and finders' fees with respect to the merger;
- litigation;
- retirement and other employee benefit plans;
- tax matters;
- excess parachute payments;
- environmental matters;
- no violation of law;
- material contracts and agreements;
- title to assets;
- intellectual property matters;
- labor matters;
- absence of undisclosed liabilities;
- pipeline imbalances;
- year 2000 functionality;
- receipt of a fairness opinion from financial advisor; and
- board recommendation.
The merger agreement also contains representations and warranties made by
El Paso Energy to Crystal, including representations and warranties relating to:
- due organization, power and standing, and other corporate matters;
- authorization, execution, delivery and enforceability of the merger
agreement;
- conflicts under charter documents, violations of any instruments or law,
and required consents or approvals;
- accuracy and completeness of information supplied;
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- brokers' and finders' fees with respect to the merger; and
- litigation.
The representations and warranties of each of the parties to the merger
agreement will expire upon completion of the merger.
COVENANTS; CONDUCT OF THE CRYSTAL BUSINESS PRIOR TO THE MERGER
The Crystal Board has agreed, subject to its fiduciary duties, to recommend
that Crystal's shareholders vote to approve the merger, and to use its
reasonable best efforts to solicit proxies in favor of the merger.
From the date of the merger agreement through the effective time of the
merger, Crystal is required to comply with certain restrictions on their conduct
and operations. Crystal has agreed to conduct its and its subsidiaries'
businesses in the usual, regular and ordinary course in substantially the same
manner as conducted on October 15, 1999 and, to the extent consistent therewith,
to use reasonable efforts to preserve intact their current business
organizations, keep available the services of their respective current officers
and employees and preserve their relationships with customers, suppliers,
licensors, licensees, distributors and others having business relationships with
them, in each case consistent with past practice.
Crystal has also agreed that prior to the effective time of the merger,
except as provided under the merger agreement, Crystal and its subsidiaries will
not:
- declare, set aside or pay any dividend on, or make any other
distributions in respect of, its capital stock;
- split, combine or reclassify its outstanding capital stock or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock;
- other than in connection with the redemption of Crystal's preferred
stock, purchase, redeem or otherwise acquire any shares of its capital
stock or any securities thereof or any rights, warrants or options to
acquire any of its shares or other securities;
- issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any of its shares,
voting securities or convertible securities;
- amend its certificate of incorporation or bylaws or equivalent
constitutional documents;
- make any acquisitions of any assets or businesses, other than purchases
of supplies and inventory in the ordinary course of business consistent
with past practice;
- sell, lease, mortgage, pledge, grant a lien on or otherwise encumber or
dispose of any of its properties or assets, except (1) sales of inventory
in the ordinary course of business consistent with past practice, (2)
other transactions involving not in excess of $500,000 in the aggregate
and (3) the creation of liens in connection with working capital
borrowings under certain revolving credit facilities;
- incur any indebtedness for borrowed money or guarantee any indebtedness
of another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of Crystal or any of its
subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement with respect to
any of the foregoing, except for working capital borrowings under
revolving credit facilities that are (1) incurred in the ordinary course
of business, (2) on terms customary for facilities of this type and (3)
prepayable without premium or penalty; provided Crystal notifies El Paso
Energy of the entering into of any of these facilities and of any
drawdowns made thereunder; or make any loans, advances or capital
contributions to, or investments in, any other person, other than to
Crystal or any direct or indirect wholly owned subsidiary of Crystal;
- make or incur any new capital expenditure not included in Crystal's
approved capital expenditure budget for 1999 or not in conjunction with
Crystal's gas storage expansion project which, singly or in the aggregate
with all other expenditures, would exceed $500,000 or enter into any
material
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agreements or commitments with respect to capital expenditures without
the prior written consent of El Paso Energy;
- make any material election relating to taxes or settle or compromise any
material tax liability;
- pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction, in the ordinary course
of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated
by, the most recent consolidated financial statements (or the notes
thereto) of Crystal included in its SEC filings or incurred in the
ordinary course of business consistent with past practice;
- release any party from or waive the benefits of, or agree to modify in
any manner, any confidentiality, standstill or similar agreement to which
Crystal or any of its subsidiaries is a party;
- adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing a liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or reorganization;
- enter into any new collective bargaining agreement;
- change any material accounting principle used by it, except as required
by regulations promulgated by the SEC or the Financial Accounting
Standards Board;
- settle or compromise any litigation (whether or not commenced prior to
the date of this Agreement) other than settlements or compromises in
consultation and cooperation with El Paso Energy, and, with respect to
any settlement, with the prior written consent of El Paso Energy, which
consent will not be unreasonably withheld;
- enter into any forward sale or hedging arrangements with respect to
natural gas transportation or storage or any other products; or
- authorize any of, or commit or agree to take any of, the foregoing
actions.
NO SOLICITATION OF ACQUISITION TRANSACTIONS
The merger agreement provides that Crystal and its subsidiaries will not,
nor will they authorize or permit any officer, director or employee of, or any
investment banker, attorney or other advisor, agent or representative of,
Crystal or any of its subsidiaries to, directly or indirectly:
(1) solicit or initiate the submission of any takeover proposal (as
defined in the merger agreement),
(2) enter into any agreement (other than confidentiality and standstill
agreements in accordance with the immediately following proviso) with
respect to any takeover proposal, or
(3) participate in any discussions or negotiations regarding, or furnish
to any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any takeover proposal;
provided, however, in the case of item (3), that to the extent required by the
fiduciary obligations of the Crystal Board, determined in good faith by the
members thereof based on the advice of outside counsel, Crystal may at any point
prior to obtaining shareholder approval, and subject to Crystal's providing
written notice to El Paso Energy of its decision to take action and compliance
with certain documentation provision requirements, in response to an unsolicited
request therefor received other than in contravention of this provision, furnish
information to any person or "group" (within the meaning of Section 13(d)(3) of
the Exchange Act) pursuant to a confidentiality agreement and otherwise enter
into discussions and negotiations with that person or group as to any superior
proposal (as defined in the merger agreement) that person or group has made. Any
violation of these restrictions by any officer, director or employee of Crystal
or any of its subsidiaries or any investment banker, attorney or other advisor,
agent or representative of Crystal, whether or not that person is purporting to
act on behalf of Crystal or otherwise, shall be deemed to be a material breach
of the merger agreement by Crystal.
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The merger agreement also provides that neither the Crystal Board nor any
committee thereof shall, except in connection with the termination of this
Agreement pursuant to the provisions described under "Termination or Amendment",
(1) withdraw or modify, or propose to withdraw or modify, in a manner adverse to
El Paso Energy or El Paso Sub, the approval or recommendation by the Crystal
Board or any committee of the merger agreement or the merger or take any action
having such effect or (2) approve or recommend, or propose to approve or
recommend, any takeover proposal. Notwithstanding the foregoing, in the event
the Crystal Board receives (other than in contravention of the provisions
described above) a takeover proposal that, in the exercise of its fiduciary
obligations (as determined in good faith by a majority of the disinterested
members thereof based on the advice of outside counsel), it determines to be a
superior proposal, the Crystal Board may, prior to shareholder approval only,
withdraw or modify its approval or recommendation of the merger agreement or the
merger and may, during that period only and subject to compliance with the
provisions of this sentence terminate the merger agreement, in each case at any
time after midnight on the third business day following El Paso Energy's receipt
of written notice advising it that the Crystal Board has received a takeover
proposal which it has determined to be a superior proposal and that the Crystal
Board has resolved to accept the superior proposal (subject to such
termination), specifying the material terms and conditions of the superior
proposal, identifying the person or group making the superior proposal and
providing El Paso Energy with a copy of all written materials submitted with
respect to the superior proposal, but only if El Paso Energy does not make,
within three business days of receipt of the notice, a written offer that is at
least as favorable, in the good faith reasonable judgment of a majority of the
members of the Crystal Board (based on the advice of a financial advisor of
nationally recognized reputation), as the superior proposal. Crystal (1) will
not enter into a binding agreement for a superior proposal referred to in the
previous sentence until at least the first calendar day following the third
business day after it has provided the written notice to El Paso Energy required
thereby, (2) will notify El Paso Energy promptly if its intention to enter into
a written agreement referred to in that notice shall change at any time after
giving the notification and (3) will not terminate the merger agreement or enter
into a binding agreement for a superior proposal referred to in the previous
sentence if El Paso Energy has within the period referred to in clause (1) of
this sentence, made a written offer that is at least as favorable, in the good
faith reasonable judgment of a majority of the members of the Crystal Board
(based on the advice of a financial advisor of nationally recognized
reputation), as the superior proposal. Any of the foregoing to the contrary
notwithstanding, Crystal may engage in discussions with any person or group that
has made an unsolicited takeover proposal for the purpose of determining whether
the proposal is a superior proposal. Nothing contained herein shall prohibit
Crystal from taking and disclosing to its shareholders a position contemplated
by Rule 14e-2(a) under the Exchange Act.
If the Crystal Board or any committee thereof (1) withdraws or modifies, or
proposes to withdraw or modify, in a manner adverse to El Paso Energy or El Paso
Sub, the approval or recommendation by the Crystal Board or any committee of the
merger agreement or the merger or take any action having effect, or (2) approves
or recommends, or proposes to approve or recommend, any takeover proposal, or
(3) fails to reaffirm its approval or recommendation of the merger agreement and
the merger within two days after a request by El Paso Energy, El Paso Energy may
terminate the merger agreement.
EMPLOYEE BENEFITS
The merger agreement provides that El Paso Energy may terminate or
discontinue any Crystal employee benefit plans (other than certain severance
agreements with executive officers) at or after the effective time of the
merger. However, to the extent that El Paso Energy or any of its affiliates
maintains a benefit plan of the same type for employees of it or its affiliates,
El Paso Energy has agreed to take all actions necessary or appropriate to permit
Crystal employees participating in a terminated or discontinued Crystal benefit
plan to immediately thereafter participate in the El Paso Energy benefit plan of
the same type. If, however, the Crystal benefit plan that is terminated or
discontinued is a group health plan, then El Paso Energy has agreed to permit
the Crystal employees participating in the plan and their eligible dependents to
be covered under a replacement plan under terms and conditions which (1) provide
medical and dental benefits to these Crystal employees and eligible dependents
effective immediately upon the cessation of coverage of these individuals under
the terminated or discontinued group health plan, (2) credit these employees,
for the year during
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which coverage under the replacement plan begins, with any deductibles and
copayments already incurred in that plan year under the terminated or
discontinued group health plan, and (3) waive any preexisting condition
restrictions to the extent that the preexisting condition restrictions were
satisfied under the terminated or discontinued group health plan. El Paso
Energy, El Paso Sub, their affiliates, and the El Paso Energy benefit plans
(including the replacement plans) have also agreed to recognize each Crystal
employee's years of service and level of seniority with Crystal and its
subsidiaries for purposes of terms of employment and eligibility, vesting and
benefit determination under the El Paso Energy benefit plans (other than benefit
accruals under any defined benefit pension plan). Nothing in the merger
agreement requires El Paso Energy to provide any particular type or amount of
benefits for any person under any El Paso Energy benefit plan.
BEST EFFORTS
Except to the extent otherwise required by U.S. regulatory considerations
and otherwise provided in the merger agreement, El Paso Energy, El Paso Sub and
Crystal have agreed to use reasonable best efforts to take, or cause to be
taken, all action and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
merger, and the other transactions contemplated by the merger agreement,
including:
(1) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from governmental entities and the making of all
necessary registrations and filings and the taking of all reasonable steps
as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any governmental entity;
(2) the obtaining of all necessary consents, approvals or waivers from
third parties;
(3) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging the merger agreement or the
consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
governmental entity vacated or reversed; and
(4) the execution and delivery of any additional instruments necessary
to consummate the transactions contemplated by the merger agreement.
In connection with and without limiting the foregoing, each of Crystal and El
Paso Energy and its respective board of directors shall
(1) take all action necessary to ensure that no state takeover statute
or similar statute or regulation is or becomes applicable to the merger,
(2) if any state takeover statute or similar statute or regulation
becomes applicable to the merger, take all action necessary to ensure that
the merger may be consummated as promptly as practicable on the terms
contemplated by the agreement and otherwise to minimize the effect of such
statute or regulation on the merger, and
(3) cooperate with each other in the arrangements for refinancing any
indebtedness of, or obtaining any necessary new financing for, Crystal and
El Paso Sub.
INDEMNIFICATION
El Paso Energy has agreed that, following the completion of the merger, it
shall indemnify, defend and hold harmless each present and former officer or
director of Crystal or any of its subsidiaries or, to a limited extent, each
employee of Crystal or its subsidiaries who acts as a fiduciary under any of
Crystal's benefit plans, against losses, claims, damages, costs, expenses
(including attorney's fees), liabilities or judgments or amounts that are paid
in settlement with the approval of El Paso Energy (which approval shall not be
unreasonably withheld) of or in connection with any threatened or actual claim,
action, suit, proceeding or
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investigation based in whole or in part on or arising in whole or in part out of
the fact that the person is or was a director, officer or employee of Crystal or
any of its subsidiaries.
El Paso Energy has agreed to cause the surviving corporation in the merger
to continue, for acts and omissions occurring prior to the completion of the
merger, the indemnification rights of officers and directors and employees who
act as fiduciaries under any of Crystal's benefit plans, to a limited extent,
now existing for those persons as provided in the charter documents or by-laws
of Crystal or its subsidiaries or any indemnification agreement.
The merger agreement requires that, for a period of six years after
completion of the merger, El Paso Energy will generally maintain in effect
policies at least the same coverage as directors' and officers' liability
insurance maintained by Crystal on October 15, 1999.
CONDITIONS TO THE MERGER
The obligations of Crystal, El Paso Energy and El Paso Sub to complete the
merger are subject to the satisfaction of the following conditions:
(1) The approval of the merger by the holders of two-thirds of the total
voting power of the Crystal common stock shall have been obtained upon a
vote at a duly held meeting of shareholders of Crystal or at any
adjournment thereof;
(2) all authorizations, consents, orders or approvals of, or
declarations or filings with, or terminations or expirations of waiting
periods imposed by, any governmental entity necessary for the consummation
of the transactions contemplated by the merger agreement shall have been
filed, shall have occurred or shall have been obtained; and
(3) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the merger shall be
in effect; provided, however, that each of the parties shall have used
reasonable efforts, subject to the limitations set forth in the section
entitled "Best Efforts" in this proxy statement, to prevent the entry of
any such injunction or other order and to appeal as promptly as possible
any injunction or other order that may be entered.
Unless waived by Crystal, the obligation of Crystal to complete the merger
is subject to the satisfaction of the following additional conditions:
(1) El Paso Energy and El Paso Sub shall have performed in all material
respects all obligations to be performed by them under the merger agreement
prior to the effective time of the merger; and
(2) each of the representations and warranties of El Paso Energy and El
Paso Sub contained in the Merger Agreement shall be true and correct in all
material respects (disregarding for these purposes any materiality
qualifications contained therein) when made and as of the effective time of
the merger as if made on and as of that date (provided that those
representations and warranties which are by their express provisions made
as of a specific date need be true and correct only as of the date
specified).
Unless waived by El Paso Energy and El Paso Sub, the obligations of El Paso
Energy and El Paso Sub to complete the merger are subject to the satisfaction of
the following additional conditions:
(1) Crystal shall have performed in all material respects all
obligations to be performed by it under the merger agreement prior to the
effective time of the merger;
(2) each of the representations and warranties of Crystal contained in
the merger agreement shall be true and correct in all material respects
(disregarding for these purposes any materiality qualifications contained
in those representations and warranties) when made and as of the effective
time of the merger as if made on and as of that date (provided that those
representations and warranties which are by their express provisions made
as of a specific date need be true and correct only as of the date
specified);
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(3) the closing of Crystal's case under Chapter 11 of the Bankruptcy
Code, which had been reopened in 1998 to assist in the administration of
certain environmental claims against Crystal; and
(4) the internal restructuring of Crystal's subsidiaries (pursuant to
which substantially all of Crystal's subsidiaries will be converted into
wholly-owned limited liability companies) shall have been completed, no
later than immediately prior to the effective time of the merger to the
reasonable satisfaction of Parent and Sub.
TERMINATION OR AMENDMENT
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time of the merger (notwithstanding any approval
by the shareholders of Crystal):
(1) by mutual written consent of El Paso Energy and Crystal;
(2) by either El Paso Energy or Crystal:
(a) if the approval of two-thirds of the outstanding shares of
Crystal common stock shall not have been obtained upon a vote at a duly
held meeting of shareholders of Crystal or at any adjournment thereof;
(b) if the merger shall not have been consummated on or before March
31, 2000, unless the failure to consummate the merger is the result of a
material breach of the agreement by the party seeking to terminate the
merger agreement; provided, however, that the passage of that period
shall be tolled for any part thereof during which any party shall be
subject to a nonfinal order, decree or ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the merger or the
calling or holding of a meeting of the shareholders of Crystal called to
approve the merger and the other matters contemplated hereby; or
(c) if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have issued
an order, decree or ruling or shall have taken any other action
permanently enjoining, restraining or otherwise prohibiting the purchase
of shares of Crystal common stock pursuant to the merger and that order,
decree, ruling or other action shall have become final and
nonappealable;
(3) by Crystal or El Paso Energy in accordance with the provisions of
the section of this proxy statement entitled "No Solicitation of
Acquisition Transactions";
(4) by El Paso Energy, if Crystal breaches any of its representations or
warranties in the merger agreement or fails to perform in any material
respect any of its covenants, agreements or obligations under the merger
agreement which breach or failure (x) would give rise to the failure of
some of the conditions precedent set forth in the merger agreement and (y)
cannot be or has not been cured within 30 days following receipt of written
notice of the breach; or
(5) by Crystal, if El Paso Energy or El Paso Sub breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under the agreement
which breach or failure (x) would give rise to the failure of some of the
conditions precedent set forth in the merger agreement and (y) cannot be or
has not been cured within 30 days following receipt of written notice of
the breach.
TERMINATION FEES
Crystal agreed to pay El Paso Energy a fee in immediately available funds
(in recognition of the fees and expenses incurred to date by El Paso Energy in
connection with the matters contemplated in the merger agreement) of $7,500,000
(1) promptly upon the termination of the merger agreement in the event the
merger agreement is terminated by El Paso Energy or Crystal as permitted in the
section of this proxy statement entitled "No Solicitation of Acquisition
Transactions" or (2) if any person shall have made a takeover proposal after
October 15, 1999 or announced its intention to make a takeover proposal and
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thereafter the merger agreement is terminated by El Paso Energy or Crystal
pursuant to some of the termination provisions of the merger agreement, and
within 18 months after the termination of the merger agreement any acquisition
transaction involving Crystal shall have been consummated or an acquisition
agreement with respect to an acquisition transaction involving Crystal shall
have been entered into, then the fee shall be paid upon the date the acquisition
agreement is entered into, or if no acquisition agreement is entered into, then
upon the date the acquisition transaction is consummated.
In addition, if the merger agreement is terminated by El Paso Energy or
Crystal for failure to obtain shareholder approval or for a material breach of
Crystal's representations and warranties or material failure to perform any of
its covenants or agreements or if El Paso Energy is entitled to the $7.5 million
fee described above, then in either case Crystal shall assume and pay, or
reimburse El Paso Energy for, all reasonable and documented fees and expenses
incurred by El Paso Energy or El Paso Sub (including the reasonable and
documented fees and expenses of its counsel, accountants and financial advisors)
through the date of termination and which are specifically related to the
merger, the merger agreement and the matters contemplated by the merger
agreement, but not to exceed $1,000,000 in the aggregate (or $500,000 in the
aggregate in the event the $7.5 million fee described above is paid), promptly,
but in no event later than five business days after submission of a request for
payment of the same.
EXPENSES
Except as provided in the section entitled "Termination Fees" above, all
fees and expenses incurred in connection with the merger, the merger agreement
and the transactions contemplated thereby shall be paid by the party incurring
the fees or expenses, whether or not the merger is completed.
AMENDMENT AND WAIVER
The merger agreement may be amended by the parties at any time before or
after Crystal shareholder approval is obtained; provided, however, that after
shareholder approval, there shall be made no amendment that by law requires
further approval by the shareholders without the further approval of the
shareholders. The merger agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
At any time prior to the effective time of the merger, the parties may, to
the extent legally allowed, (1) extend the time for the performance of any of
the obligations or the other acts of the other parties, (2) waive any
inaccuracies in the representations and warranties contained in the merger
agreement or in any document delivered pursuant thereto or (3) waive compliance
with any of the agreements or conditions contained therein. Any agreement on the
part of a party to any extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of that party.
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DISSENTERS' RIGHTS
Under the Louisiana Business Corporation Law (the "LBCL"), shareholders of
a Louisiana corporation that proposes to become a party to a merger of
consolidation pursuant to a shareholder vote are entitled to the right to
dissent from the transaction and to receive the fair value of their shares under
some circumstances. Pursuant to Section 112 of the LBCL, if the proposed merger
is approved by less than 80% of the total voting power outstanding and the
merger is then consummated, any shareholders who dissented from the proposed
merger may be entitled to receive payment of the fair cash value of their shares
if they comply with the procedural requirements of Section 131 of the LBCL. Set
forth below is a summary of the procedures relating to a shareholder's right to
dissent. This summary of the relevant sections of the LBCL does not purport to
be a complete statement of a shareholder's right to dissent and is qualified in
its entirety by reference to the excerpts from Section 131 of the LBCL, attached
hereto as Annex C.
Any shareholder electing to dissent from the proposed merger must vote his
shares against the proposed merger and must file with Crystal, prior to or at
the meeting of shareholders at which the proposed merger is submitted to a vote,
written objection to the proposed merger. Neither a vote against the proposed
merger nor a specification in a proxy to vote against the proposed merger will
in and of itself constitute the necessary written objection to the proposed
merger. Moreover, by voting in favor of, or abstaining from voting on, the
proposed merger, or by returning a proxy without instructing the proxy holders
to vote against the proposed merger, a shareholder waives his rights under
Section 131 of the LBCL. The right to dissent may be exercised only by the
record owners of the shares and not by persons who hold shares only
beneficially. Beneficial owners who wish to dissent from a proposed merger
should have the record ownership of the shares transferred to their names or
instruct the record owner to follow the procedures specified in Section 131 of
the LBCL on their behalf.
If the proposed merger is approved by less than 80% of the total voting
power of the shares outstanding and the merger is consummated, Crystal shall
promptly thereafter give written notice of the approval and consummation of the
merger to each shareholder who filed a written objection to and voted his shares
against the proposed merger, at the shareholder's last address on the
corporation's records. Within 20 days after the mailing of Crystal's written
notice to dissenting shareholders, each dissenting shareholder must (1) file
with Crystal a written demand for the fair cash value of his shares as of the
day before the vote was taken, (2) deposit in escrow in a chartered bank or
trust company located in the parish of the registered office of the corporation,
the certificates representing his shares, duly endorsed and transferred to
Crystal upon the sole condition that the certificates shall be delivered to
Crystal upon payment of the value of the shares determined in accordance with
the provisions of Section 131 of the LBCL, and (3) deliver to Crystal along with
his demand, the written acknowledgment of the chartered bank or trust company
that it holds his certificates. A dissenting shareholder's demand to Crystal
must state the value demanded and the address to which Crystal's reply may be
sent. If a dissenting shareholder does not vote his shares against the proposed
merger and deliver the written objection, and does not deliver the demand and
the bank acknowledgment to Crystal within the time periods specified above, the
shareholder shall conclusively be presumed to have acquiesced in the proposed
merger and will forfeit any right to seek payment pursuant to Section 131 of the
LBCL.
If Crystal or El Paso Sub does not agree to the value demanded by a
dissenting shareholder or does not agree that a payment is due, it shall notify
the dissenting shareholder in writing of its disagreement within 20 days after
receipt of the shareholder's demand and bank acknowledgment. Crystal or El Paso
Sub shall state in its notice of disagreement the value it will agree to pay if
any payment should be held to be due. If Crystal or El Paso Sub fails to respond
to the dissenting shareholder, it shall be liable for and shall pay to the
dissenting shareholder the value demanded by him for his shares.
If, after both parties have complied with the procedures described above,
Crystal and the dissenting shareholder disagree as to the fair cash value of the
shares or as to whether any payment is due, the dissenting shareholder may,
within 60 days after receipt of the corporation's written notice of its
disagreement, file suit against Crystal or El Paso Sub requesting that a court
fix and decree the fair cash value of the shares as of the day before the vote
for the proposed merger dissented from was taken. Such suit must be filed in the
district court of the parish in which the corporation has its registered office.
The court shall determine
36
<PAGE> 39
summarily whether any payment is due, and, if so, the cash value of the shares.
Any dissenting shareholder entitled to file a suit may, within the 60-day
period, intervene as a plaintiff in a suit filed by another dissenting
shareholder. No order or decree shall be made by the court staying the proposed
merger, and the merger may be consummated notwithstanding the suit. If any
dissenting shareholder fails to either bring suit or intervene in dissenting
shareholder's suit within 60 days after receipt of Crystal's or El Paso Sub's
notice of disagreement, that shareholder shall be conclusively bound (1) by
Crystal's or El Paso Sub's statement that no payment is due, or (2) to accept
the value of his shares as fixed by Crystal or El Paso Sub in its notice of
disagreement.
If the fair value of the shares has been agreed upon between the
shareholder and Crystal or El Paso Sub, or Crystal or El Paso Sub has become
liable for the value demanded by the shareholder because of its failure to give
notice of disagreement and of the value it will pay, or a shareholder fails to
bring suit within 60 days after receipt of Crystal's or El Paso Sub's notice of
disagreement and becomes bound to accept the value Crystal or El Paso Sub agrees
is due, an action of the shareholder to recover the fair value of his shares
must be brought within five years from the date the value was agreed upon or the
liability of Crystal or El Paso Sub became fixed.
If Crystal or El Paso Sub, in its notice of disagreement, offered to pay to
the dissenting shareholder an amount in cash deemed by it to be the fair cash
value of the shares, and if, upon the institution of a suit by the dissenting
shareholder claiming an amount in excess of the amount so offered, Crystal or El
Paso Sub deposits in the registry of the court the amount it offered to the
shareholder, then, if the amount finally awarded to the shareholder, exclusive
of interest and costs, exceeds the amount offered and deposited by Crystal or El
Paso Sub, Crystal or El Paso Sub shall be liable for the costs of the
proceeding; otherwise, the shareholder shall be liable for the costs of the
proceeding.
Upon filing a demand for the value of his shares, the shareholder shall
cease to have any of the rights of a shareholder, except the rights accorded by
Section 131 of the LBCL. A dissenting shareholder's demand may be withdrawn by
the shareholder at any time before Crystal or El Paso Sub gives its notice of
disagreement. After Crystal or El Paso Sub provides a notice of disagreement, a
dissenting shareholder may not withdraw his demand without Crystal's or El Paso
Sub's written consent.
If a dissenting shareholder's demand is withdrawn, or the proposed merger
is abandoned or rescinded, or a court determines that the shareholder is not
entitled to receive payment for his shares, or the shareholder otherwise loses
his right to dissent, the dissenting shareholder shall not have the right to
receive payment for his shares and the shareholder's share certificates shall be
returned to him (and, upon his request, new certificates shall be issued to him
in exchange for the old ones endorsed to Crystal). Additionally, under these
circumstances, the dissenting shareholder shall be reinstated to all his rights
as a shareholder as of the filing of his demand for value, including any
intervening preemptive rights, and the right to payment of any intervening
dividend or other distribution, or, if any rights have expired or any dividend
or distribution other than in cash has been completed, in lieu thereof, at
Crystal's election, the fair value thereof in cash as determined by Crystal's
Board as of the time of the expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim.
37
<PAGE> 40
SUMMARY HISTORICAL FINANCIAL DATA
The following historical financial data has been derived from Crystal's
historical consolidated financial statements and should be read in conjunction
with the financial statements and the notes thereto, which are incorporated by
reference in this proxy statement. See "Incorporation of Certain Documents by
Reference".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -------------------
1994(1) 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Gas storage fees........................ $ -- $ 6,317(2) $ 12,568 $ 12,296 $ 14,202 $ 6,891 $ 7,026
Crude oil sales......................... 15,349 38 258 210 358 147 144
Natural gas sales(3).................... 13,470 19 432 2,320 7,524 3,540 3,486
Interest, investment and other income... 14,704(4) 5,144 3,948 4,927 4,764(5) 2,969 722
-------- -------- -------- -------- -------- -------- --------
43,523 11,518 17,206 19,753 26,848 13,547 11,378
-------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Gas storage operating expenses.......... -- 587 1,082 1,011 1,534 808 718
Crude oil and natural gas lease
operating expense..................... 9,014 14 45 567 1,193 710 770
Taxes other than income tax............. 2,742 543 665 780 1,298 621 673
General and administrative expense...... 5,157 3,796 2,935 3,387 2,818 1,303 1,462
Interest and debt expense............... 2,773 2,252 3,259 3,265 3,270 1,639 1,621
Amortization of discount on sale of
future contract receivables and
forward sales......................... -- 141 1,520 3,358(6) 5,461 3,375 1,079
Exploration cost........................ 2,351 50 356 -- 1,333 1,300 --
Depreciation, depletion and
amortization.......................... 14,220 1,769 3,281 3,896 8,285(7) 3,098 3,879
-------- -------- -------- -------- -------- -------- --------
36,257 9,152 13,143 16,264 25,192 12,854 10,202
-------- -------- -------- -------- -------- -------- --------
Income before income taxes and
extraordinary item.................... 7,266 2,366 4,063 3,489 1,656 693 1,176
Income taxes............................ 2,840 962 1,590 1,409 742 322 508
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary item........ 4,426 1,404 2,473 2,080 914 371 668
Extraordinary item...................... 2,320(8) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income.............................. $ 2,106 $ 1,404 $ 2,473 $ 2,080 $ 914 $ 371 $ 668
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital......................... $ 75,723 $ 63,444 $ 62,028 $ 67,358 $ 26,673(5) $ 38,463 $ 11,711
Property and equipment, net............. 3,982 96,281(2) 92,965 107,346 143,028(5) 142,521 152,845
Total assets............................ 91,940 173,445 169,593 293,562(6) 212,783 259,269 201,915
Long-term obligations, net of current
portion(9)............................ 181 37,860 36,879 38,528 37,784 38,172 37,765
Deferred revenue from sale of future
contract receivables and forward
sales(5)(6)........................... -- 22,160 17,861 110,931 29,131 70,077 22,855
Total stockholders' equity.............. 86,287 110,549 113,276 140,220 135,962 140,591 136,630
</TABLE>
- -------------------------
(1) In 1994, Crystal operated as a crude oil and natural gas exploration and
production concern until substantially all its oil and gas properties were
sold during 1994.
(2) During 1995 Crystal purchased the Hattiesburg gas storage salt cavern
facility near Hattiesburg, Mississippi for $78.5 million and sold forward
the receivables due under fixed price contracts through June 2000.
(3) During the first quarter of 1997, Crystal purchased the DeSoto properties,
producing natural gas and crude oil properties, for $11.9 million.
(4) Includes gain on sale of substantially all crude oil and natural gas
properties of $12.5 million.
(5) Available cash was used to purchase the Petal facility in 1998 and to
satisfy Crystal's obligations under forward sales contracts.
(6) During the second and third quarter of 1997, Crystal entered into forward
sales contracts associated with crude oil and natural gas production for
which Crystal received approximately $97 million.
(7) Includes depreciation and amortization associated with a full year's
operation of the producing oil and gas properties purchased in late 1997 and
a charge of $1.4 million related to the impairment in the carrying values of
certain non-operated crude oil and natural gas properties and an investment
in the development of an enhanced recovery project in Ecuador.
(8) Represents loss on early extinguishment of debt net of applicable tax.
(9) Primarily represents Crystal's 8.12% Secured Guaranteed Notes.
38
<PAGE> 41
PRICE RANGE OF COMMON STOCK
The Crystal common stock is listed on the American Stock Exchange under the
symbol "COR". The following table sets forth the range of high and low sale
prices for Crystal common stock for the periods indicated, as reported by the
American Stock Exchange.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
Quarter ended March 31...................................... $38 1/4 $34 3/4
Quarter ended June 30....................................... $36 1/2 $33 1/4
Quarter ended September 30.................................. $39 $33 1/2
Quarter ended December 31................................... $43 3/4 $38 1/2
1998
Quarter ended March 31...................................... $44 $38
Quarter ended June 30....................................... $42 1/4 $38 3/4
Quarter ended September 30.................................. $43 $38 1/8
Quarter ended December 31................................... $40 $36
1999
Quarter ended March 31...................................... $38 1/4 $33 1/4
Quarter ended June 30....................................... $33 3/4 $31
Quarter ended September 30.................................. $46 3/4 $31 1/2
Quarter ending December 31 (through October 25)............. $55 $42 5/8
</TABLE>
On October 14, 1999, the last full trading day prior to the public
announcement of the merger agreement, the closing price of Crystal common stock
as reported by the American Stock Exchange was $45. On October 29, 1999, the
last full trading day prior to the date of this proxy statement, the closing
price for Crystal common stock as reported by the American Stock Exchange was
$54.
39
<PAGE> 42
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of October 25, 1999, the beneficial
ownership of each person (including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act")) who is
known by Crystal to be the beneficial owner of more than 5% of the outstanding
Crystal common stock and Senior Preferred Stock. Unless otherwise indicated,
each person listed has sole voting and investment power with respect to the
shares beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY OWNED
(EXCLUDING SHARES (INCLUDING SHARES DEEMED
DEEMED OWNED PURSUANT OWNED PURSUANT TO RIGHTS
TO RIGHTS TO ACQUIRE)(1) TO ACQUIRE)(2)
------------------------ -------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS SHARES PERCENT(3) SHARES PERCENT(3)
- ------------------------------------ -------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Quantum Fund N.V.(4) Common Stock 1,628,066 61.0% 1,637,001(5) 61.1%
Quantum Partners LDC(4) Senior Preferred Stock 3,971,260 54.0% 3,971,260 54.0%
Kaya Flamboyan 9
Curacao, Netherlands Antilles
George Soros(6) Common Stock 1,708,713 64.0% 1,717,648(7) 64.2%
888 Seventh Avenue Senior Preferred Stock 3,971,260 54.0% 3,971,260 54.0%
New York, NY 10106
El Paso Energy Corporation(8) Common Stock 1,708,713 64.0% 1,708,713 64.0%
El Paso Energy Acquisition Co.(8) Senior Preferred Stock 3,971,260 54.0% 3,971,260 54.0%
1001 Louisiana Street
Houston, Texas 77002
State Street Research & Management
Company(9) Common Stock 255,740 9.6% 255,740 9.6%
One Financial Center, 30th Floor
Boston, MA 02111-2690
Lehman Brothers Inc.(10) Common Stock -- -- 3,541 *
3 World Financial Center Senior Preferred Stock 1,574,195 21.4% 1,574,195 21.4%
New York, NY 10285
</TABLE>
* Represents less than one percent (1%) of outstanding class.
- -------------------------
(1) The number and percentage of securities owned excludes any shares that the
person may be deemed to be the beneficial owner of pursuant to Rule 13d-3
promulgated under the Exchange Act as a result of any rights that the
person may have to acquire beneficial ownership of the security within 60
days.
(2) The number and percentage of securities owned includes all shares that the
person may be deemed to be the beneficial owner of pursuant to Rule 13d-3
promulgated under the Exchange Act as a result of any rights that the
person may have to acquire beneficial ownership of the security within 60
days.
(3) The percentages shown in the above table are calculated on the basis of the
2,668,122 shares of Crystal common stock and 7,360,753 shares of Senior
Preferred Stock that were issued and outstanding as of October 15, 1999.
(4) Quantum Fund N.V. ("Quantum Fund") owns 183,346 shares of Crystal common
stock. Quantum Partners LDC ("Quantum Partners") owns 1,444,720 shares of
Crystal common stock. SFM LLC serves as principal investment manager to
Quantum Fund and Quantum Partners, and as such may be deemed the beneficial
owner of the securities held for the accounts of Quantum Fund and Quantum
Partners. Mr. George Soros ("Mr. Soros"), as Chairman of SFM LLC, has the
ability to direct the investment decisions of SFM LLC and as such may be
deemed the beneficial owner of the securities held for the accounts of
Quantum Fund and Quantum Partners. Mr. Stanley F. Druckenmiller ("Mr.
Druckenmiller"), as Lead Portfolio Manager of SFM LLC, has the ability to
direct the investment decisions of SFM LLC and as such may be deemed the
beneficial owner of the securities held for the accounts of Quantum Fund
and Quantum Partners. The foregoing information, as well as
40
<PAGE> 43
the information set forth in Note 5 hereof, is based primarily on
information provided to Crystal by SFM LLC, Mr. Soros and Mr. Druckenmiller
in Amendment No. 14 to their Schedule 13D dated October 18, 1999.
(5) The number of shares of Crystal common stock beneficially owned by SFM LLC,
Quantum Partners, Mr. Soros and Mr. Druckenmiller includes 3,971,260 shares
of Crystal Senior Preferred Stock owned by Quantum Partners; those shares
are convertible into 8,935 shares of Crystal common stock.
(6) Mr. Soros may be deemed the beneficial owner of 80,647 shares of Crystal
common stock held directly for his account. In addition, as described in
Note 4 hereof, Mr. Soros, as Chairman of SFM LLC, may be deemed the
beneficial owner of the securities held for the accounts of Quantum Fund
and Quantum Partners. The foregoing information, as well as the information
set forth in Note 7 hereof, is based primarily on information provided to
Crystal by SFM LLC, Mr. Soros and Mr. Druckenmiller in Amendment No. 14 to
their Schedule 13D dated October 18, 1999.
(7) The number of shares of Crystal common stock beneficially owned by Mr.
Soros includes 3,971,260 shares of Crystal Senior Preferred Stock owned by
Quantum Partners; those shares are convertible into 8,935 shares of Crystal
common stock.
(8) The shares identified are held by Quantum and George Soros and are subject
to the Shareholders Agreements dated October 15, 1999 entered into by them
with El Paso Energy and El Paso Sub. El Paso Energy and El Paso Sub possess
shared power to vote, or direct the vote of, the identified shares. All
financial ownership and other rights to vote are held by Quantum and Mr.
Soros. The foregoing information is based solely on the Schedule 13D dated
October 21, 1999, of El Paso Energy and El Paso Sub filed with the SEC.
(9) This information is based solely on the Schedule 13G dated February 8,
1999, of State Street Research & Management Company filed with the
Commission with respect to its beneficial ownership of Crystal common
stock.
(10) Lehman Brothers Inc. owns in the aggregate 1,574,195 shares of Senior
Preferred Stock, which may be converted into 3,541 shares of Crystal common
stock. The foregoing information is based on the Schedule 13G dated
September 30, 1999, of Lehman Brothers Inc., a subsidiary of Lehman
Brothers Holding, Inc., filed with the SEC with respect to its beneficial
ownership of Senior Preferred Stock.
41
<PAGE> 44
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of October 25, 1999, the beneficial
ownership of the equity securities of Crystal of each of the directors of
Crystal, each "named executive officer" (as defined in Item 402(a)(3) of
Regulation S-K promulgated by the SEC and the instructions thereto) and all
executive officers and directors of Crystal as a group. Unless otherwise
indicated, the named person directly owns the securities listed and exercises
sole voting and investment power with respect thereto. The table has been
prepared from information obtained from the respective directors and executive
officers.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (EXCLUDING SHARES BENEFICIALLY
SHARES DEEMED OWNED OWNED (INCLUDING SHARES
PURSUANT TO RIGHTS TO DEEMED OWNED PURSUANT
ACQUIRE)(1) TO RIGHTS TO ACQUIRE)(2)
---------------------- -------------------------
NAME TITLE OF CLASS SHARES PERCENT(3) SHARES PERCENT(3)
- ---- -------------- ------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
J. N. Averett, Jr.,......... Common Stock 4,702 * 77,327(4) 2.8%
President, Chief
Executive Officer and
Director
Gary S. Gladstein,(5)....... Common Stock 1,850 * 1,850 *
Director
Lief D. Rosenblatt,(6)...... -- -- -- -- --
Director
George P. Giard, Jr.,....... Common Stock 2,940 * 2,940 *
Director
Donald G. Housley,(7)....... Common Stock 16,302 * 16,391 *
Director Senior Preferred Stock 39,999 * 39,999 *
Neal Moszkowski,(8)......... Common Stock 1,500 * 1,500 *
Director
J. A. Ballew,............... Common Stock 1,198 * 21,573(9) *
Executive Vice
President, Treasurer
and Secretary
David L. Hayden,............ Common Stock 837 * 10,087(10) *
Senior Vice
President/Engineering
All executive officers, Common Stock 30,085 1.1% 138,799(11) 5.0%
directors and Senior Preferred Stock 39,999 * 39,999 *
nominees of Crystal as
a group (9 persons)
</TABLE>
* Represents less than one percent (1%) of outstanding class.
- -------------------------
(1) The number and percentage of securities owned excludes any shares that the
person may be deemed to be the beneficial owner of pursuant to Rule 13d-3
promulgated under the Exchange Act as a result of any rights that the
person may have to acquire beneficial ownership of the security within 60
days.
(2) The number and percentage of securities owned includes all shares that the
person may be deemed to be the beneficial owner of pursuant to Rule 13d-3
promulgated under the Exchange Act as a result of any rights that the
person may have to acquire beneficial ownership of the security within 60
days.
(3) The percentages shown in the above table are calculated on the basis of the
2,668,122 shares of Crystal common stock and 7,360,753 shares of Senior
Preferred Stock that were issued and outstanding as of October 15, 1999.
(4) The number of shares and percentage of beneficial ownership includes stock
options to acquire 72,625 shares of Crystal common stock owned by Mr.
Averett and 1,492 shares of Crystal common stock that are owned by him
through Crystal's Employee Stock Ownership Plan.
42
<PAGE> 45
(5) Mr. Gladstein is a Managing Director of SFM LLC.
(6) Mr. Rosenblatt does not own any of Crystal's securities.
(7) The number of shares and percentage of beneficial ownership includes 89
shares of Crystal common stock that are issuable upon the conversion of
39,999 shares of Senior Preferred Stock that are owned by Mr. Housley.
(8) Mr. Moszkowski is an employee of SFM LLC.
(9) The number of shares of Crystal common stock and percentage of beneficial
ownership of Mr. Ballew includes stock options to acquire 20,375 shares of
Crystal common stock and 1,098 shares of Crystal common stock owned by him
through Crystal's Employee Stock Ownership Plan.
(10) The number of shares of Crystal common stock and percentage of beneficial
ownership of Mr. Hayden includes stock options to acquire 9,250 shares of
Crystal common stock and 807 shares of Crystal common stock owned by him
through Crystal's Employee Stock Ownership Plan.
(11) The number of shares of Crystal common stock and percentage of beneficial
ownership attributable to all directors and executive officers of Crystal
as a group includes 89 shares of Crystal common stock that are issuable
upon the conversion of 39,999 shares of Senior Preferred Stock that are
beneficially owned by those persons. In addition, the number of shares of
Crystal common stock and percentage of beneficial ownership attributable to
those persons includes stock options to acquire 108,625 shares of Crystal
common stock and 4,153 shares of Crystal common stock owned through
Crystal's Employee Stock Ownership Plan that may be beneficially owned by
those persons.
43
<PAGE> 46
FORWARD-LOOKING STATEMENTS
Statements in this proxy statement other than historical facts are
forward-looking statements made in reliance upon the safe harbor of the Private
Securities Litigation Reform Act of 1995. As such, the involved risks and
uncertainties are subject to change at any time. Crystal derives its
forward-looking statements from its operating budgets which are based on various
assumptions, including matters regarding crude oil and natural gas prices,
demand and supply for crude oil and natural gas, changes in the market for
natural gas storage and transportation, the ultimate recovery and realization of
the estimated reserves from the proved producing and undeveloped reserves in the
DeSoto Properties, success of the Company's ability to market interruptible
service at the Hattiesburg Facility and the Petal Facility, the use of the
Company's existing net operating tax loss carryforwards, the ability to become
Year 2000 compliant, the Company's successful execution of its acquisition
strategy and internal operating plans including the expansion of its natural gas
storage facilities, labor relations, regulatory uncertainties and legal
proceedings, including in particular its pending litigation with the State of
Louisiana regarding environmental matters. Although the Company believes its
assumptions are reasonable, it is impossible to predict the impact of certain
factors that could cause actual results to differ materially from those
currently anticipated.
WHERE YOU CAN FIND MORE INFORMATION
Each of Crystal and El Paso Energy is subject to the informational
requirements of the Securities Exchange Act of 1934. Each company files reports,
proxy statements and other information with the SEC. You may read and copy the
reports, proxy statements and other information at the SEC's Public Reference
Section at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet website, located at
http://www.sec.gov, that contains reports, proxy statements and other
information regarding registrants that file electronically with the SEC.
You may also read reports, proxy statements and other information relating
to Crystal at the offices of the American Stock Exchange, Inc. at 86 Trinity
Place, New York, New York 10006 and reports, proxy statements and other
information relating to El Paso Energy at the offices of the New York Stock
Exchange at 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Crystal hereby incorporates by reference into this proxy statement the
following documents that have been filed with the SEC (File No. 1-8715) pursuant
to the Securities Exchange Act of 1934, as amended:
(1) its Annual Report on Form 10-K for the year ended December 31, 1998;
(2) its Quarterly Reports on Form 10-Q for the periods ended March 31,
1999 and June 30, 1999;
(3) its Current Reports on Form 8-K filed March 5, 1999 and June 15,
1999; and
(4) all documents and reports filed by Crystal pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, after November , 1999 and on or prior to December , 1999.
Any statement contained in a document incorporated by reference in this
proxy statement will be deemed to be modified or superseded for purposes of this
proxy statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference in this proxy statement modifies or supersedes the statement. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement.
You may obtain, without charge, upon written or oral request, a copy of any
of the documents referred to above that have been or may be incorporated by
reference into this proxy statement, other than exhibits to those documents
(unless those exhibits are specifically incorporated by reference into the
documents).
44
<PAGE> 47
Requests should be directed to Crystal Gas Storage, Inc., 229 Milam Street,
Shreveport, Louisiana 71101, Attention: J.A. Ballew (telephone number
318-222-7791).
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT
AND OUR PERIODIC FILINGS WITH THE SEC. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS ABOUT THE PROPOSED MERGER OR
CRYSTAL THAT DIFFERS FROM OR ADDS TO THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT OR THE DOCUMENTS WE HAVE PERIODICALLY FILED WITH THE SEC. THEREFORE,
YOU SHOULD NOT RELY ON ANY DIFFERENCE OR ADDITIONAL INFORMATION GIVEN TO YOU.
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT MAY ONLY BE ACCURATE AS
OF NOVEMBER , 1999, UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER
DATE APPLIES.
SHAREHOLDER PROPOSALS
To the extent the merger is not consummated, shareholder proposals for
inclusion in the proxy statement for presentment to the 2000 annual meeting of
shareholders must be received at the office of Crystal, 229 Milam Street,
Shreveport, Louisiana 71101, no later than December 9, 1999, to be considered
for inclusion in the proxy statement relating to that meeting. Shareholder
proposals submitted outside the processes of Rule 14a-8 promulgated under the
Securities Exchange Act of 1934, as amended, will be considered untimely if
received by Crystal after February 22, 2000.
OTHER INFORMATION
Representatives of KPMG LLP, independent auditors of Crystal, are expected
to attend the special meeting, will be afforded an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions by shareholders.
45
<PAGE> 48
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
EL PASO ENERGY CORPORATION,
EL PASO ENERGY ACQUISITION CO.
AND
CRYSTAL GAS STORAGE, INC.
OCTOBER 15, 1999
A-1
<PAGE> 49
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
THE MERGER............................................. 1
SECTION 1.1. The Merger............................... 1
SECTION 1.2. Effective Time........................... 1
SECTION 1.3. Effects of the Merger.................... 1
SECTION 1.4. Certificate of Incorporation and
By-laws............................................... 1
SECTION 1.5. Directors................................ 2
SECTION 1.6. Officers................................. 2
SECTION 1.7. Effect on Capital Stock.................. 2
(a) Capital Stock of Sub.................. 2
(b) Cancellation of Treasury Stock and
Parent Owned Stock.............................. 2
(c) Conversion of Shares.................. 2
(d) Conversion of Senior Preferred
Stock........................................... 2
(e) Shares of Dissenting Stockholders..... 2
ARTICLE II
EXCHANGE PROCEDURE..................................... 3
SECTION 2.1. Exchange of Certificates................. 3
(a) Paying Agent.......................... 3
(b) Parent to Provide Funds............... 3
(c) Exchange Procedure.................... 3
(d) No Further Ownership Rights in
Shares.......................................... 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES......................... 4
SECTION 3.1. Representations and Warranties of the
Company............................................... 4
(a) Organization, Standing and Power...... 4
(b) Subsidiaries.......................... 4
(c) Capital Structure..................... 4
(d) Authority; Non-contravention.......... 5
(e) SEC Documents......................... 6
(f) Information Supplied.................. 6
(g) Absence of Certain Changes or
Events.......................................... 6
(h) State Takeover Statutes; Absence of
Supermajority Provision......................... 7
(i) Brokers.............................. 7
(j) Litigation........................... 7
(k) Employee Benefit Matters.............. 7
(l) Taxes................................ 9
(m) No Excess Parachute Payments........... 10
(n) Environmental Matters................. 10
(o) Compliance with Laws.................. 10
(p) Material Contracts and Agreements..... 10
(q) Title to Properties................... 11
(r) Intellectual Property................. 11
(s) Labor Matters......................... 11
(t) Undisclosed Liabilities............... 11
(u) Pipeline Imbalances................... 12
(v) Year 2000............................. 12
(w) Opinion of Financial Advisor.......... 12
(x) Board Recommendation.................. 12
</TABLE>
i
<PAGE> 50
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 3.2. Representations and Warranties of Parent and
Sub......................................................... 12
(a) Organization; Standing and Power...... 12
(b) Authority; Non-contravention.......... 12
(c) Information Supplied.................. 13
(d) Brokers............................... 13
(e) Litigation............................ 13
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS.............. 13
SECTION 4.1. Conduct of Business of the Company....... 13
(a) Ordinary Course....................... 13
(b) Changes in Employment Arrangements.... 15
(c) Severance............................. 15
(d) Other Actions......................... 15
(e) Internal Restructuring and Hattiesburg
Owner Trust Matters............................. 15
(f) Base Gas.............................. 16
ARTICLE V
ADDITIONAL AGREEMENTS.................................. 16
SECTION 5.1. Stockholder Approval; Preparation of
Proxy Statement....................................... 16
SECTION 5.2. Access to Information.................... 16
SECTION 5.3. Reasonable Efforts; Notification......... 17
SECTION 5.4. Employee Benefit Matters................. 19
SECTION 5.5. Indemnification.......................... 20
SECTION 5.6. Fees and Expenses........................ 21
SECTION 5.7. Public Announcements..................... 21
SECTION 5.8. Internal Restructuring................... 21
SECTION 5.9. Redemption of Senior Preferred Stock..... 21
ARTICLE VI
CONDITIONS PRECEDENT................................... 21
SECTION 6.1. Conditions to Each Party's Obligation to
Effect the Merger..................................... 21
(a) Stockholder Approval.................. 21
(b) Other Approvals....................... 21
(c) No Injunctions or Restraints.......... 21
SECTION 6.2. Conditions to Obligations of Parent and
Sub................................................... 22
SECTION 6.3. Condition to Obligations of the
Company............................................... 22
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER...................... 22
SECTION 7.1. Termination.............................. 22
SECTION 7.2. Procedure for Termination, Amendment,
Extension or Waiver................................... 23
SECTION 7.3. Effect of Termination.................... 23
SECTION 7.4. Amendment................................ 23
SECTION 7.5. Extension; Waiver........................ 23
ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS............... 23
SECTION 8.1. Takeover Defenses of the Company and
Standstill Agreements................................. 23
SECTION 8.2. No Solicitation.......................... 24
SECTION 8.3. Fee and Expense Reimbursements........... 26
</TABLE>
ii
<PAGE> 51
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE IX
GENERAL PROVISIONS..................................... 26
SECTION 9.1. Nonsurvival of Representations and
Warranties............................................ 26
SECTION 9.2. Notices.................................. 26
SECTION 9.3. Definitions.............................. 27
SECTION 9.4. Interpretation........................... 28
SECTION 9.5. Counterparts............................. 28
SECTION 9.6. Entire Agreement; No Third-Party
Beneficiaries......................................... 28
SECTION 9.7. Governing Law............................ 28
SECTION 9.8. Assignment............................... 28
SECTION 9.9. Enforcement of the Agreement............. 28
SECTION 9.10. Performance by Sub....................... 29
SECTION 9.11. Severability............................. 29
Schedule I -- Company Disclosure Document................... S-1
Exhibit A -- Internal Restructuring Description............. A-1
</TABLE>
iii
<PAGE> 52
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Acquisition Agreement....................................... 25
Acquisition Transaction..................................... 24
affiliate................................................... 27
Agreement................................................... 1
Applicable Period........................................... 24
CERCLA...................................................... 27
Certificates................................................ 3
Certificates of Merger...................................... 1
Code........................................................ 7
Company..................................................... 1
Company Benefit Plan........................................ 7
Company Charter............................................. 5
Company Financial Advisor................................... 12
Company HSR Documents....................................... 18
Company NOLs................................................ 9
Company Permits............................................. 10
Company Stockholder Approval................................ 7
Confidentiality and Standstill Agreements................... 23
conversion.................................................. 15
DGCL........................................................ 1
Dissenting Stockholders..................................... 1
Effective Time of the Merger................................ 1
environmental laws.......................................... 27
ERISA....................................................... 7
Exchange Act................................................ 5
Fairness Opinion............................................ 12
Gas Storage Expansion Project............................... 13
Governmental Entity......................................... 5
HSR Act..................................................... 5
include, includes or including.............................. 28
Indemnified Parties......................................... 19
Internal Restructuring...................................... 15
IRS......................................................... 8
knowledge................................................... 27
LBCL........................................................ 1
Liens....................................................... 4
material adverse change or material adverse effect.......... 27
Merger...................................................... 1
Merger Consideration........................................ 2
Notice of Superior Proposal................................. 24
Parent...................................................... 1
Parent Benefit Plan......................................... 19
Parent HSR Documents........................................ 18
Paying Agent................................................ 2
person...................................................... 28
Proxy Statement............................................. 5
Replacement Plan............................................ 19
SEC......................................................... 5
SEC Documents............................................... 5
</TABLE>
iv
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Securities Act.............................................. 6
Senior Preferred Stock...................................... 4
Severance Agreements........................................ 8
Share or Shares............................................. 1
Shareholders Agreement...................................... 1
Sub......................................................... 1
subsidiary.................................................. 28
superior proposal........................................... 25
Surviving Corporation....................................... 1
takeover proposal........................................... 24
Tax or Taxes................................................ 9
Tax Return.................................................. 9
</TABLE>
v
<PAGE> 54
AGREEMENT AND PLAN OF MERGER dated as of October 15, 1999, among EL
PASO ENERGY CORPORATION, a Delaware corporation ("Parent"), EL PASO
ENERGY ACQUISITION CO., a Delaware corporation ("Sub") and a wholly
owned subsidiary of Parent, and CRYSTAL GAS STORAGE, INC., a Louisiana
corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the acquisition of the Company by Parent on the terms and subject
to the conditions of this Agreement and Plan of Merger (this "Agreement");
WHEREAS, in order to effectuate such acquisition of the Company, the
respective Boards of Directors of Parent, Sub and the Company have approved the
merger of the Company with and into Sub (the "Merger"), upon the terms and
subject to the conditions of this Agreement, whereby each issued and outstanding
share of common stock, $.01 par value, of the Company (singularly "Share" and
plurally "Shares") not owned directly or indirectly by Parent or the Company,
except (unless the Merger is approved by eighty percent or more of the Company's
total voting power, in which event there will be no dissenters rights) Shares
held by persons who object to the Merger and comply with all the provisions of
Louisiana law concerning the right of holders of Shares to dissent from the
Merger and require appraisal of their Shares ("Dissenting Stockholders"), will
be converted into the right to receive $57 per Share;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement certain stockholders of the Company have executed and delivered a
Shareholders Agreement pursuant to which they have entered into certain
agreements with Parent and Sub regarding the Shares beneficially owned by them
(the "Shareholders Agreement"); and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the conditions
hereof and in accordance with the Delaware General Corporation Law (the "DGCL")
and the Louisiana Business Corporation Law (the "LBCL"), the Company shall be
merged with and into Sub at the Effective Time of the Merger. Following the
Merger, the separate corporate existence of the Company shall cease and Sub
shall continue as the surviving corporation (the "Surviving Corporation") and
shall succeed to and assume all the rights and obligations of the Company in
accordance with the DGCL and the LBCL.
SECTION 1.2. Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, the parties
shall file certificates of merger or other appropriate documents (in any such
case, the "Certificates of Merger") executed in accordance with the relevant
provisions of the DGCL and the LBCL. The Merger shall become effective at such
time as the Certificates of Merger are duly filed with the Delaware and
Louisiana Secretaries of State, which the parties agree will be done
simultaneously, or simultaneously at such other time as Sub and the Company
shall agree should be specified in the Certificates of Merger (the time the
Merger becomes effective being the "Effective Time of the Merger").
SECTION 1.3. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL and in Louisiana Revised Statute 12:115, which
constitutes a provision of the LBCL.
SECTION 1.4. Certificate of Incorporation and By-laws.
(a) The Certificate of Incorporation of Sub, as in effect at the
Effective Time of the Merger, shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter changed or amended as
<PAGE> 55
provided therein or by applicable law; provided that such Certificate of
Incorporation shall be amended hereby as of the Effective Time of the
Merger to change the name of Sub to Crystal Gas Storage, Inc.
(b) The By-laws of Sub as in effect at the Effective Time of the Merger
shall be the By-laws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.
SECTION 1.5. Directors. The directors of Sub at the Effective Time of the
Merger shall be the directors of the Surviving Corporation and shall hold office
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 1.6. Officers. The officers of Sub at the Effective Time of the
Merger shall be the officers of the Surviving Corporation and shall hold office
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 1.7. Effect on Capital Stock. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the holder
of any Shares:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of common stock, par value $1.00 per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent Owned Stock. All Shares
that are owned directly or indirectly by the Company as treasury stock or
by any wholly owned subsidiary of the Company and any Shares owned by
Parent, Sub or any other wholly owned subsidiary of Parent shall be
canceled, and no consideration shall be delivered in exchange therefor.
(c) Conversion of Shares. Subject to Section 1.7(d), each issued and
outstanding Share (other than Shares to be canceled in accordance with
Section 1.7(b)) shall be converted into the right to receive from the
Surviving Corporation in cash, without interest, $57 per Share (the "Merger
Consideration").
(d) Conversion of Senior Preferred Stock. To the extent that any shares
of Senior Preferred Stock are issued and outstanding at the Effective Time
of the Merger, each such share shall be converted into one share of senior
preferred stock of the Surviving Corporation having terms identical to the
terms of the Senior Preferred Stock and having no alteration or change in
the powers, preferences or rights given to the holders of shares of such
senior preferred stock of the Surviving Corporation from those of the
holders of shares of Senior Preferred Stock.
(e) Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary (unless the Merger is approved by eighty percent
or more of the Company's total voting power, in which event there will be
no dissenters rights), any issued and outstanding Shares held by a
Dissenting Stockholder shall not be converted as described in Section
1.7(c) but shall become the right to receive such consideration as may be
determined to be due to such Dissenting Stockholder pursuant to the laws of
the State of Louisiana; provided, however, that Shares outstanding
immediately prior to the Effective Time of the Merger and held by a
Dissenting Stockholder who shall, after the Effective Time of the Merger,
withdraw his demand for appraisal or lose his right of appraisal, in either
case pursuant to the LBCL, shall be deemed to be converted, as of the
Effective Time of the Merger, into the right to receive the Merger
Consideration. The Company shall give Parent (i) prompt notice of any
written demands for appraisal of Shares received by the Company and (ii)
the opportunity to direct all negotiations and proceedings with respect to
any such demands. The Company shall not, without the prior written consent
of Parent, voluntarily make any payment with respect to, or settle, offer
to settle or otherwise negotiate, any such demands.
2
<PAGE> 56
ARTICLE II
EXCHANGE PROCEDURE
SECTION 2.1. Exchange of Certificates.
(a) Paying Agent. Prior to the Effective Time of the Merger, Parent
shall select a bank or trust company to act as paying agent (the "Paying
Agent") for the payment of the Merger Consideration upon surrender of
certificates representing Shares.
(b) Parent to Provide Funds. Parent shall take all steps necessary to
enable and cause the Surviving Corporation to provide the Paying Agent on a
timely basis funds necessary to pay for the Shares pursuant to Section 1.7.
(c) Exchange Procedure. Promptly after the Effective Time of the Merger,
the Paying Agent shall mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time of the Merger
represented outstanding Shares (the "Certificates"), other than the
Company, Parent and any subsidiary of the Company or Parent, (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 the Certificates to the Paying Agent and which shall be in a form and
have such other provisions as Parent may reasonably specify) and (ii)
instructions for use 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 the amount of cash into which the
Shares theretofore represented by such Certificate shall have been
converted pursuant to Section 1.7(c), and the Certificate 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 payment to a person other than the
registered holder 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 2.1, each Certificate
shall be deemed at any time after the Effective Time of the Merger to
represent only the right to receive upon such surrender the amount of cash,
without interest, into which the Shares theretofore represented by such
Certificate shall have been converted pursuant to Section 1.7(c).
Notwithstanding the foregoing, neither the Paying Agent nor any party shall
be liable to a former stockholder of the Company for any cash or interest
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws. If any Certificates shall not have been
surrendered prior to seven years after the Effective Time of the Merger (or
immediately prior to such earlier date on which any payment pursuant to
this Section 2.1 would otherwise escheat to or become the property of any
governmental body or agency) the payment in respect of such Certificate
shall, to the extent permitted by applicable law, become the property of
the Surviving Corporation, free and clear of all claims or interest of any
person previously entitled thereto. Any funds made available to the Paying
Agent that remain unclaimed by holders of Certificates for six months after
the Effective Time of the Merger shall be delivered to the Surviving
Corporation upon demand and any holder of Certificates who has not
theretofore complied with this Section 2.1(c) shall thereafter look only to
Parent for payment of their claim for Merger Consideration.
(d) No Further Ownership Rights in Shares. All cash paid upon the
surrender of Certificates in accordance with the terms of this Article II
shall be deemed to have been paid in full satisfaction of all rights
pertaining to the Shares theretofore represented by such Certificates, and
there shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the Shares that were outstanding
immediately prior to the Effective Time of the Merger. If, after the
Effective Time of the Merger, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as
provided in this Article II.
3
<PAGE> 57
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, Parent and Sub as follows, subject
to any exceptions specified in the Company Disclosure Document in the form
attached hereto as Schedule I to the extent such exceptions reference a specific
Section of this Article III:
(a) Organization, Standing and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Louisiana and has the requisite corporate power and authority to
carry on its business as now being conducted. The Company is duly qualified
to do business and is in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes
such qualification necessary, other than in such jurisdictions where the
failure to be so qualified to do business or in good standing (individually
or in the aggregate) would not have, or be reasonably likely to have, a
material adverse effect on the Company.
(b) Subsidiaries. The Company's subsidiaries are corporations, limited
liability companies or general partnerships that are duly organized,
validly existing and in good standing under the laws of their respective
jurisdictions of organization and have the requisite corporate power and
authority (or comparable power and authority in the case of limited
liability companies or general partnerships) to carry on their respective
businesses as they are now being conducted and to own, operate and lease
the assets they now own, operate or hold under lease. The Company's
subsidiaries are duly qualified to do business and are in good standing in
each jurisdiction in which the nature of their respective businesses or the
ownership or leasing of their respective properties makes such
qualification necessary, other than in such jurisdictions where the failure
to be so qualified or in good standing would not have, or be reasonably
likely to have, a material adverse effect on the Company. All the
outstanding shares of capital stock of the Company's subsidiaries that are
corporations, and all the ownership interests of the Company in its other
subsidiaries, have been duly authorized and validly issued and are, except
in the case of any subsidiary that is a general partnership, fully paid and
non-assessable and were not issued in violation of any preemptive rights or
other preferential rights of subscription or purchase of any person. All
such stock and ownership interests are owned of record and beneficially by
the Company or by a wholly owned subsidiary of the Company, free and clear
of all liens, pledges, security interests, charges, claims and other
encumbrances of any kind or nature ("Liens"). Except for the capital stock
of, or ownership interests in, its subsidiaries, the Company does not own,
directly or indirectly, any capital stock, equity interest or other
ownership interest in any corporation, partnership, association, joint
venture, limited liability company or other entity.
(c) Capital Structure. The authorized capital stock of the Company
consists of 20,000,000 shares of common stock, $.01 par value, and
51,200,773 shares of preferred stock, $.01 par value, of which 21,488,353
shares have been designated $.06 Senior Convertible Voting Preferred Stock
(Non-Cumulative) and 27,717,570 of which have been designated Series A
Preferred Stock. At the close of business on June 30, 1999, (i) 2,668,122
Shares were issued and outstanding, (ii) 192,875 Shares were reserved for
issuance pursuant to options granted under the Company's Employee Stock
Option Plan, (iii) no Shares were reserved for issuance pursuant to options
not yet granted under the Company's Employee Stock Option Plan, (iv)
7,360,753 shares of $.06 Senior Convertible Voting Preferred Stock ("Senior
Preferred Stock") were issued and outstanding, (v) 16,562 Shares were
reserved for issuance upon conversion of such outstanding shares of Senior
Preferred Stock and (vi) no shares of Series A Preferred Stock were issued
or outstanding. Except as set forth above, no shares of capital stock or
other equity or voting securities of the Company are reserved for issuance
or outstanding. All outstanding shares of capital stock of the Company are,
and all such Shares issuable upon the exercise of stock options or
conversion of Senior Preferred Stock will be when issued thereunder,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. No capital stock has been issued by the Company since June 30,
1999, other than Shares issued pursuant to options outstanding on or prior
to such date in accordance with their terms at such date. Except for
options described above and Senior
4
<PAGE> 58
Preferred Stock described above, there are no outstanding or authorized
securities, options, warrants, calls, rights, commitments, preemptive
rights, agreements, arrangements or undertakings of any kind to which the
Company or any of its subsidiaries is a party, or by which any of them is
bound, obligating the Company or any of its subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, any shares of capital
stock or other equity or voting securities of, or other ownership interests
in, the Company or of any of its subsidiaries or obligating the Company or
any of its subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking.
(d) Authority; Non-contravention. The Company has the requisite
corporate power and authority to enter into this Agreement and, subject to
Company Stockholder Approval, to consummate the transactions contemplated
hereby and to take such actions, if any, as shall have been taken with
respect to the matters referred to in Section 3.1(h). The execution and
delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company, subject to
Company Stockholder Approval. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws or
judicial decisions now or hereafter in effect relating to creditors' rights
generally and (ii) the remedy of specific performance and injunctive relief
may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. The execution and
delivery of this Agreement by the Company do not, and the consummation of
the transactions contemplated hereby and compliance with the provisions
hereof will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of or "put" right with
respect to any obligation or to loss of a material benefit under, or result
in the creation of any lien, security interest, charge or encumbrance upon
any of the properties or assets of the Company or any of its subsidiaries
under, any provision of (i) the Amended and Restated Articles of
Incorporation, as amended (the "Company Charter"), or By-laws of the
Company or any provision of the comparable organizational documents of its
subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease, or other agreement, instrument, permit, concession,
franchise or license applicable to the Company or any of its subsidiaries
or their respective properties or assets or (iii) subject to governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation or
arbitration award applicable to the Company or any of its subsidiaries or
their respective properties or assets, other than, in the case of clause
(ii), any such conflicts, violations, defaults, rights or liens, security
interests, charges or encumbrances that individually or in the aggregate
would not have, or be reasonably likely to have, a material adverse effect
on the Company and would not, or be reasonably likely to, materially impair
the ability of the Company to perform its obligations hereunder or prevent
the consummation of any of the transactions contemplated hereby. No
consent, approval, order or authorization of, or registration, declaration
or filing with, any court, administrative agency or commission or other
governmental authority or agency, domestic or foreign, including local
authorities (a "Governmental Entity"), is required by or with respect to
the Company or any of its subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby, except for (i) the filing
of a premerger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing with the Securities and Exchange Commission (the
"SEC") of (A) a proxy statement relating to the Company Stockholder
Approval (such proxy statement as amended or supplemented from time to
time, the "Proxy Statement") and (B) such reports under Section 13(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
may be filed in connection with this Agreement and the transactions
contemplated hereby, and (iii) the filing of the Certificates of Merger
with the Delaware and Louisiana Secretaries of State with respect to the
Merger as provided in the DGCL and the LBCL and appropriate documents with
the relevant authorities of other jurisdictions in which the Company is
qualified to do
5
<PAGE> 59
business and such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained
or made would not have, or be reasonably likely to have, a material adverse
effect on the Company.
(e) SEC Documents. The Company has filed all required reports,
schedules, forms, statements and other documents with the SEC since January
1, 1998 (such documents, together with all exhibits and schedules thereto
and documents incorporated by reference therein, collectively referred to
herein as the "SEC Documents"). As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange
Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and none of the
SEC Documents contained any untrue statement of a material fact or omitted
to state a 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. The consolidated financial statements
of the Company included in the SEC Documents comply in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated
financial position of the Company and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments and other adjustments
described therein).
(f) Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in the
Proxy Statement will, at the date the Proxy Statement is first mailed to
the Company's stockholders and at the time of the Company's stockholders
meeting convened for the purpose of obtaining the Company Stockholder
Approval, 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
are made, not misleading. The Proxy Statement, as it relates to the Company
Stockholders Meeting, will comply as to form in all material respects with
the requirements of the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made by the
Company with respect to statements made or incorporated by reference
therein based on information supplied by Parent or Sub for inclusion or
incorporation by reference therein.
(g) Absence of Certain Changes or Events. Except as disclosed in the SEC
Documents, since December 31, 1998, the Company has conducted its business
only in the ordinary course consistent with past practice, and there has
not been (i) any event or circumstance that has had or been reasonably
likely to have a material adverse effect with respect to the Company; (ii)
any declaration, setting aside or payment of any dividend (whether in cash,
stock or property) with respect to any of the Company's capital stock;
(iii) (A) any granting by the Company or any of its subsidiaries to any
executive officer of the Company or any of its subsidiaries of any increase
in compensation, except in the ordinary course of business consistent with
prior practice or as was required under employment agreements in effect as
of December 31, 1998, (B) any granting by the Company or any of its
subsidiaries to any such executive officer of any increase in severance or
termination pay, except as was required under employment, severance or
termination agreements in effect as of December 31, 1998, or (C) except in
accordance with past practice as to executive officers, any entry by the
Company or any of its subsidiaries into any employment, severance or
termination agreement with any such executive officer; (iv) any damage,
destruction or loss, whether or not covered by insurance, that has or
reasonably could be expected to have a material adverse effect on the
Company; (v) any change in accounting methods, principles or practices by
the Company materially affecting its assets, liabilities or business,
except insofar as may have been required by a change in generally accepted
accounting principles; or (vi) any event which, if it had taken place
following the execution of this Agreement, would not have been permitted by
Section 4.1.
6
<PAGE> 60
(h) State Takeover Statutes; Absence of Supermajority Provision. The
Company has taken all action to assure that no state takeover statute or
similar statute or regulation, shall apply to the Merger or, the
Shareholders Agreement, or any of the other transactions contemplated
hereby or by the Shareholders Agreement. Except for the approval of the
Merger by the holders of two-thirds of the voting power of Shares and
Senior Preferred Stock, present at the meeting of stockholders held for
such purpose, voting together as a class pursuant to which each Share is
entitled to one vote and each share of Senior Preferred Stock is entitled
to .001 votes per share (unless the shares of Senior Preferred Stock have
been called for redemption prior to such meeting and the provisions of
Louisiana Revised Statute 12:75 shall have been satisfied so that such
shares shall not be entitled to vote at such meeting) ("Company Stockholder
Approval"), no other stockholder action on the part of the Company is
required for approval of the Merger and the transactions contemplated
hereby.
(i) Brokers. Except for Goldman, Sachs & Co., which has rendered the
Fairness Opinion referred to in Section 3.1(u) and whose fees are to be
paid by the Company, no broker, investment banker or other person is
entitled to receive from the Company or any of its subsidiaries any
investment banking, brokerage or finder's fees in connection with this
Agreement or the transactions contemplated hereby, including any fee for
any opinion rendered by any investment banker. The engagement letter
between the Company and Goldman, Sachs & Co. provided to Parent on or prior
to the date of this Agreement constitutes the entire understanding of the
Company and Goldman, Sachs & Co. with respect to the matters referred to
therein, and has not been amended or modified, nor will it be amended or
modified prior to the Effective Time of the Merger.
(j) Litigation. Except as disclosed in the SEC Documents, there is no
suit, action, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company or any of
its subsidiaries that has had or could reasonably be expected to have a
material adverse effect on the Company or prevent, hinder or materially
delay the ability of the Company to consummate the transactions
contemplated by this Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against the Company or any of its subsidiaries which has had,
or which, insofar as reasonably can be foreseen, in the future could have,
any such effect.
(k) Employee Benefit Matters. As used in this Section 3.1(k), the term
"Employer" shall mean the Company as defined in the preamble of this
Agreement and any member of a controlled group or affiliated service group,
as defined in sections 414(b), (c), (m) and (o) of the Internal Revenue
Code of 1986, as amended ("Code"), of which the Company is a member.
(i) With respect to each employee welfare benefit plan, employee
pension benefit plan and employee benefit plan as defined in sections
3(1), 3(2), and 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), which have been or are sponsored by,
participated in, or contributed to by the Employer at any time during
the three-year period ending on the date of this Agreement, or with
respect to which the Employer may have any liability, and except for any
matter that would not individually or in the aggregate have, or be
reasonably likely to have, a material adverse effect on the Company, to
the extent applicable: (A) the plan is in substantial compliance with
the Code and ERISA, including all reporting and disclosure requirements
of Part 1 of Subtitle B of Title I of ERISA; (B) the appropriate Form
5500 has been timely filed for each year of its existence; (C) there has
been no transaction described in section 406 or section 407 of ERISA or
section 4975 of the Code unless exempt under section 408 of ERISA or
section 4975 of the Code, as applicable; (D) the bonding requirements of
section 412 of ERISA have been satisfied; (E) there is no issue pending
nor any issue resolved adversely to the Employer which may subject the
Company to the payment of a penalty, interest, tax or other amount, (F)
the plan can be unilaterally terminated or amended on no more than 90
days notice; (G) all contributions or other amounts payable by the
Employer as of the Effective Time of the Merger with respect to the plan
have either been paid or accrued in the Employer's most recent financial
statements included in the SEC Documents and (H) no notice has been
received or given by the Employer of an increase or proposed increase in
the cost of any such plan or any other employee
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benefit agreement or arrangement, including deferred compensation plans,
incentive plans, bonus plans or arrangements, stock option plans, stock
purchase plans, golden parachute agreements, severance pay plans or
agreements, dependent care plans, cafeteria plans, employee assistance
programs, scholarship programs, employment contracts and other similar
plans, agreements and arrangements that are currently in effect or were
maintained within three years of the date hereof, or have been approved
before this date but are not yet effective, for the benefit of
directors, officers or employees, or former directors, officers or
employees (or their beneficiaries) of the Employer (each, a "Company
Benefit Plan"). There are no pending or, to the Company's knowledge,
threatened or anticipated claims (other than routine claims for
benefits), actions, arbitrations, investigations or suits by, on behalf
of or against any Company Benefit Plan or their related trusts. The
Company has made available to Parent true and correct copies of all of
the Company Benefit Plans.
(ii) Neither the Company nor any entity (whether or not incorporated)
that was at any time during the six years before the date of this
Agreement treated as a single employer together with the Company under
section 414 of the Code has ever maintained, had any obligation to
contribute to or incurred any liability with respect to a pension plan
that is or was subject to the provisions of Title IV of ERISA or section
412 of the Code. Neither the Company nor any entity (whether or not
incorporated) that was at any time during the six years before the date
of this Agreement treated as a single employer together with the Company
under section 414 of the Code has ever maintained, had an obligation to
contribute to, or incurred any liability with respect to a multiemployer
pension plan as defined in section 3(37) of ERISA. During the last six
years, the Company has not maintained, had an obligation to contribute
to or incurred any liability with respect to a voluntary employees
beneficiary association that is or was intended to satisfy the
requirements of section 501(c)(9) of the Code. No plan, arrangement or
agreement will cause the Employer to have liability for severance pay as
a result of the Merger, except as otherwise set forth in the Amended and
Restated Executive Compensation and Severance Agreements between the
Company and each of the persons named in the Company Disclosure Document
and the Severance Plan described therein, covering employees who are not
parties to Amended and Restated Executive Compensation and Severance
Agreements (collectively the "Severance Agreements"). The Employer does
not provide employee benefits, including without limitation, death,
post-retirement medical or health coverage (whether or not insured) or
contribute to or maintain any employee benefit plan which provides for
benefit coverage following termination of employment except (A) as is
required by section 4980B(f) of the Code or other applicable statute,
(B) death benefits or retirement benefits under any employee pension
benefit plan as defined in section 3(2) of ERISA, (C) benefits the full
cost of which is borne by the current or former employee (or his
beneficiary), nor has it made any representations, agreements, covenants
or commitments to provide that coverage, or (D) deferred compensation
benefits which have been accrued as liabilities on the books of the
Employer and disclosed on its financial statements included in the SEC
Documents. All group health plans maintained by the Employer have been
operated in material compliance with section 4980B(f) of the Code.
(iii) All Company Benefit Plans that are intended to qualify under
section 401(a) of the Code have been submitted to and approved as
qualifying under section 401(a) of the Code by the Internal Revenue
Service ("IRS") or the applicable remedial amendment period will not
have ended prior to the Effective Time of the Merger.
(iv) Except as expressly provided in this Agreement or the Severance
Agreements and except pursuant to certain options under the Company's
Employee Stock Option Plan as described in section 3.1(c), the
transactions contemplated by this Agreement will not accelerate the time
of payment or vesting, or increase the amount, of compensation or
benefits due any director, officer or employee or former director,
officer or employee (including any beneficiary) of the Employer.
(v) With respect to any entity (whether or not incorporated) that is
both treated as a single employer together with the Company under
section 414 of the Code and located outside of the
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United States, any benefit plans maintained by it for the benefit of its
directors, officers, employees or former employees (or any of their
beneficiaries) are in compliance with applicable laws pertaining to such
plans in the jurisdiction of such entity, except where such failure to
be in compliance would not, either individually or in the aggregate,
have, or be reasonably likely to have, a material adverse effect on the
Company.
(l) Taxes. (i) Each of the Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of
which the Company or any of its subsidiaries is or has been a member, has
timely filed (taking into account any extensions) all Tax Returns required
to be filed by it on or before the Effective Time of the Merger and has
timely paid or deposited (or the Company has paid or deposited on its
behalf) all Taxes and estimated Taxes which are required to be paid or
deposited before the Effective Time of the Merger. Each of the Tax Returns
filed by the Company or any of its subsidiaries is accurate and complete in
all material respects. The Company has delivered or made available to
Parent accurate and complete copies of all Tax Returns of the Company and
its subsidiaries that have been requested by Parent. The Company shall give
Parent an opportunity to review and comment upon any Tax Returns of the
Company and its subsidiaries to be filed after the date of this Agreement.
No extension or waiver of the limitation period applicable to any of the
Tax Returns of the Company or its subsidiaries has been granted, and no
such extension or waiver has been requested from any of the Company or its
subsidiaries. The most recent consolidated financial statements of the
Company contained in the filed SEC Documents reflect an adequate reserve
for all Taxes payable by the Company and its subsidiaries for all taxable
periods and portions thereof through the date of such financial statements;
(ii) No material deficiencies for any Taxes have been proposed,
asserted or assessed against the Company or any of its subsidiaries, no
requests for waivers of the time to assess any such Taxes have been
granted or are pending, and there are no tax liens upon any assets of
the Company or any of its subsidiaries (except for liens for ad valorem
Taxes not yet delinquent and other Taxes not yet due and payable) and no
claim has been made by any authority in a jurisdiction where any of the
Company and its subsidiaries does not file Tax Returns that it is or may
be subject to taxation in that jurisdiction. There are no current
examinations of any Tax Return of the Company or any of its subsidiaries
being conducted and there are no settlements of any prior examinations
which could reasonably be expected to materially adversely affect any
taxable period for which the statute of limitations has not run.
(iii) None of the Company or its subsidiaries is, or has been, a
party to or bound by any tax indemnity agreement, tax sharing agreement,
tax allocation agreement or similar contract.
(iv) For federal income Tax purposes, the net operating losses of the
Company and its subsidiaries as reflected on the federal income Tax
Returns of the Company and its subsidiaries (the "Company NOLs") exceed
the gain the Company and the subsidiaries will recognize as a result of
the Internal Restructuring, the Merger, and any other transactions
contemplated by this Agreement. The Company NOLs are not subject to any
limitations (e.g., under Section 382 of the Code, Section 384 of the
Code, or the consolidated return regulations).
(v) The limited liability company subsidiaries of the Company
resulting from the Internal Restructuring are, or will be at the
Effective Time of the Merger, treated as disregarded entities for
federal income Tax purposes and the assets of such subsidiaries are, or
will be at the Effective Time of the Merger, treated as owned directly
by the Company for federal income Tax purposes.
(vi) At the Effective Time of the Merger, no subsidiary of the
Company will be treated as a partnership for federal income Tax
purposes.
(vii) No person is required to withhold any amounts pursuant to
Section 1445 of the Code from any payments of Merger Consideration made
to holders of Shares pursuant to the Merger. The Company has delivered
or made available to Parent accurate and complete copies of all audit
reports and similar documents relating to Tax Returns of the Company and
its subsidiaries;
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(viii) As used herein, "Tax" or "Taxes" shall mean all taxes of any
kind, including, without limitation, those on or measured by or referred
to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, estimated, excise,
severance, stamp, occupation, premium, value added, property or windfall
profits taxes, customs, duties or similar fees, assessments or charges
of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any Governmental
Entity, domestic or foreign. As used herein, "Tax Return" shall mean any
return, report, statement or information required to be filed with any
Governmental Entity with respect to Taxes.
(m) No Excess Parachute Payments. Any amount that could be received
(whether in cash or property or the vesting of property) as a result of any
of the transactions contemplated by this Agreement by any employee, officer
or director of the Company or any of its affiliates who is a "disqualified
individual" (as such term is defined by the IRS in proposed Treasury
Regulation section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Company Benefit Plan currently
in effect would not be characterized as an "excess parachute payment" (as
such term is defined in section 280G(b)(1) of the Code).
(n) Environmental Matters. Except as would not have, or be reasonably
likely to have, a material adverse effect on the Company, (i) the business
operations of the Company and its subsidiaries are being conducted, and to
the Company's knowledge have at all times been conducted, in compliance
with all limitations, restrictions, standards and requirements established
under environmental laws, (ii) no facts or circumstances exist that impose
on the Company or any of its subsidiaries an obligation under environmental
laws to conduct any removal, remediation, or similar response action, or
that would form the basis of any claim, action, lawsuit, proceeding or
investigation against, or any liability of, the Company or any of its
subsidiaries under any environmental law, (iii) there is no obligation,
undertaking or liability arising out of or relating to environmental laws
that the Company or any of its subsidiaries has agreed to, assumed or
retained, by contract or otherwise, or that has been imposed on the Company
or any of its subsidiaries by any writ, injunction, decree, order or
judgment, (iv) neither the Company nor any of its subsidiaries has received
any written request for information, or been notified that it is a
potentially responsible party, under CERCLA or any similar state law, and
(v) there are no lawsuits, claims, actions, investigations or proceedings
pending or, to the knowledge of the Company, threatened against the Company
or any of its subsidiaries that arise out of or relate to environmental
laws.
(o) Compliance with Laws. The Company and its subsidiaries hold all
required, necessary or applicable permits, licenses, variances, exemptions,
orders, franchises and approvals of all Governmental Entities, except where
the failure to so hold would not have, or be reasonably likely to have, a
material adverse effect on the Company (the "Company Permits"). The Company
and its subsidiaries are in compliance with the terms of the Company
Permits except where the failure to so comply would not have, or be
reasonably likely to have, a material adverse effect on the Company.
Neither the Company nor any of its subsidiaries has violated or failed to
comply with any statute, law, ordinance, regulation, rule, permit or order
of any Federal, state or local government, domestic or foreign, or any
Governmental Entity, any arbitration award or any judgment, decree or order
of any court or other Governmental Entity, applicable to the Company or any
of its subsidiaries or their respective business, assets or operations,
except for violations and failures to comply that have not had,
individually or in the aggregate, or could not individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
Company.
(p) Material Contracts and Agreements. All material contracts of the
Company or its subsidiaries have been included in the SEC Documents, except
for those contracts not required to be filed pursuant to the rules and
regulations of the SEC. Set forth on Section 3.1(p) of the Company
Disclosure Document is a complete and accurate listing of all hedging and
forward sale arrangements (i) to which the Company or any of its
subsidiaries is party or (ii) by which any of the Company's or any of its
subsidiaries' assets are bound.
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(q) Title to Properties.
(i) Each of the Company and each of its subsidiaries has good and
defensible title to, or valid leasehold interests in, all its material
assets and properties purported to be owned by it in the SEC Documents,
except for such assets and properties as are no longer used or useful in
the conduct of its businesses or as have been disposed of in the
ordinary course of business and except for defects in title, easements,
restrictive covenants and similar encumbrances or impediments that, in
the aggregate, do not and will not materially interfere with its ability
to conduct its business as currently conducted or as reasonably expected
to be conducted. All such assets and properties, other than assets and
properties in which the Company or any of the subsidiaries has leasehold
interests, are free and clear of all Liens, other than those set forth
in the SEC Documents and except for Liens, that, in the aggregate, do
not and will not materially interfere with the ability of the Company or
any of its subsidiaries to conduct business as currently conducted or as
reasonably expected to be conducted.
(ii) Except as would not have, or be reasonably likely to have, a
material adverse effect on the Company, each of the Company and each of
its subsidiaries has complied in all material respects with the terms of
all leases to which it is a party and under which it is in occupancy,
and all such leases are in full force and effect. Each of the Company
and each of its subsidiaries enjoys peaceful and undisturbed possession
under all such leases.
(r) Intellectual Property. The Company and its subsidiaries own, or are
licensed or otherwise have the right to use, all patents, patent rights,
trademarks, trademark rights, trade names, trade name rights, service
marks, service mark rights, copyrights, technology, know-how, processes and
other proprietary intellectual property rights and computer programs which
are material to the condition (financial or otherwise) or conduct of the
business and operations of the Company and its subsidiaries taken as a
whole. To the Company's knowledge, (i) the use of such patents, patent
rights, trademarks, trademark rights, service marks, service mark rights,
trade names, copyrights, technology, know-how, processes and other
proprietary intellectual property rights and computer programs by the
Company and its subsidiaries does not infringe on the rights of any person,
subject to such claims and infringements as do not, in the aggregate, give
rise to any liability on the part of the Company and its subsidiaries which
has had or could have a material adverse effect on the Company, and (ii) no
person is, in any manner that has had or could have a material adverse
effect on the Company, infringing on any right of the Company or any of its
subsidiaries with respect to any such patents, patent rights, trademarks,
trademark rights, service marks, service mark rights, trade names,
copyrights, technology, know-how, processes and other proprietary
intellectual property rights and computer programs. No claims are pending
or, to the Company's knowledge, threatened that the Company or any of its
subsidiaries is infringing or otherwise adversely affecting the rights of
any person with regard to any patent, license, trademark, trade name,
service mark, copyright or other intellectual property right.
(s) Labor Matters. There are no collective bargaining agreements or
other labor union agreements or understandings to which the Company or any
of its U.S. subsidiaries is a party or by which any of them is bound, nor
is it or any of its subsidiaries the subject of any proceeding asserting
that it or any subsidiary has committed an unfair labor practice or seeking
to compel it to bargain with any labor organization as to wages or
conditions. To the Company's knowledge, during the five-year period ending
on the date of this Agreement, neither the Company nor any of its
subsidiaries has encountered any labor union organizing activity, or had
any actual or threatened employee strikes, work stoppages, slowdowns or
lockouts.
(t) Undisclosed Liabilities. Except as set forth in the SEC Documents,
at the date of the most recent audited financial statements of the Company
included in the SEC Documents, neither the Company nor any of its
subsidiaries had, and since such date neither the Company nor any of such
subsidiaries has incurred (except in the ordinary course of business), any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise), which, individually or in the aggregate, have had
or could reasonably be expected to have a material adverse effect on the
Company.
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(u) Pipeline Imbalances. There are no physical natural gas cumulative
imbalances with respect to the Company's or any of its subsidiaries'
properties.
(v) Year 2000. The systems operated or used by the Company or any of its
Subsidiaries are capable of providing uninterrupted millennium
functionality on or after January 1, 2000 to share, record, process and
present data in substantially the same manner and with the same
functionality as such systems share, record, process and present such data
on or before December 31, 1999, except, in the aggregate, as would not
have, or be reasonably likely to have, a material adverse effect on the
Company.
(w) Opinion of Financial Advisor. The Company's financial advisor,
Goldman, Sachs & Co. (the "Company Financial Advisor"), has delivered to
the Board of Directors of the Company an oral opinion, to be confirmed in
writing (the "Fairness Opinion") to the effect that, as of the date of this
Agreement, the consideration to be received by the holders of Shares in the
Merger is fair to such holders from a financial point of view. Subject to
the prior review by the Company Financial Advisor, the Fairness Opinion
shall be included in the Proxy Statement.
(x) Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has by unanimous vote (i) determined that
this Agreement and the transactions contemplated hereby, including the
Merger and the transactions contemplated thereby, are fair to and in the
best interests of the stockholders of the Company, and (ii) resolved to
recommend to the holders of the Shares that they approve the Merger and the
transactions contemplated thereby.
SECTION 3.2. Representations and Warranties of Parent and Sub. Parent and
Sub represent and warrant to, and agree with, the Company as follows:
(a) Organization; Standing and Power. Parent and Sub are corporations
duly organized, validly existing and in good standing under laws of their
states of incorporation and have the requisite corporate power and
authority to carry on their business as now being conducted. Parent and Sub
are duly qualified to do business and in good standing in each jurisdiction
in which the nature of their business or the ownership or leasing of their
properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified to do business
(individually or in the aggregate) would not have, or be reasonably likely
to have, a material adverse effect on Parent.
(b) Authority; Non-contravention. Parent and Sub have the requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Parent and Sub and the consummation by Parent and Sub
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Parent and Sub. This Agreement
has been duly executed and delivered by Parent and Sub and constitutes a
valid and binding obligation of Parent and Sub, enforceable against Parent
and Sub in accordance with its terms, except that (i) such enforcement may
be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws or judicial decisions now or hereafter in effect relating to
creditors' rights generally and (ii) the remedy of specific performance and
injunctive relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought. The execution and delivery of this Agreement by Parent and Sub do
not, and the consummation of the transactions contemplated hereby and
compliance with the provisions hereof will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of or "put" right with respect to any obligation or to loss of
a material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
Parent or Sub or any of their subsidiaries under, any provision of (i) the
Certificate of Incorporation or By-laws of Sub or of Parent or any
comparable organizational documents of their subsidiaries, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable
to Parent or Sub or any of their subsidiaries or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation or arbitration award applicable
to Parent or Sub or any of their subsidiaries or their respective
properties or assets, other than,
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in the case of clause (ii), any such conflicts, violations or defaults that
individually or in the aggregate would not materially impair the ability of
Parent and Sub to perform their respective obligations hereunder or prevent
the consummation of any of the transactions contemplated hereby. No
consent, approval, order or authorization of, or registration, declaration
or filing with, any Governmental Entity is required by or with respect to
Parent or Sub or any of their subsidiaries in connection with the execution
and delivery of this Agreement by Parent and Sub or the consummation by
Parent and Sub of the transactions contemplated hereby, except for (i) the
filing by Parent of a premerger notification and report form under the HSR
Act, (ii) the filing with the SEC of such reports under Sections 13 of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby and (iii) filings in Delaware by Sub in
connection with the Merger.
(c) Information Supplied. None of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in the Proxy
Statement will at the date the Proxy Statement is first mailed to the
Company's stockholders and at the time of the Company's stockholder meeting
at which Company Stockholder Approval is sought, 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 are made, not misleading.
(d) Brokers. Except for Donaldson, Lufkin & Jenrette Securities
Corporation, whose fees are to be paid by Parent, no broker, investment
banker or other person, is entitled to any broker's, finder's or other
similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of Parent or
Sub, including any fee for any opinion rendered by any investment banker.
(e) Litigation. There is no suit, action, proceeding or investigation
pending or, to the knowledge of Parent, threatened against or affecting
Parent or any of its subsidiaries that could reasonably be expected to
prevent, hinder or materially delay the ability of Parent to consummate the
transactions contemplated by this Agreement, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Parent or any of its subsidiaries having, or which,
insofar as reasonably can be foreseen, in the future could have, any such
effect.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business of the Company.
(a) Ordinary Course. During the period from the date of this Agreement
to the Effective Time of the Merger (except as otherwise specifically
contemplated by the terms of this Agreement), the Company shall and shall
cause its subsidiaries to carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
conducted at the date hereof (including the on-going expansion project at
the Company's Mississippi gas storage operations (the "Gas Storage
Expansion Project"), which is being undertaken in the ordinary course of
business) and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations, keep
available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
distributors and others having business dealings with them, in each case
consistent with past practice, to the end that their goodwill and ongoing
businesses shall be unimpaired to the fullest extent possible at the
Effective Time of the Merger. Without limiting the generality of the
foregoing, and except as otherwise expressly contemplated by this
Agreement, the Company shall not, and shall not permit any of its
subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than
dividends and distributions by any direct or indirect wholly-owned
subsidiary of the Company to the Company or a wholly-owned subsidiary of
the Company, (B) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or (C)
other than in
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connection with the Senior Preferred Stock Redemption, purchase, redeem
or otherwise acquire any shares of capital stock of the Company or any
of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities (other than, in
the case of the Company, the issuance of Shares upon the exercise of
options or conversion of Senior Preferred Stock outstanding on the date
of this Agreement (as identified and described in Section 3.1(c)) in
accordance with their current terms);
(iii) amend the Company Charter, By-laws or other comparable charter
or organizational document;
(iv) acquire or agree to acquire (A) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of,
or by any other manner, any business or any corporation, partnership,
association, joint venture, limited liability company or other entity or
division thereof or (B) any assets that would be material, individually
or in the aggregate, to the Company and its subsidiaries taken as a
whole, except purchases of supplies and inventory in the ordinary course
of business consistent with past practice;
(v) sell, lease, mortgage, pledge, grant a Lien on or otherwise
encumber or dispose of any of its properties or assets, except (A) sales
of inventory in the ordinary course of business consistent with past
practice, (B) other transactions involving not in excess of $500,000 in
the aggregate and (C) the creation of Liens in connection with working
capital borrowings under revolving credit facilities incurred in
accordance with Section 4.1(a)(vi);
(vi) (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities
or warrants or other rights to acquire any debt securities of the
Company or any of its subsidiaries, guarantee any debt securities of
another person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another person or enter
into any arrangement with respect to any of the foregoing, except for
working capital borrowings under revolving credit facilities that are
(1) incurred in the ordinary course of business, (2) on terms customary
for facilities of this type and (3) prepayable without premium or
penalty; provided the Company notifies Parent of the entering into of
any such facilities and of any drawdowns made thereunder; or (B) make
any loans, advances or capital contributions to, or investments in, any
other person, other than to the Company or any direct or indirect wholly
owned subsidiary of the Company;
(vii) make or incur any new capital expenditure not included in the
Company's approved capital expenditure budget for 1999 set forth as on
Section 4.1(a)(vii) of the Company Disclosure Document or not in
conjunction with the Gas Storage Expansion Project as contemplated by
Section 4.1(a)(vii) of the Company Disclosure Document with respect to
1999, which, singly or in the aggregate with all other expenditures,
would exceed $500,000 or enter into any material agreements or
commitments with respect to capital expenditures without the prior
written consent of Parent (which consent shall not be unreasonably
withheld);
(viii) make any material election relating to Taxes or settle or
compromise any material Tax liability;
(ix) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice or in accordance with
their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or
the notes thereto) of the Company included in the SEC Documents or
incurred in the ordinary course of business consistent with past
practice;
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(x) release any party from or waive the benefits of, or agree to
modify in any manner, any confidentiality, standstill or similar
agreement to which the Company or any of its subsidiaries is a party;
(xi) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or
reorganization;
(xii) enter into any new collective bargaining agreement;
(xiii) change any material accounting principle used by it, except as
required by regulations promulgated by the SEC or the Financial
Accounting Standards Board;
(xiv) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or
compromises in consultation and cooperation with Parent, and, with
respect to any such settlement, with the prior written consent of
Parent, such consent not to be unreasonably withheld;
(xv) enter into any forward sale or hedging arrangements with respect
to natural gas transportation or storage or any other products; or
(xvi) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Changes in Employment Arrangements. Neither the Company nor any of
its subsidiaries shall adopt or amend (except as may be required by law)
any bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan,
agreement, trust, fund or other arrangement (including any Company Benefit
Plan) for the benefit of any employee, director or former director or
employee, increase the compensation or benefits of any officer of the
Company or any of its subsidiaries, or, except as provided in an existing
Company Benefit Plan or in the ordinary course of business consistent with
past practice, increase the compensation or benefits of any employee or
former employee or pay any benefit not required by any existing plan,
arrangement or agreement.
(c) Severance. Neither the Company nor any of its subsidiaries shall
grant any new or modified severance or termination arrangement or increase
or, except as required under the existing terms of a Company Benefit Plan,
accelerate any benefits payable under its severance or termination pay
policies in effect on the date hereof.
(d) Other Actions. The Company shall not, and shall not permit any of
its subsidiaries to, take any action that would, or that could reasonably
be expected to, result in any of the representations and warranties of the
Company set forth in this Agreement becoming untrue.
(e) Internal Restructuring and Hattiesburg Owner Trust
Matters. Notwithstanding any provision of this Section 4.1 to the contrary,
the Company shall be permitted to take the actions necessary to achieve the
internal restructuring of its subsidiaries, to the extent described in
Exhibit A hereto (the "Internal Restructuring"), so that immediately prior
to the Effective Time of the Merger each and every subsidiary of the
Company, other than any subsidiary which is at present a general
partnership or limited liability company, shall have been converted into,
or otherwise become by merger or otherwise (collectively "conversion"), a
new single member limited liability company organized under the Delaware
Limited Liability Company Act. Further, if requested by Parent, the Company
shall use its reasonable efforts to own or acquire ownership of, or cause a
subsidiary to own or acquire ownership of, all Investor Certificates issued
under the Hattiesburg Owner Trust Agreement. If Parent makes such request,
Sub shall timely advance to the Company any funds necessary to effectuate
the acquisition of all Investor Certificates issued under the Hattiesburg
Owner Trust not owned by the Company or any subsidiary as of the date
hereof, which advance shall be evidenced by an unsecured promissory note of
the Company, in a form reasonably acceptable to the Company and Sub, which
shall be payable by the Company to Sub on the date six months from the date
of such advance and which shall bear simple interest at 8 1/2% per annum,
payable in arrears. The Company shall, upon the occasion of it and its
subsidiaries owning all
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such Investor Certificates, take all reasonable efforts to terminate the
trust created by the Hattiesburg Owner Trust Agreement and the other
agreements benefitting such trust, including that certain Collateral
Sharing and Security Agreement dated November 21, 1995, that certain
Guarantee dated November 21, 1995 and that certain Sales and Servicing
Agreement dated November 21, 1995, as amended by the First Amendment
thereto dated January 31, 1996.
(f) Base Gas. Subject to changes in fuel gas and gas used to settle
operational balancing accounts, the Company will maintain its current base
gas levels at its gas storage facilities, which levels the Company believes
are adequate to meet current contractual needs and to avoid damage to the
storage facilities.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Stockholder Approval; Preparation of Proxy Statement.
(a) The Company will, as soon as practicable following the execution of
this Agreement, duly call, give notice of, convene and hold a meeting of
its stockholders for the purpose of approving and adopting this Agreement
and approving related matters. The Company will, through its Board of
Directors, recommend to its stockholders approval and adoption of this
Agreement, except to the extent that the Board of Directors of the Company
shall have withdrawn its approval or recommendation of this Agreement or
the Merger solely to the extent permitted by Section 8.2(b).
(b) The Company will, as soon as practicable following the execution of
this Agreement, prepare and file a preliminary Proxy Statement with the SEC
and will use its best efforts to respond to any comments of the SEC or its
staff and to cause the Proxy Statement to be mailed to the Company's
stockholders. The Company will notify Parent promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its
staff for amendments or supplements to the Proxy Statement or for
additional information and will supply Parent with copies of all
correspondence between the Company or any of its representatives, on the
one hand, and the SEC or its staff, on the other hand, with respect to the
Proxy Statement or the Merger. If at any time prior to the approval of this
Agreement by the Company's stockholders there shall occur any event that
should be set forth in an amendment or supplement to the Proxy Statement,
the Company will promptly prepare and mail to its stockholders such an
amendment or supplement. The Company will not mail any Proxy Statement, or
any amendment or supplement thereto, to which Parent reasonably and timely
objects.
(c) The Company shall cooperate with Parent with respect to setting a
record date for any necessary vote of stockholders regarding the Merger and
will set such date as and when requested by Parent.
SECTION 5.2. Access to Information.
(a) During the period from the date hereof to the Effective Time of the
Merger, except to the extent otherwise required by United States regulatory
considerations:
(i) The Company shall, and shall cause each of its subsidiaries,
officers, employees, counsel, financial advisors and other
representatives to, afford to Parent, and to Parent's accountants,
counsel, financial advisors and other representatives, reasonable access
to the Company's and its subsidiaries' respective properties, books,
contracts, commitments and records and, during such period, the Company
shall, and shall cause each of its subsidiaries, officers, employees,
counsel, financial advisors and other representatives to, furnish
promptly to Parent,
(A) a copy of each report, schedule, registration statement and
other document filed by the Company during such period pursuant to
the requirements of Federal or state securities laws and
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(B) all other information concerning its business, properties,
financial condition, operations and personnel as Parent may from time
to time reasonably request so as to afford Parent a reasonable
opportunity to make at its sole cost and expense such review,
examination and investigation of the Company and its subsidiaries as
Parent may reasonably desire to make. The Company agrees to advise
Parent of all material developments with respect to the Company, its
subsidiaries and their respective assets and liabilities.
(ii) The Company agrees to request KPMG LLP to permit
PricewaterhouseCoopers LLP to review and examine the work papers of KPMG
LLP with respect to the Company and its subsidiaries, and the officers
of the Company will furnish to Parent such financial and operating data
and other information with respect to the business and properties of the
Company and its subsidiaries as Parent shall from time to time
reasonably request.
(iii) The Company shall promptly notify Parent of any notices from or
investigations by Governmental Entities that could materially affect the
Company's business or assets or the consummation of the Merger. Parent
will promptly notify the Company of any notices from or investigations
by Governmental Entities that could materially affect Parent's
consummation of the Merger.
(b) Except as required by law and without limiting in any way the
continued efficacy of the Confidentiality and Standstill Agreement referred
to in Section 8.1, each of the Company and Parent shall, and shall cause
its respective directors, officers, employees, accountants, counsel,
financial advisors and representatives and affiliates to, (i) hold in
confidence, unless compelled to disclose by judicial or administrative
process, or, in the opinion of its counsel, by other requirements of law,
all nonpublic information concerning the other party furnished in
connection with the transactions contemplated by this Agreement until such
time as such information becomes publicly available (otherwise than through
the wrongful act of such person), (ii) not release or disclose such
information to any other person, except in connection with this Agreement
to its auditors, attorneys, financial advisors, other consultants and
advisors, and (iii) not use such information for any competitive or other
purpose other than with respect to its consideration and evaluation of the
transactions contemplated by this Agreement. Any investigation by any party
of the assets and business of the other party and its subsidiaries shall
not affect any representations and warranties hereunder or either party's
right to terminate this Agreement as provided in Article VII.
(c) In the event of the termination of this Agreement, each party
promptly will deliver to the other party (and destroy all electronic data
reflecting the same) all documents, work papers and other material (and any
reproductions or extracts thereof and any notes or summaries thereto)
obtained by such party or on its behalf from such other party or its
subsidiaries as a result of this Agreement or in connection therewith so
obtained before or after the execution hereof.
SECTION 5.3. Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, except to the extent otherwise required by United States
regulatory considerations and otherwise provided in this Section 5.3, each
of the parties agrees to use reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger, and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and
the making of all necessary registrations and filings (including filings
with Governmental Entities, if any) and the taking of all reasonable steps
as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental
Entity vacated or reversed and (iv) the execution and delivery of any
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additional instruments necessary to consummate the transactions
contemplated by this Agreement. In connection with and without limiting the
foregoing, each of the Company and Parent and its respective Board of
Directors shall (i) take all action necessary to ensure that no state
takeover statute or similar statute or regulation is or becomes applicable
to the Merger, (ii) if any state takeover statute or similar statute or
regulation becomes applicable to the Merger, take all action necessary to
ensure that the Merger may be consummated as promptly as practicable on the
terms contemplated by this Agreement and otherwise to minimize the effect
of such statute or regulation on the Merger and (iii) cooperate with each
other in the arrangements for refinancing any indebtedness of, or obtaining
any necessary new financing for, the Company and the Surviving Corporation.
(b) The Company shall give prompt notice to Parent, and Parent or Sub
shall give prompt notice to the Company, of (i) any representation or
warranty made by it contained in this Agreement becoming untrue or
inaccurate in any respect or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however,
that no such notification shall affect the representations or warranties or
covenants or agreements of the parties or the conditions to the obligations
of the parties hereunder.
(c) (i) Each of the parties hereto (and, in the case of the Company, its
ultimate controlling person, as necessary) shall file a premerger
notification and report form under the HSR Act with respect to the Merger
as promptly as reasonably possible following execution and delivery of this
Agreement. Each of the parties (and, in the case of the Company, its
ultimate controlling person, as necessary) agrees to use reasonable efforts
to promptly respond to any request for additional information pursuant to
Section (e)(1) of the HSR Act.
(ii) Except as otherwise required by United States regulatory
considerations, the Company will furnish to Fried, Frank, Harris,
Shriver & Jacobson, counsel to Parent and Sub, copies of all
correspondence, filings or communications (or memoranda setting forth
the substance thereof (collectively, "Company HSR Documents")) between
the Company, or any of its respective representatives, on the one hand,
and any Governmental Entity, or members of the staff of such agency or
authority, on the other hand, with respect to this Agreement or the
Merger; provided, however, that (x) with respect to documents and other
materials filed by or on behalf of the Company with the Antitrust
Division of the Department of Justice, the Federal Trade Commission, or
any state attorneys general that are available for review by Parent and
Sub, copies will not be required to be provided to Fried, Frank, Harris,
Shriver & Jacobson and (y) with respect to any Company HSR Documents (1)
that contain any information which, in the reasonable judgment of
Fulbright & Jaworski L.L.P., should not be furnished to Parent or Sub
because of antitrust considerations or (2) relating to a request for
additional information pursuant to Section (e)(1) of the HSR Act, the
obligation of the Company to furnish any such Company HSR Documents to
Fried, Frank, Harris, Shriver & Jacobson shall be satisfied by the
delivery of such Company HSR Documents on a confidential basis to Fried,
Frank, Harris, Shriver & Jacobson pursuant to a confidentiality
agreement in form and substance reasonably satisfactory to Parent.
Except as otherwise required by United States regulatory considerations,
Parent and Sub will furnish to Fulbright & Jaworski L.L.P., counsel to
the Company, copies of all correspondence, filings or communications (or
memoranda setting forth the substance thereof (collectively, "Parent HSR
Documents")) between Parent, Sub or any of their respective
representatives, on the one hand, and any Governmental Entity, or member
of the staff of such agency or authority, on the other hand, with
respect to this Agreement or the Merger; provided, however, that (x)
with respect to documents and other materials filed by or on behalf of
Parent or Sub with the Antitrust Division of the Department of Justice,
the Federal Trade Commission, or any state attorneys general that are
available for review by the Company, copies will not be required to be
provided to Fulbright & Jaworski L.L.P. and (y) with respect to any
Parent HSR Documents (1) that contain information which, in the
reasonable judgment of Fried, Frank, Harris, Shriver & Jacobson, should
not be furnished to the Company because of antitrust considerations or
(2) relating to a request for additional information pursuant to Section
(e)(1) of the HSR Act, the obligation of Parent and Sub
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to furnish any such Parent HSR Documents to Fulbright & Jaworski L.L.P.
shall be satisfied by the delivery of such Parent HSR Documents on a
confidential basis to Fulbright & Jaworski L.L.P. pursuant to a
confidentiality agreement in form and substance reasonably satisfactory
to the Company.
(iii) At the election of Parent, the Company and Parent shall use
reasonable efforts to defend all litigation under the Federal or state
antitrust laws of the United States which if adversely determined would,
in the reasonable opinion of Parent (based on the advice of outside
counsel), be likely to result in the failure of the condition set forth
in Section 6.1(c) not being satisfied, and to appeal any order, judgment
or decree, which if not reversed, would result in the failure of such
condition. Notwithstanding the foregoing, nothing contained in this
Agreement shall be construed so as to require Parent, Sub or the
Company, or any of their respective subsidiaries or affiliates, to sell,
license, dispose of, or hold separate, or to operate in any specified
manner, any assets or businesses of Parent, Sub, the Company or the
Surviving Corporation (or to require Parent, Sub, the Company or any of
their respective subsidiaries or affiliates to agree to any of the
foregoing). The obligations of each party under Section 5.3(a) to use
reasonable efforts with respect to antitrust matters shall be limited to
compliance with the reporting provisions of the HSR Act and with its
obligations under this Section 5.3(c).
SECTION 5.4. Employee Benefit Matters.
(a) Parent may cause any Company Benefit Plan, other than the Severance
Agreements, to be terminated or discontinued at or after the Effective Time
of the Merger, provided that, to the extent Parent or its affiliates
maintain a benefit plan of the same type for employees of Parent or any of
its affiliates ("Parent Benefit Plan"), Parent shall take all actions
necessary or appropriate to permit the Company employees participating in
such Company Benefit Plan to immediately thereafter participate in such
Parent Benefit Plan of the same type maintained by Parent or any of its
affiliates for their employees generally (a "Replacement Plan"); provided,
however, that if the Company Benefit Plan that is so terminated or
discontinued is a group health plan, then Parent shall permit each Company
employee participating in such group health plan and his or her eligible
dependents to be covered under a Replacement Plan under the terms and
conditions of the Replacement Plan as modified to the extent necessary to
(i) provide medical and dental benefits to each such Company employee and
such eligible dependents effective immediately upon the cessation of
coverage of such individuals under such group health plan, (ii) credit to
such Company employee, for the year during which such coverage under such
Replacement Plan begins, with any deductibles and copayments already
incurred during such year under such group health plan, and (iii) waive any
preexisting condition restrictions to the extent that the preexisting
condition restrictions were satisfied under such group health plan. Parent,
the Surviving Corporation, their affiliates, and the Parent Benefit Plans
(including, without limitation, the Replacement Plans) shall recognize each
Company employee's years of service and level of seniority with the Company
and its subsidiaries for purposes of terms of employment and eligibility,
vesting and benefit determination under the Parent Benefit Plans (other
than benefit accruals under any defined benefit pension plan). Nothing in
this Agreement shall be construed to require Parent to provide any
particular type or amount of benefits for any person under any Parent
Benefit Plan.
(b) At the Effective Time of the Merger, each outstanding option to
purchase Shares shall be canceled and the holder thereof shall be entitled
to receive at the Effective Time of the Merger from the Company in
consideration for such cancellation a cash payment of an amount equal to
(i) the excess, if any, of (A) the Merger Consideration over (B) the
exercise price per Share subject to such option, multiplied by (ii) the
number of Shares subject to such option. All amounts payable pursuant to
this Section 5.4(b) shall be subject to any required withholding of taxes.
Prior to the Effective Time of the Merger, the Board of Directors of the
Company will take any corporate action necessary with respect to
outstanding options to effectuate the provisions of this Section 5.4(b).
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SECTION 5.5. Indemnification.
(a) The Company shall, and from and after the Effective Time of the
Merger, Parent and the Surviving Corporation shall, indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the
date hereof or who becomes prior to the Effective Time of the Merger, an
officer or director of the Company or any of its Subsidiaries or an
employee of the Company or any of its Subsidiaries who acts as a fiduciary
under any Company Benefit Plans (but, with respect to such employees, only
to the extent (if any) indemnified by the Company as of the date hereof)
(the "Indemnified Parties") against all losses, claims, damages, costs,
expenses (including attorneys' fees), liabilities or judgments or amounts
that are paid in settlement with the approval of the indemnifying party
(which approval shall not be unreasonably withheld) of or in connection
with any threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part
out of the fact that such person is or was a director, officer or such
employee of the Company or any subsidiary whether pertaining to any matter
existing or occurring at or prior to the Effective Time of the Merger and
whether asserted or claimed prior to, or at or after, the Effective Time of
the Merger (including arising out of or relating to the Merger, the
consummation of the transactions contemplated herein, and any action taken
in connection therewith). Any Indemnified Party wishing to claim
indemnification under this Section 5.5, upon learning of any such claim,
action, suit, proceeding or investigation, shall promptly notify the
Company (or after the Effective Time of the Merger, Parent and the
Surviving Corporation), but the failure so to notify shall not relieve a
party from any liability that it may have under this Section 5.5, except to
the extent such failure materially prejudices such party. Parent or the
Surviving Corporation shall have the right to assume the defense thereof.
If Parent of the Surviving Corporation does not assume the defense, the
Indemnified Parties as a group may retain only one law firm to represent
them with respect to each such matter unless there is, under applicable
standards of professional conduct, a conflict between the positions of any
two or more Indemnified Parties. The Indemnified Party will cooperate in
the defense of any such matter. Parent shall not be liable for any
settlement effected without its prior written consent.
(b) Parent shall purchase and maintain in effect for the benefit of the
Indemnified Parties for a period of six years after the Effective Time of
the Merger, directors' and officers' liability insurance of at least the
same coverage and amounts containing terms and conditions that are no less
advantageous in any material respect to the Indemnified Parties than that
maintained by the Company and its Subsidiaries as of the date of this
Merger Agreement with respect to matters arising before the Effective Time
of the Merger, provided that Parent shall not be required to pay an annual
premium of such insurance in excess of three times the last annual premium
paid by the Company prior to the date hereof, but in such case shall
purchase as much coverage as possible for such amount.
(c) All rights to indemnification for acts or omissions occurring prior
to the Effective Time of the Merger now existing in favor of the
Indemnified Parties as provided in the charter documents or by-laws of the
Company or its subsidiaries and in any indemnification agreements to which
they are parties shall survive the Merger, and the Surviving Corporation
shall continue such indemnification rights for acts or omissions prior to
the Effective Time of the Merger in full force and effect in accordance
with their terms and Parent shall be financially responsible therefor.
(d) If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and
assets to any person, then and in each such case, proper provisions shall
be made, and Parent shall cause them to be so made, so that the successors
and assigns of the Surviving Corporation, which, in the reasonable good
faith opinion of the Surviving Corporation, shall be financially
responsible persons or entities, assume the obligations set forth in this
Section 5.5.
(e) The provisions of this Section 5.5 are intended to be for the
benefit of, and shall be enforceable by, the parties hereto and each
Indemnified Party, his heirs and representatives.
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SECTION 5.6. Fees and Expenses. Except as provided in Article VIII, all
fees and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees
or expenses, whether or not the Merger is consummated.
SECTION 5.7. Public Announcements. Parent and Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except
that each party may respond to questions from stockholders and Parent may
respond to inquiries from financial analysts and media representatives in a
manner consistent with its past practice and each party may make such disclosure
as may be required by applicable law or by obligations pursuant to any listing
agreement with any national securities exchange without prior consultation to
the extent such consultation is not reasonably practicable. The parties agree
that the initial press release or releases to be issued in connection with the
execution of this Agreement shall be mutually agreed upon prior to the issuance
thereof.
SECTION 5.8. Internal Restructuring. Parent, Sub and the Company will each
use their reasonable efforts to aid and permit the Company to achieve the
Internal Restructuring, and in such regards Parent and Sub specifically agree
that no representation, warranty, covenant or other agreement herein contained
shall be breached to the extent the Internal Restructuring results in the
acceleration of the payment of any indebtedness of the Company or any subsidiary
thereof listed on Section 5.8 of the Company Disclosure Document (whether on
account of the Internal Restructuring causing a default under any agreement or
instrument relating to such indebtedness or otherwise) and that Sub shall, as
the Surviving Corporation, be responsible for any such accelerated payment,
including any penalty, premium or "make-whole" payment associated therewith
listed on Section 5.8 of the Company Disclosure Document.
SECTION 5.9. Redemption of Senior Preferred Stock. Parent shall no later
than three business days prior to the date scheduled for the meeting to be held
in respect of the Company Stockholder Approval instruct the Company to take all
steps necessary to mail a notice of redemption of the Senior Preferred Stock at
such time as specified by Parent (including at any time not later than the date
one business day before the date scheduled for such meeting). When so instructed
by Parent, the Company shall take all steps necessary to mail such notice of
redemption in accordance with the Company Charter and to satisfy the provisions
of Louisiana Revised Statute 12:75 regarding the deposit of funds necessary so
that the Senior Preferred Stock shall no longer have any voting rights and shall
no longer be outstanding. When Parent so instructs, Sub shall timely advance to
the Company any funds necessary to effectuate such deposit, which advance shall
be evidenced by an unsecured promissory note of the Company, in a form
reasonably acceptable to the Company and Sub, which shall be payable by the
Company to Sub on the date six months from the date of such advance and which
shall bear simple interest at 8 1/2% per annum, payable quarterly in arrears.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction prior to the Effective Time of the Merger of the following
conditions:
(a) Stockholder Approval. Company Stockholder Approval shall have been
obtained upon a vote at a duly held meeting of stockholders of the Company
or at any adjournment thereof.
(b) Other Approvals. All authorizations, consents, orders or approvals
of, or declarations or filings with, or terminations or expirations of
waiting periods imposed by, any Governmental Entity necessary for the
consummation of the transactions contemplated by this Agreement shall have
been filed, shall have occurred or shall have been obtained.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or
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prohibition preventing the consummation of the Merger shall be in effect;
provided, however, that each of the parties shall have used reasonable
efforts, subject to the limitations set forth in Section 5.3 hereof, to
prevent the entry of any such injunction or other order and to appeal as
promptly as possible any injunction or other order that may be entered.
SECTION 6.2. Conditions to Obligations of Parent and Sub. The obligations
of Parent and Sub to effect the Merger are subject to the following conditions:
(a) that Company shall have performed in all material respects all
obligations to be performed by it under this Agreement prior to the
Effective Time of the Merger;
(b) each of the representations and warranties of the Company contained
in Section 3.1 and shall be true and correct in all material respects
(disregarding for these purposes any materiality qualifications contained
therein) when made and as of the Effective Time of the Merger as if made on
and as of such date (provided that such representations and warranties
which are by their express provisions made as of a specific date need be
true and correct only as of such specific date);
(c) the Company's case under Chapter 11 of the Bankruptcy Code shall
have been closed under Section 350 of the Bankruptcy Code in a manner
satisfactory to Parent.
(d) the Internal Restructuring shall have been completed, no later than
immediately prior to the Effective Time of the Merger, in accordance with
Exhibit A to the reasonable satisfaction of Parent and Sub.
SECTION 6.3. Condition to Obligations of the Company. The obligation of the
Company to effect the Merger is subject to the conditions that (a) Parent and
Sub shall have performed in all material respects all obligations to be
performed by them under this Agreement prior to the Effective Time of the
Merger, and (b) each of the representations and warranties of Parent and Sub
contained in Section 3.2 shall be true and correct in all material respects
(disregarding for these purposes any materiality qualifications contained
therein) when made and as of the Effective Time of the Merger as if made on and
as of such date (provided that such representations and warranties which are by
their express provisions made as of a specific date need be true and correct
only as of such specific date).
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time of the Merger, whether before or after approval of
matters presented in connection with the Merger by the stockholders of the
Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if Company Stockholder Approval shall not have been obtained upon
a vote at a duly held meeting of stockholders of the Company or at any
adjournment thereof;
(ii) if the Merger shall not have been consummated on or before March
31, 2000, unless the failure to consummate the Merger is the result of a
material breach of this Agreement by the party seeking to terminate this
Agreement; provided, however, that the passage of such period shall be
tolled for any part thereof during which any party shall be subject to a
nonfinal order, decree or ruling or action restraining, enjoining or
otherwise prohibiting the consummation of the Merger or the calling or
holding of a meeting of the stockholders of the Company called to
approve the Merger and the other matters contemplated hereby; or
(iii) if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have issued
an order, decree or ruling or shall have taken any other action
permanently enjoining, restraining or otherwise prohibiting the purchase
of Shares pursuant to
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the Merger and such order, decree, ruling or other action shall have
become final and nonappealable;
(c) by the Company or Parent in accordance with the provisions of
Section 8.2;
(d) by Parent, if the Company breaches any of its representations or
warranties herein or fails to perform in any material respect any of its
covenants, agreements or obligations under this Agreement which breach or
failure (x) would give rise to the failure of a condition set forth in
Section 6.2(a) or 6.2(b) and (y) cannot be or has not been cured within 30
days following receipt of written notice of such breach; or
(e) by the Company, if Parent or Sub breaches any of its representations
or warranties herein or fails to perform in any material respect any of its
covenants, agreements or obligations under this Agreement which breach or
failure (x) would give rise to the failure of a condition set forth in
Section 6.3(a) or 6.3(b) and (y) cannot be or has not been cured within 30
days following receipt of written notice of such breach.
SECTION 7.2. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.4 or an extension or waiver pursuant to Section
7.5 shall, in order to be effective, require in the case of Parent, Sub or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
SECTION 7.3. Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any further
liability or obligation on the part of Parent, Sub or the Company, or any
director, officer, employee or stockholder thereof, other than the
confidentiality provisions of Sections 5.2(b) and (c) and the provisions of
Sections 3.1(i), 3.2(d), 5.6, 7.3, 8.2, 8.3, the proviso of the last sentence of
Section 8.1 and Article IX.
SECTION 7.4. Amendment. This Agreement may be amended by the parties at any
time before or after Company Stockholder Approval is obtained; provided,
however, that after such Approval, there shall be made no amendment that by law
requires further approval by such stockholders without the further approval of
such stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
SECTION 7.5. Extension; Waiver. At any time prior to the Effective Time of
the Merger, the parties may, to the extent legally allowed, (a) extend the time
for the performance of any of the obligations or the other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of such rights.
ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS
SECTION 8.1. Takeover Defenses of the Company and Standstill
Agreements. The Company shall take such action with respect to any anti-takeover
provisions in its charter or afforded it by statute to the extent necessary to
consummate the Merger on the terms set forth in this Agreement. The Company
hereby waives the provisions of the letter agreements dated July 30, 1999, and
July 30, 1999, between the Company and Parent and the Company and El Paso Energy
Marketing Company, respectively (such letter agreements being herein referred to
collectively as the "Confidentiality and Standstill Agreements"), prohibiting
the purchase of Shares or acting to influence or control the Company, solely in
connection with the transactions contemplated hereby; provided, however, that
upon termination of this Agreement, such waiver shall no longer be effective.
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SECTION 8.2. No Solicitation.
(a) The Company shall not, nor shall it permit any of its subsidiaries
to, nor shall it authorize or permit any officer, director or employee of,
or any investment banker, attorney or other advisor, agent or
representative of, the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit or initiate the submission of any takeover
proposal, (ii) enter into any agreement (other than confidentiality and
standstill agreements in accordance with the immediately following proviso)
with respect to any takeover proposal, or (iii) participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any takeover proposal; provided, however, in the
case of this clause (iii), that to the extent required by the fiduciary
obligations of the Board of Directors of the Company, determined in good
faith by the members thereof based on the advice of outside counsel, the
Company may at any point prior to Company Stockholder Approval (the
"Applicable Period"), and subject to the Company's providing written notice
to Parent of its decision to take such action and compliance with Section
8.2(f), in response to an unsolicited request therefor received other than
in contravention of this Section 8.2(a), furnish information to any person
or "group" (within the meaning of Section 13(d)(3) of the Exchange Act)
pursuant to a confidentiality agreement on substantially the same terms as
provided in the Confidentiality and Standstill Agreements referred to in
Section 8.1 hereof and otherwise enter into discussions and negotiations
with such person or group as to any superior proposal such person or group
has made. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
officer, director or employee of the Company or any of its subsidiaries or
any investment banker, attorney or other advisor, agent or representative
of the Company, whether or not such person is purporting to act on behalf
of the Company or otherwise, shall be deemed to be a material breach of
this Agreement by the Company. For purposes of this Agreement, "takeover
proposal" means (i) any proposal, other than a proposal by Parent or any of
its affiliates, for a merger or other business combination involving the
Company, (ii) any proposal or offer, other than a proposal or offer by
Parent or any of its affiliates, to acquire from the Company or any of its
affiliates in any manner, directly or indirectly, an equity interest in the
Company or any subsidiary, any voting securities of the Company or any
subsidiary or a material amount of the assets of the Company and its
subsidiaries, taken as a whole, or (iii) any proposal or offer, other than
a proposal or offer by Parent or any of its affiliates, to acquire from the
stockholders of the Company by tender offer, exchange offer or otherwise
more than 20% of the outstanding Shares. Each of the transactions referred
to in clauses (i) -- (iii) of the foregoing definition of takeover
proposal, other than the transactions contemplated by this Agreement, is
referred to herein as an "Acquisition Transaction".
(b) Neither the Board of Directors of the Company nor any committee
thereof shall, except in connection with the termination of this Agreement
pursuant to Sections 7.1 (a), (b) or (e), (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Parent or Sub, the
approval or recommendation by the Board of Directors of the Company or any
such committee of this Agreement or the Merger or take any action having
such effect or (ii) approve or recommend, or propose to approve or
recommend, any takeover proposal. Notwithstanding the foregoing, in the
event the Board of Directors of the Company receives (other than in
contravention of Section 8.2(a)) a takeover proposal that, in the exercise
of its fiduciary obligations (as determined in good faith by a majority of
the disinterested members thereof based on the advice of outside counsel),
it determines to be a superior proposal, the Board of Directors may, during
the Applicable Period only, withdraw or modify its approval or
recommendation of this Agreement or the Merger and may, during the
Applicable Period only and subject to compliance with the provisions of
this sentence terminate this Agreement, in each case at any time after
midnight on the third business day following Parent's receipt of written
notice (a "Notice of Superior Proposal") advising Parent that the Board of
Directors has received a takeover proposal which it has determined to be a
superior proposal and that the Board of Directors of the Company has
resolved to accept the superior proposal (subject to such termination),
specifying the material terms and conditions of such superior proposal,
identifying the person or group making such superior proposal and providing
Parent with a copy of all written materials submitted with respect to such
superior proposal, but only if Parent does not make, within three business
days of receipt of the Notice of Superior Proposal,
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<PAGE> 78
a written offer that is at least as favorable, in the good faith reasonable
judgment of a majority of the members of the Board of Directors of the
Company (based on the advice of a financial advisor of nationally
recognized reputation), as the superior proposal. The Company (x) will not
enter into a binding agreement for a superior proposal referred to in the
previous sentence until at least the first calendar day following the third
business day after it has provided the written notice to Parent required
thereby, (y) will notify Parent promptly if its intention to enter into a
written agreement referred to in such notice shall change at any time after
giving such notification and (z) will not terminate this Agreement or enter
into a binding agreement for a superior proposal referred to in the
previous sentence if Parent has within the period referred to in clause (x)
of this sentence, made a written offer that is at least as favorable, in
the good faith reasonable judgment of a majority of the members of the
Board of Directors of the Company (based on the advice of a financial
advisor of nationally recognized reputation), as the superior proposal. Any
of the foregoing to the contrary notwithstanding, the Company may engage in
discussions with any person or group that has made an unsolicited takeover
proposal for the purpose of determining whether such proposal is a superior
proposal. Nothing contained herein shall prohibit the Company from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
under the Exchange Act.
(c) In the event that the Board of Directors of the Company or any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent or Sub the approval or recommendation
by the Board of Directors of the Company or any such committee of this
Agreement or the Merger or take any action having such effect, or (ii)
approve or recommend, or propose to approve or recommend, any takeover
proposal, or (iii) fail to reaffirm its approval or recommendation of this
Agreement and the Merger within two days after a request by Parent, Parent
may terminate this Agreement.
(d) For purposes of this Agreement, a "superior proposal" means any bona
fide takeover proposal to acquire, directly or indirectly, for
consideration consisting of cash, securities or a combination thereof, at
least a majority of the Shares then outstanding or at least 50% of the
assets of the Company and its subsidiaries taken as a whole, and (x)
otherwise on terms which a majority of the members of the Board of
Directors of the Company determines in its good faith reasonable judgment
(based on the written advice of a financial advisor of nationally
recognized reputation, a copy of which shall be provided to Parent) to be
more favorable to the Company's stockholders than the Merger and that
financing thereof is reasonably likely to be available, and (y) which such
Board of Directors, after considering such matters as such Board of
Directors deems relevant (including the written opinion of outside
counsel), determines in good faith that, in the case of the Company,
furnishing information to the third party, participating in discussions or
negotiations with respect to the superior proposal or withdrawing or
modifying its recommendation or recommending a superior proposal, as
applicable, or terminating this Agreement, is required for the Board of
Directors of the Company to comply with its fiduciary duties to the Company
and its stockholders under applicable law.
(e) For purposes of this Agreement, "Acquisition Agreement" means any
letter of intent, agreement in principle, acquisition agreement or similar
agreement (other than a confidentiality agreement in connection with a
superior proposal which is entered into by the Company in accordance with
Section 8.2(a)).
(f) The Company promptly shall advise Parent orally and in writing of
any takeover proposal or any inquiry with respect to or that could
reasonably be expected to lead to any takeover proposal, the identity of
the person making any such takeover proposal or inquiry and the material
terms of any such takeover proposal or inquiry. The Company shall provide
Parent with copies of all written materials received in connection with any
such takeover proposal and shall keep Parent fully informed of the status
and material terms of any such takeover proposal or inquiry.
(g) The Company shall each immediately cease and cause to be terminated
all existing discussions and negotiations, if any, with any other persons
conducted heretofore with respect to any takeover proposal.
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SECTION 8.3. Fee and Expense Reimbursements.
(a) The Company agrees to pay Parent a fee in immediately available
funds (in recognition of the fees and expenses incurred to date by Parent
in connection with the matters contemplated hereby) of $7,500,000 (i)
promptly upon the termination of the Agreement in the event this Agreement
is terminated by Parent or the Company as permitted by Section 8.2 or (ii)
if any Person shall have made a takeover proposal after the date hereof or
announced its intention to make a takeover proposal and thereafter this
Agreement is terminated by Parent or the Company pursuant to Section
7.1(b)(i) or 7.1(b)(ii), and within 18 months after the termination of this
Agreement any Acquisition Transaction involving the Company shall have been
consummated or an Acquisition Agreement with respect to an Acquisition
Transaction involving the Company shall have been entered into, then such
fee shall be paid upon the date the Acquisition Agreement is entered into,
or if no Acquisition Agreement is entered into, then upon the date the
Acquisition Transaction is consummated.
(b) In the event that (i) this Agreement is terminated by Parent or the
Company pursuant to Sections 7.1(b)(i) or (d) or (ii) if Parent is entitled
to a fee pursuant to Section 8.3(a), then in either case the Company shall
assume and pay, or reimburse Parent for, all reasonable and documented fees
and expenses incurred by Parent or Sub (including the reasonable and
documented fees and expenses of its counsel, accountants and financial
advisors) through the date of termination and which are specifically
related to the Merger, this Agreement and the matters contemplated by this
Agreement, but not to exceed $1,000,000 in the aggregate (or $500,000 in
the aggregate in the event a fee is paid pursuant to Section 8.3(a)),
promptly, but in no event later than five business days after submission of
a request for payment of the same.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants or agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective Time
of the Merger. This Section 9.1 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time of
the Merger.
SECTION 9.2. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by facsimile
or sent by overnight courier to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
El Paso Energy Corporation
1001 Louisiana Street
Houston, Texas 77002
Telephone: (713) 420-2131
Facsimile: (713) 420-6969
Confirm: (713) 420-2131
Attention: President
with a copy to
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, New York 10004
Telephone: (212) 859-8000
Facsimile: (212) 859-4000
Confirm: (212) 859-8362
Attention: Gary P. Cooperstein, Esq.
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<PAGE> 80
(b) if to the Company, to
Crystal Gas Storage, Inc.
400 Crystal Building
229 Milam Street
Shreveport, Louisiana 71120
Telephone: (318) 222-7791
Facsimile: (318) 677-5504
Confirm: (318) 677-5500
Attention: Joe N. Averett, Jr.
with a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Telephone: (713) 651-5151
Facsimile: (713) 651-5246
Confirm: (713) 651-5496
Attention: Charles H. Still, Esq.
SECTION 9.3. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "environmental laws" means, as applicable, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. sec.sec.
9601 et seq. ("CERCLA"), the Emergency Planning and Community Right-to-Know
Act of 1986, 42 U.S.C. sec.sec. 11001 et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. sec.sec. 6901 et seq., the Toxic Substances
Control Act, 15 U.S.C. sec.sec. 2601 et seq., the Federal Insecticide,
Fungicide, and Rodenticide Act, 7 U.S.C. sec.sec. 136 et seq., the Clean
Air Act, 42 U.S.C. sec.sec. 7401 et. seq., the Clean Water Act (Federal
Water Pollution Control Act), 33 U.S.C. sec.sec. 1251 et seq., the Safe
Drinking Water Act, 42 U.S.C. sec.sec. 300f et seq., the Occupational
Safety and Health Act, 29 U.S.C. sec.sec. 641 et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. sec.sec. 1801 et seq., and the Oil
Pollution Act of 1990, 33 U.S.C. sec.sec. 2701 et seq., 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 in effect as of the date of this Agreement, or any common law
cause of action, contractual obligation, or judicial or administrative
decision, order or decree (all as have been amended from time to time)
regulating, governing or relating to pollution, contamination and/or
protection of the environment or human health.
(c) "knowledge" means, with respect to any matter stated herein to be
"to the Company's knowledge," or similar language, the actual knowledge of
the Chairman of the Board, the Chief Executive Officer, President, Chief
Financial Officer any Vice President of the Company or any person that has
responsibility for managing a functional area of the Company, and with
respect to any matter stated herein to be "to Parent's knowledge," or
similar language, the actual knowledge of the Chairman of the Board, the
Chief Executive Officer, President, any Vice President, Chief Financial
Officer or General Counsel of Parent.
(d) "material adverse effect" or "material adverse change" means, when
used in connection with the Company, any change or effect (or any
development that, insofar as can reasonably be foreseen, is likely to
result in any change or effect) that is materially adverse to the business,
properties, assets, liabilities, condition (financial or otherwise),
financial performance or results of operations of the Company and its
subsidiaries, taken as a whole, provided, however, that no such change or
effect shall be deemed to have occurred to the extent such change or effect
arises from conditions generally affecting the oil and gas or electric
power generation industries or from the United States or global economies.
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The term "material adverse effect" means, when used in respect of Parent or
Sub, any material adverse effect on the ability of Parent or Sub to
consummate the transactions contemplated by this Agreement.
(e) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization or other entity; and
(f) a "subsidiary" of any person means any corporation, partnership,
association, joint venture, limited liability company or other entity in
which such person owns over 50% of the stock or other equity interests, the
holders of which are generally entitled to vote for the election of
directors or other governing body of such other legal entity.
SECTION 9.4. Interpretation. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 9.5. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.6. Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein and the schedules
attached hereto) and the Confidentiality and Standstill Agreements (a)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (b) except for the provisions of Sections 5.4(b) and
5.5, are not intended to confer upon any person other than the parties any
rights or remedies hereunder.
SECTION 9.7. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof, except that matters pertaining to the merger of the Company into
Sub shall be governed by the DGCL and the LBCL to the extent of their
applicability to the Merger.
SECTION 9.8. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Parent
and/or Sub may assign all or any of their respective rights and obligations
hereunder to any affiliate, provided that no such assignment shall relieve the
assigning party of its obligations hereunder if such assignee does not perform
such obligations. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 9.9. Enforcement of the Agreement. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any district court of
the United States located in the States of Texas (Southern District only),
Louisiana or Delaware or in any Delaware state court, this being in addition to
any other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any Federal district court sitting in the Southern District of
Texas or in Louisiana or any Federal or state court sitting in the State of
Delaware in the event any dispute between the parties hereto arises out of this
Agreement solely in connection with such a suit between the parties, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement in any court other than such a
Federal or state court.
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<PAGE> 82
SECTION 9.10. Performance by Sub. Parent hereby agrees to cause Sub to
comply with its obligations under this Agreement.
SECTION 9.11. Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
29
<PAGE> 83
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
EL PASO ENERGY CORPORATION
By /s/ H. BRENT AUSTIN
----------------------------------------
Name: H. Brent Austin
-------------------------------------
Title: Executive Vice President and Chief
Financial Officer
--------------------------------------
EL PASO ENERGY ACQUISITION CO.
By /s/ RALPH EADS
----------------------------------------
Name: Ralph Eads
-------------------------------------
Title: Executive Vice President
--------------------------------------
CRYSTAL GAS STORAGE, INC.
By /s/ J.N. AVERETT, JR.
----------------------------------------
Name: J.N. Averett, Jr.
-------------------------------------
Title: President & C.E.O.
--------------------------------------
30
<PAGE> 84
ANNEX B
PERSONAL AND CONFIDENTIAL
October 15, 1999
Board of Directors
Crystal Gas Storage, Inc.
229 Milan Street
Shreveport, LA 71101
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders of the outstanding shares of Common Stock, par value $0.01 per
share (the "Shares"), of Crystal Gas Storage, Inc. (the "Company") of the $57.00
per Share in cash to be received by such holders pursuant to the Agreement and
Plan of Merger, dated as of October 15, 1999, among El Paso Energy Corporation
("Buyer"), El Paso Energy Acquisition Co., a wholly-owned subsidiary of Buyer,
and the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having acted as its financial advisor in connection with, and having
participated in certain negotiations leading to, the Agreement. We also have
provided certain investment banking services to Buyer and its affiliates from
time to time, including having acted as co-manager of a public offering of
$200,000,000 aggregate principal amount of 6 3/4% Notes due 2003 and
$200,000,000 aggregate principal amount of 7 1/2% Debentures due 2026 of Buyer
in November 1996, as co-manager of a public offering of 2,750,000 shares of
common stock of Buyer in February 1997, and as co-manager of a public offering
of 6,500,000 shares of 4 3/4% Trust Convertible Preferred Securities of El Paso
Energy Capital Trust I in March 1998, and may provide investment banking
services to Buyer and its affiliates in the future. Goldman, Sachs & Co.
provides a full range of financial advisory services and, in the course of its
normal trading activities, may from time to time effect transactions and hold
securities, including derivative securities, of the Company or Buyer for its own
account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five years ended December 31, 1998; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company; certain other
communications from the Company to its stockholders; the reserve report by
Coutret and Associates dated August 1, 1999 (the "Appraisal"); and certain
internal financial analyses and forecasts for the Company prepared by its
management. We also have held discussions with members of the senior management
of the Company regarding its past and current business operations, financial
condition and future prospects. In addition, we have reviewed the reported price
and trading activity for the Shares, compared certain financial and stock market
information for the Company with similar information for certain other companies
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the natural gas salt dome storage
industry specifically and in other industries generally and performed such other
studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or any of its subsidiaries and, except for the Appraisal referred to in the
third paragraph of this opinion, we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Board of Directors of the
Company in connection with
B-1
<PAGE> 85
Crystal Gas Storage, Inc.
October 15, 1999
Page 2
its consideration of the transaction contemplated by the Agreement and such
opinion does not constitute a recommendation as to how any holder of Shares
should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the $57.00 per
Share in cash to be received by the holders of Shares pursuant to the Agreement
is fair from a financial point of view to such holders.
Very truly yours,
B-2
<PAGE> 86
ANNEX C
EXCERPT FROM SECTION 131 OF THE LOUISIANA BUSINESS CORPORATION LAW
C. [A]ny shareholder electing to exercise such right of dissent shall file
with the corporation, prior to or at the meeting of shareholders at which such
proposed corporate action is submitted to a vote, a written objection to such
proposed corporate action, and shall vote his shares against such action. If
such proposed corporate action be taken by the required vote, but by less than
eighty percent of the total voting power, and the merger, consolidation or sale,
lease or exchange of assets authorized thereby be effected, the corporation
shall promptly thereafter give written notice to each shareholder who filed such
written objection to, and voted his shares against, such action, at such
shareholder's last address on the corporation's records. An affidavit of the
secretary or assistant secretary or of the transfer agent of the corporation
that such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. Each such shareholder may, within twenty
days after the mailing of such notice to him, but not thereafter, file with the
corporation a demand in writing for the fair cash value of his shares as of the
day before such vote was taken; provided that he state in such demand the value
demanded, and a post office address to which the reply of the corporation may be
sent, and at the same time deposit in escrow in a chartered bank or trust
company located in the parish of the registered office of the corporation, the
certificates representing his shares, duly endorsed and transferred to the
corporation upon the sole condition that said certificates shall be delivered to
the corporation upon payment of the value of the shares determined in accordance
with the provisions of this Section. With his demand the shareholder shall
deliver to the corporation, the written acknowledgment of such bank or trust
company that it so holds his certificates of stock. Unless the objection, demand
and acknowledgment aforesaid be made and delivered by the shareholder within the
period above limited, he shall conclusively be presumed to have acquiesced in
the corporate action proposed or taken . . . .
D. If the corporation does not agree to the value so stated and demanded,
or does not agree that a payment is due, it shall, within twenty days after
receipt of such demand and acknowledgment, notify in writing the shareholder, at
the designated post office address, of its disagreement, and shall state in such
notice the value it will agree to pay if any payment should be held to be due;
otherwise it shall be liable for, and shall pay to the dissatisfied shareholder,
the value demanded by him for his shares.
E. In case of disagreement as to such fair cash value, or as to whether any
payment is due, after compliance by the parties with the provisions of
subsections C and D of this Section, the dissatisfied shareholder, within sixty
days after receipt of notice in writing of the corporation's disagreement, but
not thereafter, may file suit against the corporation, or the merged or
consolidated corporation, as the case may be, in the district court of the
parish in which the corporation or the merged or consolidated corporation, as
the case may be, has its registered office, praying the court to fix and decree
the fair cash value of the dissatisfied shareholder's shares as of the day
before such corporate action complained of was taken, and the court shall, on
such evidence as may be adduced in relation thereto, determine summarily whether
any payment is due, and, if so, such cash value, and render judgment
accordingly. Any shareholder entitled to file such suit may, within such
sixty-day period but not thereafter, intervene as a plaintiff in such suit filed
by another shareholder, and recover therein judgment against the corporation for
the fair cash value of his shares. No order or decree shall be made by the court
staying the proposed corporate action, and any such corporate action may be
carried to completion notwithstanding any such suit. Failure of the shareholder
to bring suit, or to intervene in such a suit, within sixty days after receipt
of notice of disagreement by the corporation shall conclusively bind the
shareholder (1) by the corporation's statement that no payment is due, or (2) if
the corporation does not contend that no payment is due, to accept the value of
his shares as fixed by the corporation in its notice of disagreement.
F. When the fair value of the shares has been agreed upon between the
shareholder and the corporation, or when the corporation has become liable for
the value demanded by the shareholder because of failure to give notice of
disagreement and of the value it will pay, or when the shareholder has become
bound to accept the value the corporation agrees is due because of his failure
to bring suit within sixty days after receipt of
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<PAGE> 87
notice of the corporation's disagreement, the action of the shareholder to
recover such value must be brought within five years from the date the value was
agreed upon, or the liability of the corporation became fixed.
G. If the corporation or the merged or consolidated corporation, as the
case may be, shall, in its notice of disagreement, have offered to pay the
dissatisfied shareholder on demand an amount in cash deemed by it to be the fair
cash value of his shares, and if, on the institution of a suit by the
dissatisfied shareholder claiming an amount in excess of the amount so offered,
the corporation, or the merged or consolidated corporation, as the case may be,
shall deposit in the registry of the court, there to remain until the final
determination of the cause, the amount so offered, then, if the amount finally
awarded such shareholder, exclusive of interest and costs, be more than the
amount offered and deposited as aforesaid, the costs of the proceeding shall be
taxed against the corporation, or the merged or consolidated corporation, as the
case may be; otherwise the costs of the proceeding shall be taxed against such
shareholder.
H. Upon filing a demand for the value of his shares, the shareholder shall
cease to have any of the rights of a shareholder except the rights accorded by
this Section. Such a demand may be withdrawn by the shareholder at any time
before the corporation gives notice of disagreement, as provided in subsection D
of this Section. After such notice of disagreement is given, withdrawal of a
notice of election shall require the written consent of the corporation. If a
notice of election is withdrawn, or the proposed corporate action is abandoned
or rescinded, or a court shall determine that the shareholder is not entitled to
receive payment for his shares, or the shareholder shall otherwise lose his
dissenter's rights, he shall not have the right to receive payment for his
shares, his share certificates shall be returned to him (and, on his request,
new certificates shall be issued to him in exchange for the old ones endorsed to
the corporation), and he shall be reinstated to all his rights as a shareholder
as of the filing of his demand for value, including any intervening preemptive
rights, and the right to payment of any intervening dividend or other
distribution, or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim.
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<PAGE> 88
CRYSTAL GAS STORAGE, INC.
PROXY
This Proxy is solicited on behalf of the Board of Directors
The undersigned shareholder of Crystal Gas Storage, Inc., a Louisiana
corporation (the "Company"), hereby appoints J.N. Averett, Jr., Gary S.
Gladstein and Donald G. Housley, and each of them, Proxies of the undersigned,
with the power of substitution, to vote, as designated hereon, all of the shares
of capital stock of the Company which the undersigned would be entitled to vote
at the annual meeting of shareholders to be held on December , 1999, or any
adjournment or adjournments thereof, on the following matters more particularly
described in the Proxy Statement dated November , 1999.
(Continued on Reverse Side)
<PAGE> 89
[ X ] Please mark your
votes as in this
example.
FOR AGAINST ABSTAIN
1. PROPOSAL to approve and adopt [ ] [ ] [ ]
the Agreement and Plan of
Merger, dated October 15, 1999,
among El Paso Energy Corporation
("El Paso Energy"), El Paso Energy
Acquisition Co. ("El Paso Sub"),
a subsidiary of El Paso Energy,
and the Company pursuant to which the
Company will be merged into El Paso Sub.
2. In their discretion the Proxies are
authorized to vote upon such other
business as may properly come before
the meeting.
This proxy, when properly executed, will be voted in the manner
directed by the undersigned shareholder.
Note: Please sign your name exactly as it appears herein. Joint
owners must each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title
as such. If a corporation, please sign in the full corporate name
by the president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
SIGNATURE(S) ____________________________________ DATED __________________, 1999
Please Mark, Sign, Date and Return This Proxy Card Promptly Using the
Enclosed Envelope.
