SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. _ )
Filed by the Registrant X
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
X Definitive Proxy Statement
X Definitive Additional Materials
Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Tejas Gas Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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:
Common Stock, par value $.25 per share
(2) Aggregate number of securities to which transaction applies:
22,109,797
(3) Per-unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
$61.50 (cash merger consideration per share)
(4) Proposed maximum aggregate value of transaction:
$1,359,752,515.50
(5) Total fee paid:
$271,950.50
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:
TEJAS GAS CORPORATION
1301 MCKINNEY, SUITE 700
HOUSTON, TEXAS 77010
Dear Tejas Stockholder:
You are cordially invited to attend a special meeting of Stockholders of
Tejas Gas Corporation to be held at the Chevron Tower Building, 1301 McKinney,
Houston, Texas on the Mezzanine Level in the Chevron Auditorium on Friday,
January 9, 1998 at 9:00 a.m., Houston time.
At this meeting, you will be asked to vote on the acquisition of Tejas by
Shell Oil Company. In the acquisition, you will receive $61.50 in cash for each
share of Tejas common stock.
A merger agreement with Shell has been unanimously approved by your Board
of Directors, acting on the unanimous recommendation of an independent Special
Committee of the Board.
The Special Committee and the full Board of Directors have concluded that
the proposed acquisition is in the best interests of Tejas' stockholders and,
therefore, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR
OF THE MERGER AGREEMENT.
The attached notice of meeting and proxy statement explain the proposed
acquisition and provide specific information concerning the special meeting.
Please read these materials carefully.
<PAGE>
Whether or not you plan to attend the special meeting, we urge you to
complete, sign and promptly return the enclosed proxy card to assure that your
shares will be voted at the meeting. The acquisition is an important step for
Tejas and its stockholders. THE ACQUISITION CANNOT BE COMPLETED UNLESS TEJAS
STOCKHOLDERS ADOPT THE MERGER AGREEMENT.
On behalf of the Board of Directors, we thank you for your support and
urge you to vote FOR adoption of the merger agreement.
Sincerely,
Frederic C. Hamilton,
Chairman of the Board
Jay A. Precourt,
Chief Executive Officer and President
TEJAS GAS CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 9, 1998
To the Stockholders:
Notice is hereby given that a Special Meeting of Stockholders of Tejas Gas
Corporation ("Tejas") will be held at the Chevron Tower Building, 1301 McKinney,
Houston, Texas on the Mezzanine Level in the Chevron Auditorium on Friday,
January 9, 1998 at 9:00 a.m., Houston time, for the following purposes:
1. To consider and act upon a proposal to adopt a Merger Agreement
among Tejas, Shell Oil Company, Tejas Holdings Corporation and Tango
Acquisition Corporation. If the Merger Agreement is adopted by
stockholders and the other conditions to the merger are satisfied or
waived, each outstanding share of Tejas' common stock will be
converted into the right to receive $61.50 per share in cash,
without interest.
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
ANY STOCKHOLDER WHO DOES NOT WISH TO ACCEPT THE MERGER CONSIDERATION AND
WHO PROPERLY DEMANDS APPRAISAL UNDER DELAWARE LAW WILL HAVE THE RIGHT TO HAVE
THE FAIR VALUE OF HIS OR HER SHARES DETERMINED BY THE DELAWARE CHANCERY COURT.
THIS APPRAISAL RIGHT IS SUBJECT TO A NUMBER OF RESTRICTIONS AND TECHNICAL
REQUIREMENTS DESCRIBED IN THE ATTACHED PROXY STATEMENT.
The close of business on November 14, 1997 has been fixed as the record
date for determination of the stockholders entitled to notice of and to vote at
the meeting or any adjournment thereof. Stockholders may vote in person or by
proxy. The proxy statement and the accompanying proxy card will first be sent to
stockholders on or about November 26, 1997. Holders of record of common stock
at the close of business on November 14, 1997, will be entitled to vote at the
meeting or any adjournment thereof with respect to all matters described above.
PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
By Order of the Board of Directors,
P. Anthony Lannie
Secretary
Houston, Texas
November 20, 1997
TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION. . . . . . . . . . . .3
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
TIME AND PLACE AND PURPOSE OF THE SPECIAL MEETING. . . . . . . . .8
RECORD DATE AND VOTING OF COMMON STOCK . . . . . . . . . . . . . .8
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE. . . . . . . . . .9
BACKGROUND AND REASONS FOR THE MERGER. . . . . . . . . . . . . . 10
THE COMPANIES . . . . . . . . . . . . . . . . . . . . . . . 10
BACKGROUND OF THE MERGER. . . . . . . . . . . . . . . . . . 11
RECOMMENDATION OF THE SPECIAL COMMITTEE AND TEJAS' BOARD;
REASONS FOR THE MERGER . . . . . . . . . . . . . . . . . 16
MERRILL LYNCH'S FAIRNESS OPINION. . . . . . . . . . . . . . 18
SCOPE OF MERRILL LYNCH'S REVIEW. . . . . . . . . . . . 18
MERRILL LYNCH'S ANALYSES . . . . . . . . . . . . . . . 19
THE SPECIAL COMMITTEE'S ENGAGEMENT OF MERRILL LYNCH. . 21
SUMMARY OF THE MERGER AGREEMENT. . . . . . . . . . . . . . . . . 22
STRUCTURE; EFFECTIVE TIME . . . . . . . . . . . . . . . . . 22
MERGER CONSIDERATION. . . . . . . . . . . . . . . . . . . . 22
EMPLOYEE AND DIRECTOR STOCK OPTIONS . . . . . . . . . . . . 22
CONVERSION OF SHARES. . . . . . . . . . . . . . . . . . . . 22
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 23
INTERIM OPERATIONS OF TEJAS. . . . . . . . . . . . . . 23
OTHER COVENANTS. . . . . . . . . . . . . . . . . . . . 23
SPECIAL MEETING; PROXY MATERIAL. . . . . . . . . . . . 23
NO SOLICITATION BY TEJAS . . . . . . . . . . . . . . . 23
ANTITAKEOVER STATUTES. . . . . . . . . . . . . . . . . 24
INDEMNIFICATION AND INSURANCE OF TEJAS DIRECTORS
AND OFFICERS . ..24
REVISED SCHEDULES. . . . . . . . . . . . . . . . . . . 24
WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . 25
CONDITIONS TO THE MERGER. . . . . . . . . . . . . . . . . . 25
TERMINATION OF THE MERGER AGREEMENT AND PAYMENT OF FEES AND
EXPENSES 26
AMENDMENTS; WAIVERS . . . . . . . . . . . . . . . . . . . . 28
CONSEQUENCES OF THE MERGER. . . . . . . . . . . . . . . . . 28
FEDERAL REGULATORY APPROVALS . . . . . . . . . . . . . . . . . . 28
VOTING AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . 28
CERTAIN PROJECTIONS OF FUTURE OPERATING RESULTS. . . . . . . . . 29
INTERESTS OF TEJAS MANAGEMENT IN THE MERGER. . . . . . . . . . . 30
MANAGEMENT OF NEW TEJAS . . . . . . . . . . . . . . . . . . 31
ROLL OVER OF TEJAS STOCK OPTIONS INTO SARS . . . . . . 31
SARS . . . . . . . . . . . . . . . . . . . . . . . . . 32
THE SAR VALUE. . . . . . . . . . . . . . . . . . . . . 32
NUMBER OF SARS TO BE GRANTED . . . . . . . . . . . . . 33
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS33
INDEMNIFICATION; INSURANCE. . . . . . . . . . . . . . . . . 33
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT . . . . . 34
FIVE PERCENT BENEFICIAL OWNERS. . . . . . . . . . . . . . . 34
BENEFICIAL OWNERSHIP OF DIRECTORS AND OFFICERS. . . . . . . 36
MARKET PRICE AND DIVIDEND INFORMATION. . . . . . . . . . . . . . 39
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERTO TEJAS STOCKHOLDERS AND
OPTIONHOLDERS 40
APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . 40
STOCKHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . 41
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . 42
WHERE YOU CAN FIND MORE INFORMATION. . . . . . . . . . . . . . . 43
ANNEX AMERGER AGREEMENT. . . . . . . . . . . . . . . . . . . . .A-1
ANNEX BMERRILL LYNCH OPINION . . . . . . . . . . . . . . . . . .B-1
ANNEX C DELAWARE CODE ANNOTATED - SECTION 262. APPRAISAL RIGHTS.C-1
TEJAS GAS CORPORATION
1301 MCKINNEY
SUITE 700
HOUSTON, TEXAS 77010
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 9, 1998
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION
Q: What will I receive in the acquisition?
A: If the acquisition is completed, Tejas stockholders will have the right to
receive $61.50 in cash for each share of Tejas common stock they own.
Q: Why is Tejas recommending the merger agreement?
A: In the opinion of your Board, the acquisition will maximize the value of
your investment in Tejas and the merger consideration is fair to the
stockholders of Tejas from a financial point of view. The price of $61.50
per share represents a 24% premium over the price for the shares on the
New York Stock Exchange on the date before the Tejas Board's approval of
the merger agreement and a 35% premium over the average closing price of
the common stock over the 60-day period ended September 23, 1997. To
review the background and reasons for the merger in greater detail, see
page 10.
Q: What is the required vote?
A: The affirmative vote of the holders of a majority of the outstanding
shares of common stock is required to adopt the merger agreement.
Q: Will I have appraisal rights?
A: Any stockholder who does not wish to accept the merger consideration has
the right under Delaware law to have the "fair value" of his or her shares
determined by the Delaware Chancery Court. This "right of appraisal" is
subject to a number of restrictions and technical requirements. See page
40.
Q: What do I need to do now? Should I send in my stock certificates now?
A: Please mail your signed proxy card in the enclosed return envelope as soon
as possible, so that your shares may be represented at the Special
Meeting. In addition, you may attend and vote at the Special Meeting in
person, whether or not you have signed and mailed your proxy card. DO NOT
SEND IN YOUR STOCK CERTIFICATES NOW. If the merger is completed, you will
receive written instructions on how to exchange them.
Q: What if I want to change my vote?
A: Just send in a later-dated, signed proxy card before the Special Meeting
or attend the meeting in person and vote.
Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: Your broker will vote your shares ONLY if you instruct your broker how to
vote. Your broker should mail information to you that will explain how to
give instructions to your broker. If you do not instruct your broker how
to vote, your shares will count the same as shares that are voted against
the merger.
Q: Will I owe any federal income tax as a result of the merger?
A: You will be taxed on your receipt of the merger consideration to the
extent that the amount you receive exceeds your tax basis in your Tejas
stock. Tax matters are complicated, and tax results may vary among
stockholders. We urge you to contact your own tax advisor to fully
understand how the merger will affect you.
<PAGE>
Q: When do you expect the merger to be completed?
A: Tejas and Shell are working toward completing the merger as quickly as
possible. We hope to complete the merger on January 12, 1998, shortly
after the meeting is held on January 9, 1998. However, in addition to
approval of the Tejas stockholders, Tejas and Shell must also obtain some
regulatory approvals, and these regulatory approvals could delay the
merger.
Q: Whom should I call with questions?
A. If you have any questions about the merger, please call MacKenzie
Partners, Inc.: (212) 929-5500.
SUMMARY
This summary highlights selected information from this document. This
summary may not contain all of the information that is important to you. To
understand the merger fully and for a more complete description of the legal
terms of the merger, you should read carefully this entire document and the
other documents to which we have referred you. See "Where You Can Find More
Information" at page 43 of this proxy statement. The actual terms of the merger
are contained in the merger agreement. This document is included in this proxy
statement as Annex A.
THE MERGER CONSIDERATION
If the conditions to the merger which are described below are satisfied or
waived, Shell Oil Company has guaranteed that you will receive $61.50 per share
in cash for your Tejas common stock. The aggregate payment to be made to all
holders of Tejas common stock and holders of stock options will be approximately
$1.4 billion.
VOTING
At the Special Meeting, the holders of Tejas common stock will vote on a
proposal to adopt the merger agreement. Each share of common stock is entitled
to one vote. In order to be approved, a majority of all the votes entitled to
be cast must be voted in favor of adopting the merger agreement. On the record
date, there were 22,109,797 shares of common stock outstanding and entitled to
vote held by approximately 900 stockholders of record.
Three Board members including Tejas' chairman and chief executive officer have
agreed to vote an aggregate of approximately 19% of the outstanding common stock
in favor of the merger. See page 28.
9.96% CUMULATIVE PREFERRED STOCK
Holders of Tejas' 9.96% Cumulative Preferred Stock do not have a right to vote
on the merger agreement. Those shares will not be affected by the merger.
Tejas expects to redeem those shares in February 1998.
RECORD DATE
The close of business on November 14, 1997, is the record date for determining
who is entitled to vote at the Special Meeting.
RECOMMENDATION OF TEJAS' BOARD OF DIRECTORS
(PAGE 15)
Tejas' Board of Directors, acting on the unanimous recommendation of its Special
Committee, has unanimously approved the merger agreement and recommends that you
vote to adopt the merger agreement. Tejas' Board of Directors and its Special
Committee believe that the merger will maximize the value of your investment in
Tejas and that the merger consideration is fair from a financial point of view.
FACTORS CONSIDERED BY TEJAS' BOARD OF DIRECTORS AND ITS SPECIAL COMMITTEE (PAGE
16)
In reaching their decision to recommend adoption of the merger agreement, the
Special Committee and the Board considered a number of factors. These include
the following:
The directors compared the historical and prospective market prices of
Tejas common stock with the merger consideration. The merger
consideration represents a 24% premium over $49 9/16 per share, which was
the closing price of the common stock on September 22, 1997, the last full
trading day prior to the Board's approval of the merger agreement.
The directors believed that $61.50 per share was the highest price that
Shell would be willing to pay for Tejas. The directors formed this belief
after the Special Committee's substantial negotiations with Shell to
obtain the highest possible price.
The merger agreement allows third parties to make bona fide offers to
acquire Tejas and specifically permits the Special Committee to provide
information to and negotiate with third parties. A break-up fee may be
owed to Shell if Tejas accepts a financially superior proposal.
MERRILL LYNCH'S FAIRNESS OPINION (PAGE 18)
Merrill Lynch delivered to the Tejas Board and its Special Committee a written
opinion dated September 23, 1997 that the merger consideration is fair to the
Tejas stockholders from a financial point of view. Merrill Lynch also updated
its opinion as of the date of this proxy statement, and that opinion is included
as Annex B to this proxy statement. Please read the opinion.
INTERESTS OF TEJAS MANAGEMENT IN THE MERGER
(PAGE 30)
All Tejas Board members and officers own Tejas stock options, common stock
and/or preferred stock and, to that extent, their interest in the merger is the
same as yours. However, some of the officers and directors of Tejas have
interests in the merger that are different from your interests as a stockholder.
Some of these interests are set forth below. The Special Committee and the Board
were aware of these interests and considered them in recommending and approving
the merger.
Tejas' senior management will roll over a portion of their Tejas stock
options into stock appreciation rights of the company that, after the
merger, will operate Tejas' and Shell's combined midstream natural gas
businesses.
In addition, Tejas' chairman and senior management will receive additional
stock appreciation rights in this company.
Tejas' senior management will continue to hold their current positions
with this company.
Tejas' Board members will be offered the opportunity to become board
members of this company.
Tejas' senior executive officers may be entitled to future severance
payments.
APPRAISAL RIGHTS (PAGE 40)
Any stockholder who does not wish to accept the merger consideration has the
right under Delaware law to have the "fair value" of his or her shares
determined by the Delaware Chancery Court. This "right of appraisal" is subject
to a number of restrictions and technical requirements. Generally, in order to
exercise appraisal rights:
you must not vote in favor of the merger; and
you must make a written demand for appraisal before the vote on the
merger.
Merely voting against the merger will not protect your right of appraisal. Annex
C contains the Delaware appraisal statute.
CONDITIONS TO THE MERGER (PAGE 25)
The obligations of both Tejas and Shell to complete the merger are subject to a
number of conditions. The most important of these mutual conditions are:
receipt of the approval of Tejas stockholders;
expiration or earlier termination of the waiting period under the federal
antitrust premerger notification law;
absence of legal restraints or prohibitions that prevent completion of the
merger; and
obtaining all governmental authorizations and contractual consents and
waivers needed to complete the merger.
Several additional conditions exist to the obligation of Shell to complete the
merger. The most important of these conditions are:
Tejas' compliance with the merger agreement;
truth of the warranties made by Tejas in the merger agreement; and
absence of a material adverse change with respect to Tejas.
Additional conditions exist to the obligation of Tejas to complete the merger.
The most important of these conditions are:
Shell's compliance with the merger agreement; and
truth of the warranties made by Shell in the merger agreement.
The first three mutual conditions cannot be waived. All other conditions can be
waived by the party for whose benefit the condition operates.
TERMINATION OF THE MERGER AGREEMENT (PAGE 26)
Either Tejas or Shell may terminate the merger agreement if:
the merger has not been completed by March 31, 1998;
the stockholders of Tejas do not adopt the merger agreement;
a law or final court order prohibits the merger; or
certain other events occur.
Tejas may terminate the merger agreement if it receives a proposal to acquire
substantially all of the stock or assets of Tejas. The Tejas Board must
determine in good faith, after reviewing the advice of its financial advisor,
that the proposal is financially superior to the merger and is reasonably
capable of being financed. Tejas must notify Shell if it receives such a
proposal.
BREAK-UP FEES (PAGE 26)
Tejas may be required to pay Shell a termination fee of $25 million if
Tejas accepts a financially superior proposal;
the Tejas Board changes its favorable recommendation of the merger; or
the Tejas stockholders reject the merger agreement and Tejas is later
acquired by another company.
Tejas and Shell are also obligated to pay each other's expenses under some
circumstances.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 40)
You will be taxed on your receipt of the merger consideration to the extent that
the amount you receive exceeds your tax basis in your Tejas stock. Because
determining the tax consequences of the merger can be complicated, especially in
light of recent changes to the federal tax laws governing capital gains, you
should consult your tax advisor in order to understand fully how the merger will
affect you.
TIME AND PLACE AND PURPOSE OF THE SPECIAL MEETING
This proxy statement and the accompanying proxy card are solicited by the
Board of Directors (the "Board") of Tejas Gas Corporation ("Tejas"). These
proxies will be used at the Special Meeting of Stockholders ("Special Meeting")
to be held at 9:00 a.m., Houston time, on Friday, January 9, 1998 in the Chevron
Tower Building, 1301 McKinney, Mezzanine Level, Chevron Auditorium, Houston,
Texas, and at any and all adjournments thereof. The purpose of the Special
Meeting is to consider and vote on the Merger Agreement (the "Merger Agreement")
among Tejas, Shell Oil Company ("Shell"), Tejas Holdings Corporation
("Holdings") and Tango Acquisition Corporation ("Merger Subsidiary"). The
Merger Agreement is dated September 23, 1997.
RECORD DATE AND VOTING OF COMMON STOCK
This proxy statement and the proxy card will be sent to stockholders
beginning on or about November 26, 1997. If you give a proxy, you may revoke it
at any time before the proxy is voted. You may revoke your proxy before it is
voted by executing another proxy at a later date, by notifying the secretary or
assistant secretary of Tejas in writing of your revocation, or by attending in
person and voting at the Special Meeting.
The Board has fixed the close of business on November 14, 1997 as the
record date for determination of stockholders entitled to notice of, and to vote
at, the Special Meeting. As of the record date, there were 22,109,797 issued
and outstanding shares of Tejas common stock, par value $.25 per share ("Common
Stock"), which is the only class of stock of Tejas entitled to vote at the
Special Meeting. A majority of the shares of Common Stock which are issued and
outstanding and entitled to vote, present in person or represented by proxy,
shall constitute a quorum for the transaction of business. Each share of Common
Stock has one vote on every matter set forth in the accompanying Notice of
Special Meeting of Stockholders. Only stockholders of record at the close of
business on November 14, 1997 will be entitled to vote at the Special Meeting or
any adjournment thereof.
The enclosed proxy card allows you to vote affirmatively, vote negatively
or abstain from voting. Abstentions will have the effect of votes against the
Merger Agreement. Broker non-votes are treated as shares as to which voting
power has been withheld by the beneficial holders of those shares and,
therefore, will have the effect of votes against the Merger Agreement. While
there may be instances in which you wish to abstain, the Board encourages you to
vote your shares in your best judgment and to participate in the voting process
to the fullest extent possible.
If the enclosed proxy is duly executed and received in time for the
Special Meeting, and if no contrary instructions are included on the proxy, it
is the intention of the persons named as proxies to vote the shares of Common
Stock represented thereby in favor of the proposal to adopt the Merger
Agreement, and in the discretion of the persons named as proxies in connection
with any other business that may properly come before the Special Meeting or any
adjournment thereof.
YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD.
In addition to the solicitation of proxies by mail, management of Tejas
may use the services of its directors, officers and employees to solicit
proxies, personally or by telegram or telephone. Arrangements will be made with
brokerage houses, custodians, nominees and other fiduciaries to send proxy
materials to their principals, and Tejas will reimburse them for their
reasonable expenses. The expenses of the proxy solicitation will be paid by
Tejas.
Tejas has also engaged the services of MacKenzie Partners Inc. as proxy
solicitation agent to disseminate proxy materials and collect proxies. To the
extent Tejas decides it is necessary, MacKenzie Partners Inc. will solicit
banks, brokers, agents, institutions and individual holders, as well as
non-objecting beneficial owners by telephone. Tejas anticipates that the total
amount MacKenzie Partners Inc. will be paid for these services (excluding
expenses) will be approximately $7,500.
At this time, Tejas knows of no other matters that may be presented for
stockholder action at the meeting. However, if any matters, other than those
referred to above, should properly come before the meeting, it is the intention
of the persons named in the enclosed proxy to vote such proxy in accordance with
their best judgment.
THE BOARD RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF
COMMON STOCK IS REQUIRED TO ADOPT THE MERGER AGREEMENT.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN
CONNECTION WITH TEJAS' SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY TEJAS OR ANY OTHER PERSON.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Some statements contained or incorporated by reference in this proxy
statement regarding future financial performance and results and other
statements that are not historical facts are forward-looking statements. The
words "expect," "project," "estimate," "predict," "anticipate," "believes" and
similar expressions are also intended to identify forward-looking statements.
Such statements and Tejas' results are subject to numerous risks, uncertainties
and assumptions, including but not limited to:
changes in general economic conditions in the United States,
changes in laws and regulations to which Tejas is subject,
the cost and effects of legal and administrative claims and
proceedings against Tejas or its subsidiaries or which may be
brought against Tejas or its subsidiaries,
conditions in the capital markets utilized by Tejas to access
capital to finance operations,
Tejas' ability to develop expanded markets and product offerings as
well as maintain existing markets,
energy prices,
competition from other pipelines and alternate fuels,
the ability of Tejas to sustain its past practice of growth through
acquisitions,
the general level of natural gas and petroleum product demand and
weather conditions, among other things, and
other risks and uncertainties contained in or incorporated by
reference in this proxy statement.
Further, natural gas prices, which directly impact transportation and
gathering and processing throughput and operating profits, may fluctuate in
unpredictable ways. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those indicated.
BACKGROUND AND REASONS FOR THE MERGER
Shell and Tejas entered into the Merger Agreement on September 23, 1997.
Under the terms of the Merger Agreement, after completion of the Merger, each
stockholder of Tejas will receive $61.50 per share, in cash and without interest
(the "Merger Consideration"), in exchange for shares of Tejas Common Stock.
Tejas' 9.96% Cumulative Preferred Stock is not currently redeemable and will not
be affected by the Merger, although Tejas expects to redeem those shares in
February 1998. All shares of Tejas' 5 1/4% Convertible Preferred Stock that
were not converted into Common Stock were redeemed prior to the record date for
the Special Meeting.
THE BOARD OF TEJAS, ACTING ON THE UNANIMOUS RECOMMENDATION OF A SPECIAL
COMMITTEE OF THE BOARD, HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER
AGREEMENT AND RECOMMENDS THAT TEJAS STOCKHOLDERS ADOPT THE MERGER AGREEMENT.
THE COMPANIES
TEJAS. Tejas is one of the largest independent intrastate gatherers and
transporters of natural gas volumes through company-owned pipelines in the
United States. Tejas' operations are situated primarily in the major gas
producing areas in Oklahoma, South Texas, East Texas and the Texas and Louisiana
Gulf Coast regions, with additional facilities located in West Virginia. Tejas
was organized on September 16, 1988 by Hamilton Oil Corporation ("HOC") for the
purpose of holding the capital stock of Tejas Gas Corp. ("Tejas Gas"), which had
been an indirect, wholly-owned subsidiary of HOC or its predecessor since 1979.
Tejas Gas has been engaged in natural gas pipeline operations and related
activities since its inception in 1967. On December 27, 1988, Tejas' capital
stock was distributed to the stockholders of HOC in the form of a spin-off.
Since the spin-off, Tejas has made a number of significant acquisitions,
and conducts its operations primarily through subsidiaries. In the normal
course of business, Tejas regularly reviews opportunities for the possible
acquisition of additional natural gas pipelines and companies that own natural
gas pipelines, and Tejas is continuing to consider acquisitions pending the
completion of the Merger, subject to the limitations set forth in the Merger
Agreement. In this regard, Shell has agreed to provide short term secured
bridge financing to Tejas in connection with Tejas' purchase of Amoco Gas
Company. The purchase is expected to be completed prior to year end, subject to
customary regulatory approvals and closing conditions. Tejas plans to borrow
approximately $150 million from Shell in connection with the purchase.
SHELL. Shell is engaged, principally in the United States, in the
exploration for, and development, production, purchase, transportation and
marketing of, crude oil and natural gas, and the purchase, manufacture,
transportation and marketing of oil and chemical products. In addition, Shell is
engaged in the exploration for, and production of, crude oil and natural gas
outside the United States. Also, Shell is engaged in the development, production
and marketing of sulfur and carbon dioxide.
The three major reporting segments of Shell's businesses are Oil and Gas
Exploration and Production, Oil Products and Chemical Products. Compared with
other integrated enterprises in the petroleum industry, Shell believes that in
1996, domestically, it ranked fourth in net production of crude oil and natural
gas liquids, fourth in net production of natural gas, first in refined products
sold and second in refinery processing intakes. Additionally, within the
petroleum industry, Shell is a leader in the domestic manufacturing and
marketing of chemicals.
BACKGROUND OF THE MERGER
In September 1995, Shell and Tejas formed Coral Energy, L.P. ("Coral") as
an energy marketing joint venture. During 1996 Shell and Tejas held intermittent
discussions regarding ways to maximize the value and profitability of Coral.
These discussions also involved identifying other areas where Shell and Tejas
could cooperate in the natural gas sector and extend Coral's activities to
electricity.
During the fall of 1996, these discussions began to focus on combining
Shell's natural gas gathering and transportation or "midstream" businesses
("Shell Midstream") with the businesses of Tejas. Management of Tejas believed
this would benefit Tejas and its stockholders and was an attractive opportunity
in view of the increasing consolidation in the natural gas industry and the
strategic initiatives that would be possible after a combination with Shell
Midstream.
During an April 3, 1997, American Petroleum Institute conference in
Houston, Texas, Frederic C. Hamilton, Chairman of the Board of Tejas, and Philip
J. Carroll, President of Shell, discussed pursuing a possible combination of the
businesses of Tejas and Shell Midstream. On April 15, the parties signed a
mutual confidentiality agreement. On April 16, 1997, Mr. Hamilton reported to
the Tejas Board on his meeting with Mr. Carroll. Shell and Tejas also met on
April 16, 1997 to discuss various potential business arrangements involving the
two companies. Mr. Carroll, Jack E. Little, Executive Vice President
(Exploration and Production) of Shell, and other members of senior management of
Shell were present for Shell, and Mr. Hamilton, Jay A. Precourt, Chief Executive
Officer of Tejas, A. J. Miller, a member of the Board of Tejas, and other
members of senior management of Tejas were present for Tejas.
At that meeting, the parties decided to explore various structures to
combine Shell Midstream with Tejas, including a possible transaction in which
Shell would acquire an equity interest in Tejas in exchange for contributing
Shell Midstream to Tejas. Shell desired that these structures each provide
appropriate arrangements and incentives to retain the current management of
Tejas. In view of the perceived relative sizes of Tejas and Shell Midstream and
the amount of Tejas stock that could potentially be issued to Shell in such a
transaction, the parties also discussed various mechanisms to assure continued
liquidity to the Tejas stockholders after such a combination. One approach
discussed was for Mr. Hamilton, Charles C. Gates (Tejas' largest individual
stockholder and a member of the Tejas Board) and Mr. Precourt each to have a
one-time right to require Shell to redeem his shares at a formula price based on
the operating cash flow of the combined businesses and for the other Tejas
stockholders (other than Shell) to have the right to participate in any of these
redemptions.
Following the April 16 meeting, the parties began a preliminary due
diligence investigation of the other's businesses. Further exploratory meetings
were held between the managements of Shell and Tejas from April through July.
From July 11 through July 15, Mr. Carroll traveled to Ireland with Mr.
Hamilton, and during this time they continued discussions on various issues,
including how the combined businesses would be governed and other aspects of a
possible business combination. On July 16, following his return from Ireland,
Mr. Hamilton updated the Tejas Board on his discussions with Shell. On July 24,
Shell and Tejas jointly retained Morgan Stanley & Co. Incorporated ("Morgan
Stanley") to prepare an analysis as to the relative valuations of Tejas on the
one hand and Shell Midstream on the other hand in connection with a transaction
in which the two businesses would be combined and the equity of the combined
businesses shared by Shell and the stockholders of Tejas. The purpose of the
analysis was to provide a point of reference for the parties in determining the
relative equity interests to be held in the combined entity by Shell and the
Tejas stockholders. Morgan Stanley was not requested to analyze the acquisition
value of either Tejas or Shell Midstream as a stand-alone enterprise.
On July 28, 1997, senior management of both companies met in Denver,
Colorado to discuss the general terms of the transaction outlined above.
Between late July and mid-August, the parties exchanged drafts of term sheets
and transaction agreements, held further discussions and continued due
diligence.
By August 6, 1997, Shell proposed a transaction in which all Tejas
stockholders other than senior management and Mr. Gates would have a choice of
receiving cash or the redeemable shares described above. Under this proposal,
senior management and Mr. Gates would receive only redeemable shares.
On August 7 and 8, 1997, the parties met in Houston, Texas to continue
negotiation of the term sheet for the transaction and the transaction agreements
and to continue their due diligence review. On August 12 and 13 the parties met
again in Houston for the same purpose.
Following these meetings, Mr. Carroll and Mr. Hamilton discussed the
transaction by telephone. Mr. Carroll indicated that Shell desired to acquire
at least one half of the outstanding shares of Tejas Common Stock for cash, and
the balance for cash or redeemable shares at the option of Tejas stockholders.
Under this proposal, senior management and Mr. Gates would continue to receive
only redeemable shares.
After this discussion, Tejas management determined that, in light of the
proposed transaction structure, the possibility existed that senior management
and Mr. Gates might have interests differing from Tejas stockholders generally.
In particular, Tejas stockholders other than senior management and Mr. Gates
might not have the opportunity to exchange all of their shares of Common Stock
for redeemable shares. Tejas management thereafter consulted with the Board
about the desirability of forming a Special Committee of the Board to assess any
transaction with Shell from the point of view of stockholders other than senior
management and Mr. Gates. Robert G. Stone, Jr. as Chairman, and Arthur L. Kelly
were selected to be members of the Special Committee, and the Board authorized
the Special Committee to consider any transaction proposed by Shell.
The members of the Special Committee will receive usual and customary fees
for serving on the Special Committee. These fees were not made contingent on
whether or not Tejas entered into a transaction.
Morgan Stanley delivered a preliminary draft of its analysis of the
valuations of Tejas and Shell Midstream on August 20, 1997 for the purpose of
assisting Shell and Tejas in determining the relative equity interests to be
held in the combined entity by Shell and the Tejas stockholders. In preparing
its preliminary draft analysis, Morgan Stanley relied on information supplied by
Tejas and Shell describing the historical and future operating performance of
their respective businesses. Based on this information, and for the purpose of
assisting Shell and Tejas in determining the relative equity interests to be
held in the combined entity by Shell and the Tejas stockholders, Morgan
Stanley's preliminary draft analysis placed a range of possible values on the
Common Stock. While Morgan Stanley's range of possible values was broad, the
Tejas range (for the sole purpose of determining relative equity interests)
centered on $62.50 to $67.50 per share of Common Stock, with the lowest per
share value being $41.20 and the highest per share value being $92.61.
After Morgan Stanley delivered its preliminary draft analysis, Morgan
Stanley was instructed, in view of the evolving nature of the transaction, not
to complete its draft analysis. Accordingly, no final version of Morgan
Stanley's preliminary analysis was prepared.
Further meetings between Shell and Tejas were held in Houston on August
20, 21 and 22 and by telephone conference on August 23 to begin negotiation of
the definitive agreements for the transaction and to continue due diligence. On
August 22, Shell retained Goldman, Sachs & Co. ("Goldman Sachs") to act as its
financial advisor in connection with the transaction.
Mr. Carroll and Mr. Hamilton held a number of telephone conversations
during late August to discuss the relative equity division of the combined
businesses between Shell and the stockholders of Tejas that might continue to
hold an equity interest in the combined businesses. Following the meetings on
August 20, 21 and 22, Shell proposed that all Tejas stockholders other than Mr.
Gates and members of Tejas' senior management receive all cash for their Common
Stock.
In late August the Special Committee selected Simpson Thacher & Bartlett
("Simpson Thacher") as its legal advisors and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") to act as financial advisors. Following
their retention, Simpson Thacher commenced a review of the contemplated
transaction and the draft documentation, and Merrill Lynch began a due diligence
investigation of the businesses of Shell and Tejas.
Management of Shell and Tejas met in Houston on August 30 and 31 and
September 1, 1997, to continue negotiation of the agreements for the transaction
and due diligence. At the meeting on August 30, Shell also met with the legal
representatives of the Special Committee and Tejas management to negotiate the
terms of the Merger Agreement and related documents. The legal advisors to the
Special Committee indicated that a key concern of the Special Committee
concerning the transaction was making sure that all Tejas stockholders
(including senior management and Mr. Gates) would receive the same per share
consideration. The legal advisors to the Special Committee also indicated that
the Special Committee did not favor a transaction that would be contingent upon
any of Shell's separate agreements with Tejas' management concerning their
continuing employment and equity participation in the combined entity. The
Special Committee's legal advisors also indicated that they believed comment on
the "no solicitation", "fiduciary out" and "break-up fee" provisions of the
Merger Agreement was premature.
At a meeting on September 1, 1997, the Special Committee was briefed by
its legal advisors on the structure of the transaction and the status of
negotiations, including the negotiations in Houston. Merrill Lynch also
reviewed its preliminary valuation analysis relating to the proposed transaction
with the Special Committee.
Although Shell and Tejas had agreed that Morgan Stanley's preliminary
draft analysis was not directly relevant in evaluating a transaction in which
Tejas stockholders would receive cash for their Common Stock (because the draft
had been prepared for a different purpose and had not been completed), the
Special Committee requested and obtained access for Merrill Lynch to the draft
so that Merrill Lynch would have the same information received by Shell, Goldman
Sachs and Tejas. As a condition to permitting Merrill Lynch to review the
preliminary draft analysis, Morgan Stanley expressly disclaimed any
representations or warranties as to the accuracy or completeness of the
preliminary draft analysis. In addition, Morgan Stanley informed Tejas, Shell,
Merrill Lynch and the Special Committee of its view that, because the draft
analysis was preliminary in form, it would be inappropriate to use or rely on
the analysis or disclose it publicly in connection with the revised
transaction. See "-- Recommendation of the Special Committee and Tejas'
Board; Reasons for the Merger" below.
On September 2, 1997, Mr. Carroll notified Mr. Hamilton that Shell wanted
to pursue a transaction in which the Tejas stockholders, other than management
and Mr. Hamilton, would receive all cash for their shares of Common Stock.
Management of Tejas and Mr. Hamilton would receive cash for 25% of their shares
of Common Stock and redeemable shares of the combined company for the remainder
of their shares of Common Stock. Mr. Hamilton indicated to Mr. Carroll that he
would discuss the proposal with the Tejas Board and refer it to the Special
Committee.
On September 3, management of Shell and their legal advisors met with the
Special Committee and their legal advisors in New York to discuss the Special
Committee's requirements for a transaction. The Special Committee insisted that
Shell acquire all shares of Common Stock, including those held by management and
Mr. Hamilton, for the same consideration. However, the Special Committee
acknowledged that it understood that Shell's willingness to make an offer to
acquire Tejas was contingent on Shell's ability to retain senior management of
Tejas by coming to an agreement with senior management for their equity
participation in the combined company. The Special Committee also reiterated
that at an appropriate time it would propose and require modifications to the
"no solicitation", "fiduciary out" and "break-up fee" provisions of the Merger
Agreement proposed by Shell.
Following the meeting with Shell, the Special Committee met on September 3
with its legal and financial advisors to discuss the structure of the
transaction and the status of negotiations. In addition, at the request of the
Special Committee, Merrill Lynch compared its preliminary analysis with the
preliminary relative valuation analysis that had been previously performed by
Morgan Stanley. Merrill Lynch also reviewed recent merger and acquisition
activity in the gas pipeline industry with the Special Committee, and described
Merrill Lynch's views on Shell's interest in and alternatives to acquiring
Tejas.
Also on September 3, the full Board of Tejas participated in a conference
call and discussed the status of the Special Committee's negotiations with
Shell. The Board also received a presentation by Tejas' management regarding
Tejas' current operations and its ten-year business plan on a stand-alone
basis. The presentation supplemented and updated a similar presentation made to
the Board in December 1996.
The Shell Board of Directors met on September 4 and authorized Shell's
management to negotiate agreements for a transaction in which Shell would
purchase all of the shares of Common Stock for cash and to negotiate an
agreement with management of Tejas under which the current key officers of Tejas
would agree to continue as officers of the combined company and would roll over
a significant part of their stock option value to be at risk in the success of
the combined company. Management of Shell and Tejas held meetings in New York
on September 3 through 5 to negotiate revised management agreements reflecting
these changes in the transaction.
At meetings in New York during the week of September 8, management of
Shell and Tejas continued their negotiations of the arrangements for retention
of senior management of Tejas. On September 10, Mr. Carroll contacted Mr. Stone
by telephone and proposed that Shell would pay $59 per share in cash for all
shares of Common Stock pursuant to the terms of the Merger Agreement.
On September 11, the Special Committee met with its financial and legal
advisors to discuss the status of negotiations and Shell's offer. After the
meeting, Mr. Stone contacted Mr. Carroll and advised him that the Special
Committee had considered Shell's offer and, without having reached a final
conclusion, was not prepared to recommend the transaction at that price. In an
effort to see if Shell's and the Special Committee's views on the value of Tejas
could be reconciled, Mr. Carroll and Mr. Stone agreed that Goldman Sachs and
Merrill Lynch would be asked to discuss with each other their respective
valuation analyses.
On September 12, representatives of Goldman Sachs, Shell and Merrill Lynch
participated in a conference call during which the financial advisors discussed
their respective views on valuation of Tejas. The Special Committee met again
on September 13 and discussed Mr. Stone's conversations with Mr. Carroll,
Merrill Lynch's meeting with Goldman Sachs and the Special Committee's views of
the proposed transaction. On the evening of September 13, Mr. Stone telephoned
Mr. Carroll and told him that based on the conversations between the financial
advisors it appeared that the parties were too far apart on valuation to make it
worthwhile to continue the discussions. Mr. Carroll telephoned Mr. Stone later
that day and told him that Shell was withdrawing its offer and that, pending
further review and discussions with management of Tejas, Shell was not prepared
to make another proposal to Tejas at that time.
On September 14, Mr. Carroll and Mr. Hamilton had a telephone conversation
in which Mr. Hamilton indicated his willingness to reduce his equity
participation in the combined company. Members of management of Shell and Tejas
held discussions in Houston on September 15 and 16, and via conference calls on
September 17 and 18, to develop a management incentive program acceptable to
Shell and to Tejas' management. On September 16, representatives of Goldman
Sachs met again with representatives of Merrill Lynch to discuss their
valuations of Tejas.
Mr. Carroll and Mr. Stone had a telephone conversation on September 19 in
which Mr. Carroll proposed an increase in the merger price from $59 to $61 per
share and outlined Shell's revised arrangements with senior management of Tejas
(as described under the caption "Interest of Tejas Management in the Merger").
Mr. Stone and Mr. Carroll agreed to consider meeting on September 23 in New York
to continue discussions.
At a meeting on September 19 following Mr. Stone's telephone conversation
with Mr. Carroll, the Special Committee and its legal and financial advisors
discussed Shell's revised proposal, the remaining open issues in the draft
merger documentation, including the "no solicitation", "fiduciary out" and
"break-up fee" provisions, the potential for third parties to compete with
Shell's offer and refinements to Merrill Lynch's preliminary valuation
analysis. The Special Committee determined to meet with Shell on September 23
in order to attempt to negotiate a transaction with an acceptable price and to
resolve the other open issues.
On September 20, 21 and 22, management of Shell and Tejas met again in New
York to finalize documentation reflecting the contemplated management
agreements, and representatives of Shell met with the Special Committee's legal
advisors to finalize the Merger Agreement, including the "no solicitation",
"fiduciary out" and "break-up fee" provisions.
On September 23, Mr. Carroll and Mr. Little of Shell and Mr. Stone and Mr.
Kelly of the Special Committee met in New York to discuss the terms of the
transaction. In particular, the Special Committee required that the Merger
Agreement be modified to allow the Special Committee more flexibility to respond
to unsolicited acquisition proposals and that the amount of the "break-up fee"
payable by Tejas be decreased from the proposed maximum of $35 million to $25
million, inclusive of all expenses. Shell agreed to these terms. After further
negotiations, at the meeting, Shell agreed to increase the proposed purchase
price to $61.50 per share.
After the meeting with Shell, the Special Committee and its legal and
financial advisors met later that day to consider Shell's offer. The Special
Committee received a presentation from its legal advisors regarding the proposed
Merger Agreement and the key terms of Shell's contemplated management agreements
with Tejas' senior management. The Special Committee also received a
presentation by Merrill Lynch regarding its analysis of the Merger
Consideration. Merrill Lynch also delivered its opinion that the Merger
Consideration was fair to Tejas stockholders from a financial point of view (the
"Merrill Lynch Opinion"). After discussion, the Special Committee unanimously
resolved:
that the Merger and the Merger Agreement are advisable and in the
best interests of Tejas and its stockholders, and
to recommend that the Board approve the Merger and the Merger
Agreement and that the Board recommend the Merger and the Merger
Agreement to the Tejas stockholders for adoption.
At a September 23, 1997 meeting of the full Tejas Board after the Special
Committee's meeting, following presentations from Merrill Lynch and Tejas' legal
advisors, and receipt of the Special Committee's recommendation and the Merrill
Lynch Opinion, the full Board unanimously resolved:
that the Merger and the Merger Agreement are advisable and fair to
and in the best interests of Tejas and its stockholders,
to adopt and approve the Merger and the Merger Agreement, and
to recommend that the Merger and the Merger Agreement be adopted by
the Tejas stockholders.
The Board also amended Tejas' stockholder rights plan so that the plan
would not be triggered by the Merger transactions or the Voting Agreements.
ACCORDINGLY, THE BOARD OF TEJAS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THE ADOPTION OF THE MERGER AGREEMENT. Some members of the Board and of
management of Tejas have interests which may present them with potential
conflicts of interest in connection with the Merger. See "Interests of Tejas
Management in the Merger."
RECOMMENDATION OF THE SPECIAL COMMITTEE AND TEJAS' BOARD; REASONS FOR THE MERGER
The Special Committee's decision to recommend, and the Board's decision to
approve, the Merger and the Merger Agreement, were the product of a lengthy
evaluation process described above under "- Background of the Merger." This
process included numerous meetings of the Special Committee at which the Special
Committee considered various proposals made by Shell and possible responses and,
with the assistance of its financial and legal advisors, took and authorized
various actions. See "-- Background of the Merger."
The Special Committee and the full Board, in making their determinations
that the Merger and the Merger Agreement are in the best interests of Tejas
stockholders, considered a number of factors, including the following:
The directors' familiarity with, and presentations by Tejas'
management and Merrill Lynch regarding, the business, operations,
properties and assets, financial condition, competitive position,
business strategy and prospects of Tejas (as well as the risks
involved in achieving such prospects), the nature of the intrastate
natural gas pipeline industry in which Tejas competes, and current
industry, economic and market conditions, both on a historical and
on a prospective basis;
The directors' review of presentations by, and discussions of the
terms and conditions of the Merger Agreement with, senior executives
of Tejas, representatives of Tejas' legal counsel, representatives
of the Special Committee's legal counsel and representatives of
Merrill Lynch;
Merrill Lynch's opinion that, as of September 23, 1997, the Merger
Consideration to be received by Tejas stockholders was fair to Tejas
stockholders from a financial point of view. See "--Merrill Lynch's
Fairness Opinion" for a discussion of factors considered in
rendering the Merrill Lynch Opinion. Merrill Lynch subsequently
updated its opinion as of the date of this proxy statement. A copy
of such updated opinion is included as Annex B to this proxy
statement, and you are urged to read such opinion in its entirety;
The directors' review of the historical and prospective market
prices of the Common Stock compared to the Merger Consideration,
including that the Merger Consideration of $61.50 per share
represented a 24% premium over the closing price of the Common Stock
of $49 9/16 per share on September 22, 1997, the last full trading
day prior to the Special Committee's recommendation, and the Board's
approval, of the Merger Agreement;
Information provided by Merrill Lynch to the Special Committee
regarding the consideration other companies might be prepared to pay
for Tejas without incurring a significant dilution in their earnings
per share (such information was hypothetical and based solely on
public information because Merrill Lynch was not asked to, and did
not, contact any third party);
The Special Committee's and Board's beliefs that the Merger
Consideration represented the highest price that Shell would be
willing to pay in acquiring Tejas, which belief resulted in part
from the Special Committee's substantial negotiations with Shell in
an attempt to obtain the highest possible price;
The terms and conditions of the Merger Agreement, which were
negotiated at arm's length between the Special Committee and its
legal advisors (with input from Tejas' management and legal advisors
on matters concerning Tejas' business and operations), on the one
hand, and Shell and its legal advisors, on the other hand;
Provisions of the Merger Agreement that are structured so as (i) to
accommodate additional bona fide unsolicited offers to acquire Tejas
and specifically to permit the Special Committee to provide
information to and negotiate with such third parties and (ii) to
enable the Board to terminate the Merger Agreement and accept a
financially superior proposal subject to the payment of a $25
million termination fee and some other restrictions (see "Summary of
the Merger Agreement--No Solicitation by Tejas" and "Summary of the
Merger Agreement--Termination of the Merger Agreement and Payment of
Fees and Expenses");
Provisions in the agreements relating to Coral which might affect
the ability or desire of another acquiror to make an offer
comparable to Shell's offer, including provisions which might permit
Shell to purchase Coral for fair market value upon a change of
control of Tejas, and the effect that such a purchase might have on
an acquiror's ability to use pooling-of-interests accounting
treatment;
The terms of the Voting Agreements, including the commitment of Mr.
Hamilton, Mr. Gates and Mr. Precourt to vote an aggregate of
approximately 19% of the outstanding Common Stock in favor of the
Merger and the fact that the Voting Agreements terminate upon
termination of the Merger Agreement (see "Voting Agreements");
The financial condition of Shell and the fact that the Merger
Agreement does not contain a financing condition to the obligation
of Shell to consummate the Merger;
The possible conflict of interest of some of the directors and
members of management based on their arrangements with Shell (see
"Interests of Tejas Management in the Merger"); and
The Morgan Stanley preliminary draft analysis having not been
completed and having not been prepared for the purpose of analyzing
the fairness of an all-cash acquisition of Tejas, and accordingly
not being directly relevant to the Board's and the Special
Committee's consideration of the Shell proposal.
In view of the various factors considered by the Special Committee and the
Board, including those material factors listed above, the Special Committee and
the Board did not find it necessary or practicable to quantify or otherwise
attempt to assign relative importance to the specific factors considered in
making their determinations, nor did they evaluate whether such factors were of
equal importance. Individual members of the Special Committee and the Board may
have given different weights to different factors.
MERRILL LYNCH'S FAIRNESS OPINION
As described above, the Special Committee engaged Merrill Lynch to act as
exclusive financial advisor in connection with the Merger. Merrill Lynch
delivered the Merrill Lynch Opinion to the Special Committee and the Tejas Board
on September 23, 1997. Merrill Lynch updated its opinion as of the date of this
proxy statement.
THE FULL TEXT OF THE MERRILL LYNCH OPINION DATED AS OF THE DATE OF THIS
PROXY STATEMENT IS ATTACHED AS ANNEX B TO AND INCORPORATED IN THIS PROXY
STATEMENT. THE MERRILL LYNCH OPINION LISTS THE ASSUMPTIONS MERRILL LYNCH MADE
IN ITS REVIEW, THE MATTERS MERRILL LYNCH CONSIDERED IN ITS REVIEW, AND THE
QUALIFICATIONS AND LIMITATIONS ON MERRILL LYNCH'S REVIEW. THE SUMMARY OF THE
MERRILL LYNCH OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. YOU ARE URGED TO READ
THE MERRILL LYNCH OPINION IN ITS ENTIRETY.
SCOPE OF MERRILL LYNCH'S REVIEW
The initial Merrill Lynch Opinion was provided to the Special Committee
and the Tejas Board for their information. The Merrill Lynch Opinion addresses
only the fairness from a financial point of view of the Merger Consideration to
the Tejas stockholders. It does not address the merits of the underlying
decision by Tejas to engage in the Merger and does not constitute a
recommendation to you as to how you should vote on the proposed Merger or any
transaction related to the Merger.
The Merger Consideration was determined through negotiations between Shell
and the Special Committee and was unanimously approved by the Tejas Board.
Merrill Lynch provided advice to the Special Committee during the course of the
negotiations with respect to the evaluation of possible amounts and forms of
consideration from a financial point of view, and advised the Special Committee
and the full Board with respect to the fairness of the Merger Consideration from
a financial point of view.
The summary set forth below is not a complete description of the analyses
underlying the Merrill Lynch Opinion. Merrill Lynch advised the Special
Committee and the Tejas Board that preparing fairness opinions is a complex
analytic process that involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of those methods
to the particular circumstances. Therefore, such an opinion is not readily
susceptible to partial analysis or summary description.
In arriving at its opinion, Merrill Lynch did not attribute any particular
weight to any analysis or factor, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly,
Merrill Lynch has indicated that it believes that its analyses must be
considered as a whole and that selecting portions of its analyses, without
considering all analyses, would create an incomplete view of the process
underlying its opinion.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are conditions and factors beyond
the control of Merrill Lynch, Tejas or Shell. Any estimates contained in the
analyses performed by Merrill Lynch are not necessarily indicative of actual
values or future results. The actual values and future results may be
significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses or securities are not
appraisals nor do they reflect the prices at which such businesses or securities
might actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty.
In addition, as described above, the initial Merrill Lynch Opinion was
among several factors taken into consideration by the Special Committee in
recommending, and the full Tejas Board in approving, the Merger and the Merger
Agreement. Consequently, Merrill Lynch's analyses described below should not be
viewed as determining the decision of the Special Committee or the Tejas Board
with respect to the fairness of the Merger.
In arriving at its opinion, Merrill Lynch, among other things, reviewed
publicly available business and financial information relating to Tejas and to
Shell, as well as a draft of the Merger Agreement. Merrill Lynch also reviewed
other information, including financial forecasts for Tejas that Tejas management
provided to Merrill Lynch, and met with members of senior management and
representatives of Tejas to discuss Tejas' business and prospects. In the
course of its analysis, Merrill Lynch also reviewed the draft preliminary
analysis which Morgan Stanley prepared in connection with the relative valuation
of Tejas and Shell Midstream for the strategic combination initially considered
by Tejas and Shell. Merrill Lynch did not use or rely on any information or
conclusions in Morgan Stanley's preliminary analysis.
Merrill Lynch also considered the financial terms of other business
combination transactions that Merrill Lynch decided were relevant. In addition,
Merrill Lynch considered financial and stock market data for Tejas and compared
that data with similar data for other publicly held companies that Merrill Lynch
thought were comparable. Merrill Lynch also reviewed other financial studies
and analyses, performed other investigations and took into account other
matters, including its assessment of general economic, market and monetary
conditions, as it determined appropriate in rendering its opinion.
In preparing its opinion, Merrill Lynch assumed that public information
Merrill Lynch reviewed and other information made available to Merrill Lynch was
accurate and complete. Tejas' management advised Merrill Lynch that Tejas was
not aware of any facts that would make such information inaccurate or misleading
in any material respect. Merrill Lynch was not asked to independently verify
such information, did not undertake an independent appraisal of the assets or
liabilities of Tejas and did not physically inspect the properties or facilities
of Tejas. Merrill Lynch assumed that the financial forecast prepared by Tejas
was reasonably prepared and reflected the best currently available estimates and
judgment of Tejas' management. Merrill Lynch expressed no view as to such
financial forecast information or the assumptions on which it was based.
Merrill Lynch was not authorized by the Special Committee or the Tejas
Board to solicit, nor did it solicit, third-party indications of interest for
the acquisition of all or any part of Tejas.
MERRILL LYNCH'S ANALYSES
The following is a brief summary of the material analyses presented by
Merrill Lynch to the Tejas Board and the Special Committee in connection with
the rendering of the initial Merrill Lynch Opinion. The Merrill Lynch Opinion
is necessarily based upon market, economic and other conditions as they existed
on, and could be evaluated as of, the date of such opinion.
DISCOUNTED CASH FLOW ANALYSIS. Using a discounted cash flow methodology,
Merrill Lynch calculated a range of per share values for the Common Stock. This
range was based on two different sets of projections. The first set was
provided by the management of Tejas ("Base Case"). The second set was prepared
by Merrill Lynch at the request of the Special Committee by adjusting the Base
Case to maintain Tejas' debt-to-total capitalization levels at or above 60% in
each projected year and to use the increased borrowings to make acquisitions
("60% Debt Ratio Case"). The 60% Debt Ratio Case was prepared in order to
consider the effect of potential continued borrowings and acquisitions by Tejas
consistent with Tejas' historical practice (although no particular acquisition
candidates were identified or evaluated). Merrill Lynch made discounted cash
flow calculations using multiples of terminal earnings before interest, taxes,
depreciation and amortization ("EBDIT") ranging from 7.0x to 9.0x and using
discount rates ranging from 9% to 12%.
The relevant range of per share values for the Common Stock resulting from
the discounted cash flow analysis was $45.00 to $63.00, compared to the Merger
Consideration of $61.50.
COMPARABLE COMPANY ACQUISITION ANALYSIS. Merrill Lynch reviewed publicly
available information regarding selected acquisitions of companies or assets
that Merrill Lynch determined were most similar to Tejas or its assets. These
acquisitions included Natural Gas Clearinghouse's acquisition of Trident NGL
Holding (March 1995), Panhandle Eastern Corporation's acquisition of Associated
Natural Gas Corporation (December 1994), Tejas' acquisition of Transok, Inc.
(June 1996), PanEnergy Corp's acquisition of assets from Mobil Corporation
(August 1996), PG&E Corporation's acquisition of Teco Pipeline Company (January
1997), PG&E Corporation's acquisition of Valero Energy Corporation (July 1997)
and PacifiCorp's acquisition of TPC Corporation (March 1997).
No company utilized in the comparable company acquisition analysis was
identical to Tejas. Accordingly, an analysis of the results of this comparison
is not purely mathematical; rather, the analysis involves complex considerations
and judgments primarily concerning differences in historical and projected
financial, operating and trading characteristics of the companies involved and
the circumstances surrounding the acquisition transactions.
For each of these acquisitions, Merrill Lynch calculated "Adjusted Market
Value," which means the acquisition value of common equity, plus debt, plus the
liquidation value of preferred stock, plus minority interest, less cash. Then
Merrill Lynch calculated Adjusted Market Value as a multiple of latest twelve
months EBDIT for each of the transactions. Merrill Lynch also calculated the
acquisition value of equity as a multiple of latest twelve months net income for
each of such transactions. Merrill Lynch's analysis of the transactions showed
that Adjusted Market Value as a multiple of latest twelve months EBDIT ranged
from 10.0x to 12.0x, and that acquisition value of equity as a multiple of
latest twelve months net income ranged from 25.0x to 30.0x.
In order to determine Tejas' EBDIT for comparison purposes, Merrill Lynch
used Tejas' actual EBDIT and net income for the twelve months ended June 30,
1997 (the most recent quarterly information available as of September 23,
1997). In addition, Merrill Lynch also used Tejas' projected 1997 EBDIT and net
income under the Base Case (the projected 1997 EBDIT and net income under the
60% Debt Ratio Case was the same). Then Merrill Lynch applied the ranges
described above to Tejas' actual and projected EBDIT and net income to determine
comparable prices.
Based on its comparable company acquisition analysis, Merrill Lynch
calculated a relevant range of per share values of the Tejas Common Stock of
$51.00 to $62.00, compared to the Merger Consideration of $61.50.
MERGER PREMIUM ANALYSIS. Merrill Lynch identified acquisitions of
publicly traded companies which it determined were appropriate for this
analysis, consisting of acquisitions of companies with implied Adjusted Market
Values of between $1.0 billion and $3.0 billion as well as selected acquisitions
of natural gas companies since January 1, 1994. Merrill Lynch then calculated
the premium of the acquisition price over the stock prices of each acquired
company one day prior to announcement, one week prior to announcement and four
weeks prior to announcement of the acquisition.
This analysis indicated premiums in a range of 20% to 40%. When applied
to Tejas' stock price of $49.94 as of September 19, 1997 (the day prior to the
date Merrill Lynch finalized its analysis), the stock price of $50.75 one week
prior to September 19, 1997 and the stock price of $44.94 four weeks prior to
September 19, 1997, the premiums resulted in a range of per share values of the
Tejas Common Stock of $56.00 to $66.00, compared to the Merger Consideration of
$61.50.
COMPARABLE COMPANY TRADING ANALYSIS. Merrill Lynch identified those
publicly traded companies that Merrill Lynch determined were comparable to
Tejas: Aquila Gas Pipeline Corporation, KN Energy, Inc., NGC Corporation,
TransMontaigne Oil Company, USX-Delhi Group and Western Gas Resources, Inc.
Merrill Lynch then compared selected historical stock, financial and operating
ratios for Tejas to the corresponding data and ratios of the comparable
companies.
An analysis of the ratio of Adjusted Market Value of the comparable
companies at September 19, 1997 to EBDIT for 1997 (based on publicly available
analysts' projections) yielded a relevant range of 9.0x to 10.5x. An analysis
of Adjusted Market Value to 1998 EBDIT for the comparable companies yielded a
relevant range of 8.0x to 9.0x, and an analysis of Adjusted Market Value to 1999
EBDIT for the comparable companies yielded a relevant range of 7.0x to 8.0x.
An analysis of the ratio of the market value of the common stock of the
comparable companies at September 19, 1997 to estimated net earnings to common
stock for 1997 (based on publicly available analysts' projections) yielded a
relevant range of 20.0x to 25.0x. An analysis of the market value of the common
stock to 1998 estimated net earnings to common stock for the comparable
companies yielded a relevant range of 14.0x to 16.0x, and an analysis of the
market value of the common stock to 1999 estimated net earnings to common stock
for the comparable companies yielded a relevant range of 12.0x to 14.0x.
Merrill Lynch applied the relevant multiple ranges derived from the
comparable company trading analysis to Tejas' 1997, 1998 and 1999 Base Case
EBDIT and net income (projected EBDIT and net income for such periods for the
60% Debt Ratio Case was the same). Based on its comparison of such multiples,
Merrill Lynch calculated a relevant range of per share values of the Common
Stock of $40.00 to $53.00, compared to the Merger Consideration of $61.50.
In rendering its opinion, Merrill Lynch attributed relatively less weight
to the comparable company trading analysis. This was partly because a number of
factors affect the overall equity markets, but these factors may or may not
affect a specific company's valuation. In addition, the market prices for
comparable companies are set by trades which typically represent insignificant
portions of the ownership of a company, as opposed to establishing the price at
which all or a large percentage of a company may be purchased. As a result, a
comparable company trading analysis does not incorporate the value of control.
THE SPECIAL COMMITTEE'S ENGAGEMENT OF MERRILL LYNCH.
Pursuant to a letter agreement between Tejas and Merrill Lynch negotiated
by the Special Committee, Tejas agreed to pay Merrill Lynch (i) $250,000 upon
Tejas' execution of the letter agreement, (ii) an additional fee of $1,250,000
upon Merrill Lynch delivering the Merrill Lynch Opinion and (iii) an additional
fee of $2,000,000 payable upon closing of the Merger. Tejas also agreed to
reimburse Merrill Lynch for its reasonable out-of-pocket expenses, including
reasonable fees and disbursements of its legal counsel. Additionally, Tejas
agreed to indemnify Merrill Lynch and related persons for some liabilities
related to or arising out of its engagement, including liabilities under federal
securities laws.
Merrill Lynch is an internationally recognized investment banking and
advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Merrill Lynch has, in the
past, provided financial advisory and/or financing services to Tejas and/or
affiliates of Shell and may continue to do so. Merrill Lynch has received, and
in the future may receive, fees for the rendering of such services. In the
ordinary course of business, Merrill Lynch and its affiliates may actively trade
the debt and equity securities of Tejas and affiliates of Shell (and Merrill
Lynch anticipates trading after the Merger in the securities of affiliates of
Shell) for their own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
SUMMARY OF THE MERGER AGREEMENT
This section of the proxy statement describes some aspects of the proposed
Merger, including some of the provisions of the Merger Agreement. The
description of the Merger Agreement contained in this proxy statement is not
complete and is qualified in its entirety by reference to the Merger Agreement,
a copy of which is attached to this proxy statement as Annex A, and which is
incorporated by reference. You are urged to read the entire Merger Agreement
carefully.
STRUCTURE; EFFECTIVE TIME
The Merger Agreement provides for the Merger of Merger Subsidiary into
Tejas. Tejas will survive the Merger and continue to exist after the Merger as
a subsidiary of Sierra Acquisition. The Merger will become effective at the time
a certificate of merger is filed with the Secretary of State of the State of
Delaware (or a later time if agreed in writing by the parties and specified in
the certificate of merger). The time that the Merger becomes effective is
referred to in this proxy statement as the "Effective Time." The Effective Time
is expected to occur on January 12, 1998 or as soon as practicable thereafter
when all conditions to the Merger have been satisfied or waived.
MERGER CONSIDERATION
The Merger Agreement provides that each share of Common Stock outstanding
immediately prior to the Effective Time will, at the Effective Time, be
converted into the right to receive cash from Sierra Acquisition in an amount
equal to the Merger Consideration ($61.50, without interest). All shares of
Common Stock that are owned by Tejas as treasury stock will, at the Effective
Time, be canceled and no payment will be made for such shares. If the appraisal
rights of any shares are perfected, then those shares will be treated as
provided under "Appraisal Rights". The Merger Consideration will be paid
promptly after the Effective Time after Tejas receives stock certificates and
appropriate documentation. After the Effective Time you will be given
instructions explaining how to send stock certificates and other required
documents to Tejas.
Shell has guaranteed that Sierra Acquisition will pay the Merger
Consideration in full. The aggregate Merger Consideration, including amounts
necessary to cash out director and employee stock options, is estimated to be
approximately $1.4 billion.
EMPLOYEE AND DIRECTOR STOCK OPTIONS
Tejas' stock option plans provide that all outstanding options to purchase
shares of Common Stock will vest at the Merger. Under the Merger Agreement,
each stock option outstanding at the Effective Time will be canceled. Tejas
will make a cash payment to the holders of those options. The cash payment for
each option will equal the amount of the Merger Consideration less the exercise
price of the option. A portion of the options held by senior management and
certain key employees will not vest and be cashed out as provided in the Merger
Agreement. These options will be rolled over into stock appreciation rights as
described below under "Interests of Tejas Management in the Merger".
CONVERSION OF SHARES
Shell and Tejas will appoint an Exchange Agent who will make payment of
the Merger Consideration in exchange for certificates representing shares of
Common Stock. Sierra Acquisition will make cash available to the Exchange Agent
in order to permit the Exchange Agent to pay the Merger Consideration. Sierra
Acquisition will receive all shares of Common Stock that are exchanged for the
Merger Consideration. Promptly after the Effective Time, Sierra Acquisition or
the Exchange Agent will send you a letter of transmittal and instructions
explaining how to send your certificates to the Exchange Agent. If you send
your stock certificates to the Exchange Agent, together with a properly
completed letter of transmittal, then promptly after the Exchange Agent receives
and processes your documents, a check for the Merger Consideration will be
mailed to you (subject to any withholding required by law).
COVENANTS
INTERIM OPERATIONS OF TEJAS. Until the Effective Time, Tejas and its
subsidiaries are required to comply with a number of covenants concerning the
operation of their businesses, compliance with applicable laws, corporate
structure, governance and financing, and compensation of management. In
general, Tejas agreed to operate during the period in all material respects in
the usual and ordinary course, consistent with past practices, and obtain
Shell's consent for a number of actions such as significant acquisitions or
incurring indebtedness other than in the ordinary course of business.
OTHER COVENANTS. The Merger Agreement contains mutual covenants of Shell
and Tejas applicable to consummating the Merger transactions. These include
covenants relating to tax and accounting treatment of the Merger; public
announcements; notification of some matters; access to information; cooperation
in connection with governmental filings and in obtaining consents and approvals;
and confidential treatment of non-public information.
SPECIAL MEETING; PROXY MATERIAL. Tejas and Shell agreed to prepare this
proxy statement, and Tejas agreed to mail this proxy statement to each holder of
Common Stock and call and hold the Special Meeting. Tejas also agreed to use all
commercially reasonable efforts to obtain stockholder adoption of the Merger
Agreement.
NO SOLICITATION BY TEJAS. Subject to exceptions summarized below, Tejas
agreed that it will not, and will not authorize or permit any of the officers,
directors, employees, agents and other representatives of Tejas and its
subsidiaries (collectively, the "Representatives") to, directly or indirectly,
solicit, encourage or initiate any Acquisition Proposal or negotiate with any
prospective buyer in connection with any Acquisition Proposal. "Acquisition
Proposal" means any proposal or offer with respect to:
a tender or exchange offer, a merger, consolidation or other
business combination involving Tejas or any of its subsidiaries
(including a merger of equals of Tejas but excluding a transaction
where Tejas or its subsidiaries is acquiring the stock or assets of
another person unless the transaction involves the issuance (other
than in a broadly marketed public offering) by Tejas of 20% or more
of its outstanding Common Stock (or securities convertible into or
exercisable for 20% or more of Tejas' outstanding Common Stock)),
the acquisition of an equity interest in Tejas representing in
excess of 25% of the power to vote for the election of a majority of
directors of Tejas, or
the acquisition of assets of Tejas or its subsidiaries (including
stock of one or more subsidiaries of Tejas) representing 25% or more
of the consolidated assets of Tejas, in each case by any person
other than Shell or its affiliates.
Tejas agreed to cease any solicitation of, and any discussion or negotiation
conducted prior to the date of the Merger Agreement with respect to, any
Acquisition Proposal.
However, the Merger Agreement provides that Tejas' Board and/or the
Special Committee may authorize Tejas to engage in discussions or negotiations
concerning an unsolicited Acquisition Proposal (and may furnish information and
cooperate in this regard) if it determines in the exercise of its fiduciary
duties based on the advice of its counsel that such action is in the best
interests of Tejas stockholders.
In addition, the Merger Agreement provides that following receipt of an
Acquisition Proposal that is financially superior to the Merger (as determined
in good faith by Tejas' Board after consultation with Tejas' financial
advisors), the Board may withdraw, modify or not make its recommendation in
favor of the Merger if it concludes in good faith and upon advice of counsel
that such action is necessary in order for Tejas' Board to act in a manner that
is consistent with its fiduciary obligations under applicable law.
Tejas has agreed not to engage in negotiations with, or disclose any
nonpublic information to, any person unless it receives from such person an
executed confidentiality agreement with terms, in the aggregate, not materially
less favorable to Tejas than the confidentiality agreement between Tejas and
Shell, dated as of April 15, 1997.
Tejas will promptly notify Shell of the receipt of any Acquisition
Proposal not less than two business days prior to entering into any agreement in
connection with the Acquisition Proposal. The notice must include the identity
of the person or group making such Acquisition Proposal and the material terms
and conditions of such Acquisition Proposal. Tejas has agreed not to enter into
a definitive agreement in connection with an Acquisition Proposal unless at
least five business days have passed since Tejas initially notified Shell of an
inquiry or proposal relating to an Acquisition Proposal. Within the
two-business day or five-business day period referred to above, if any, Shell
may propose an improved transaction. The two and five-business day waiting
periods are not required if Tejas' Board or Special Committee decides, based on
the advice of counsel, that the waiting periods conflict with the exercise of
the Board's fiduciary obligations to its stockholders.
ANTITAKEOVER STATUTES. If any takeover statute is or may become
applicable to the Merger transactions, Tejas and the Board have agreed to use
all reasonable efforts to take necessary actions so that the Merger transactions
may be consummated as promptly as practicable on the terms contemplated by the
Merger Agreement. Tejas and the Board also agreed to act to eliminate or
minimize the effects of any takeover statute on any of the Merger transactions.
INDEMNIFICATION AND INSURANCE OF TEJAS DIRECTORS AND OFFICERS. Tejas has
agreed to continue to indemnify its present and former officers and directors
(and those of its subsidiaries) in respect of acts or omissions occurring prior
to the Effective Time. This indemnification obligation applies to the extent
provided under Tejas' certificate of incorporation and bylaws as of September
23, 1997 and until any applicable statute of limitations has expired. The
indemnification obligation is also subject to any limitation imposed under
applicable law.
At least until six years after the Effective Time, Holdings will provide
officers' and directors' liability insurance in respect of acts or omissions
occurring prior to the Effective Time. The insurance will cover each person
currently covered by Tejas' officers' and directors' liability insurance policy,
and will be on terms with respect to coverage and amount no less favorable than
those of Tejas' policy in effect on September 23, 1997. However, in satisfying
this obligation, Holdings shall not be obligated to pay premiums in excess of
150% of the amount per annum that Tejas paid for this purpose in its last full
fiscal year. If the premium would exceed the 150% level, Holdings is obligated
to get the coverage that can be obtained at the 150% level.
REVISED SCHEDULES. Shell and Tejas each delivered schedules to the Merger
Agreement which contain details required by the warranties. As contemplated by
the Merger Agreement, Shell and Tejas delivered revised schedules on October 31,
1997. Tejas or Shell, as the case may be, has the right to review the revised
schedules for a period of five business days (subsequently extended to the close
of business on November 21, 1997). If the revised information would reasonably
be likely to have a material adverse effect on Tejas or discloses that a
condition to the Merger is not capable of being fulfilled, then at any time
within the review period the party receiving the revised schedules can decide to
terminate the Merger Agreement. If either party decides to terminate the Merger
Agreement, Shell and Tejas have ten business days to agree on corrective
measures, if any. If Shell and Tejas do not agree on corrective measures within
the ten-business day period, then the Merger Agreement will terminate.
WARRANTIES
The Merger Agreement contains a number of warranties by both parties. The
warranties do not survive the Effective Time. Tejas and Shell each made
reciprocal warranties which include matters such as corporate organization,
authorization, authorization of the Merger transactions, and governmental
approvals. Tejas also warrantied to Shell as to a number of other matters
relating to Tejas' corporate structure, SEC filings, business operations,
financial statements, assets and liabilities and litigation. With respect to the
Merger, Tejas warrantied to Shell that Section 203 of the General Corporation
Law of the State of Delaware does not apply to the Merger transactions and that
Tejas had exempted the Merger transactions (including the Voting Agreements)
from the effect of Tejas' stockholder rights plan. Shell also warrantied to
Tejas that it had sufficient financing for the Merger transactions.
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
obligations of Shell, Sierra Acquisition, Holdings, Merger Subsidiary and Tejas
to consummate the Merger are subject to the satisfaction of the following
conditions:
Tejas stockholders must adopt the Merger Agreement;
the Merger must not be prohibited by applicable law or enjoined;
all consents from any governmental authority required to permit the
Merger must be obtained. See "Federal Regulatory Approvals" below;
the Merger must not be prevented by any governmental authority (and
no government authority can be seeking to prevent the Merger);
Shell must not be prohibited from exercising all material rights
pertaining to its ownership of Tejas or any of its subsidiaries (and
no government authority can be seeking such a prohibition);
Shell must not be compelled to dispose of or hold separate all or
any portion of the business or assets of Tejas or any of its
subsidiaries (and no government authority can be seeking such
disposition); and
no statute, rule, regulation or order can have been enacted that
would make the consummation of the Merger transactions illegal.
CONDITIONS TO THE OBLIGATIONS OF SHELL, SIERRA ACQUISITION, HOLDINGS AND
MERGER SUBSIDIARY. The obligations of Shell, Sierra Acquisition, Holdings and
Merger Subsidiary to effect the Merger are subject to the satisfaction of the
following additional conditions:
Tejas must have performed in all material respects its obligations
under the Merger Agreement;
the warranties of Tejas must be true in all material respects as if
made as of the Effective Time;
Tejas must obtain all consents and make all filings required for the
Merger (other than where not having such consents or making such
filings would not reasonably be expected to have a material adverse
effect on Tejas);
Shell must receive all documents it reasonably requests relating to
the existence of Tejas and Tejas' authorization of the Merger
Agreement; and
no event can have happened since September 23, 1997, individually or
together with other similar events, that has or reasonably would be
expected to have a material adverse effect on Tejas.
CONDITIONS TO THE OBLIGATIONS OF TEJAS. The obligation of Tejas to effect
the Merger is further subject to the satisfaction of the following additional
conditions:
Shell must have performed in all material respects its obligations
under the Merger Agreement;
the warranties of Shell must be true in all material respects as if
made as of the Effective Time;
Shell must obtain all consents and make all filings required for the
Merger (other than where not having such consents or making such
filings would not reasonably be expected to impede the receipt of
the Merger Consideration by Tejas stockholders); and
Tejas must receive all documents it reasonably requests relating to
the existence of Shell and Shell's authorization of the Merger
Agreement.
TERMINATION OF THE MERGER AGREEMENT AND PAYMENT OF FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time as follows:
by mutual written consent of Tejas and Shell;
by either Tejas or Shell:
- if the Merger has not been consummated by March 31, 1998;
- if the Tejas stockholders do not adopt the Merger Agreement at
the Special Meeting. (If either Shell or Tejas terminate the
Merger Agreement under this provision, Shell may be entitled
to a break-up fee, as described below);
- if any law or regulation makes consummation of the Merger
illegal or otherwise prohibited;
- if any judgment, injunction, order or decree enjoining Tejas
or Shell from consummating the Merger is entered and such
injunction, judgment, order or decree has become final and
non-appealable; or
- as provided above under "-Covenants-Revised Schedules";
by Shell if:
- any person, entity or group other than Shell and its
affiliates has increased its beneficial ownership of Tejas
Common Stock by an amount equal to 25% or more of the
outstanding Tejas Common Stock (compared with its level of
ownership on the date of the Merger Agreement);
- any warranty of Tejas under the Merger Agreement is untrue
when made or any covenant of Tejas under the Merger Agreement
is breached (which, in either case, would result in a closing
condition not being satisfied), subject to a 60-day cure
period. (If Shell terminates the Merger Agreement under this
provision and if Shell has not materially breached its
warranties or obligations under the Merger Agreement, Tejas
has agreed to pay Shell up to $5 million of Shell's expenses);
- the Tejas Board withdraws or modifies in a manner adverse to
Shell its approval or recommendation of the Merger. (If Shell
terminates the Merger Agreement under this provision, Tejas
has agreed to pay Shell a $25 million break-up fee);
- the Tejas Board approves, recommends or endorses any
Acquisition Proposal other than the Merger. (If Shell
terminates the Merger Agreement under this provision, Tejas
has agreed to pay Shell a $25 million break-up fee); or
by Tejas if:
- any warranty of Shell under the Merger Agreement is untrue
when made or any covenant of Shell under the Merger Agreement
is breached (which, in either case, would result in a closing
condition not being satisfied), subject to a 60 day cure
period. If Tejas terminates the Merger Agreement under this
provision and if Tejas has not materially breached its
warranties or obligations under the Merger Agreement, Shell
has agreed to pay Tejas up to $5 million of Tejas' expenses;
or
- the Tejas Board determines in good faith (after reviewing the
advice of its financial advisor) that an Acquisition Proposal
is financially superior to the Merger and is reasonably
capable of being financed, and Tejas enters into a definitive
agreement to effect the financially superior Acquisition
Proposal, has complied with the covenant set forth above under
"-Covenants-No Solicitation by Tejas", and pays Shell the $25
million break-up fee.
Shell is entitled to a $25 million break-up fee if either Shell or Tejas
terminates the Merger Agreement because the Merger is not adopted by Tejas
stockholders and if, within 12 months after such termination, either:
- any person, entity or group other than Shell and its
affiliates increases its beneficial ownership of Tejas Common
Stock by an amount equal to 25% or more of the outstanding
Common Stock compared with its level of ownership on the date
of the Merger Agreement, or
- Tejas enters into an agreement to consummate an Acquisition
Proposal and such transaction is subsequently consummated.
If the Merger Agreement is validly terminated, none of its provisions
survive (except for miscellaneous provisions relating to confidentiality,
expenses, governing law, jurisdiction, waiver of a jury trial, and other
matters). Termination shall be without any liability on the part of any party,
unless such party is in willful breach of a provision of the Merger Agreement.
AMENDMENTS; WAIVERS
The provisions of the Merger Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed. However, after the
adoption of the Merger Agreement by the Tejas stockholders, no amendment or
waiver may, without the further approval of Tejas stockholders, alter or change
the Merger Consideration, any term of the certificate of incorporation of Tejas
or any of the terms or conditions of the Merger Agreement if such alteration or
change would adversely affect Tejas stockholders.
CONSEQUENCES OF THE MERGER
After the Merger, the Tejas stockholders will no longer have any interest
in Tejas or its future earnings or growth. Shares of Tejas Common Stock will be
deregistered under the federal securities laws and will no longer be listed for
trading on the New York Stock Exchange or any other exchange.
FEDERAL REGULATORY APPROVALS
On November 20, the waiting period applicable to the Merger under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 was terminated. In
addition, the Federal Energy Regulatory Commission ("FERC") is reviewing aspects
of the Merger. Under Section 203 of the Federal Power Act, the FERC exercises
authority to approve transactions if they involve a disposition of public
utility facilities. The FERC's approval is based on whether such dispositions
are consistent with the public interest. The FERC regulates a power marketer,
including one of the subsidiaries of Coral, as a public utility, and evaluates
the effect of a proposed disposition of public utility facilities on wholesale
competition, on ratepayers and on state and federal regulation of the public
utility.
Shell and Tejas made appropriate submissions to the FERC on October 23,
1997. Shell and Tejas are unable to predict how long such review will take,
and, in particular, whether such review will be completed in time to permit the
Merger to occur as planned on January 12, 1998.
VOTING AGREEMENTS
As a condition to executing the Merger Agreement, Shell required that Mr.
Hamilton, Mr. Gates and Mr. Precourt each execute a separate voting agreement
obligating them to vote their Common Stock in favor of adopting the Merger
Agreement. As of October 1, 1997, Mr. Hamilton, Mr. Gates and Mr. Precourt
together owned approximately 19% of the outstanding Common Stock. As a result,
the favorable vote of approximately 31% of the outstanding Common Stock, in
addition to the Common Stock held by Mr. Hamilton, Mr. Gates and Mr. Precourt,
will be required in order to adopt the Merger Agreement.
Mr. Hamilton, Mr. Gates and Mr. Precourt may also be required to vote
against competing proposals that might be made. Under the Voting Agreements, Mr.
Hamilton, Mr. Gates and Mr. Precourt may not transfer their Common Stock other
than to certain permitted transferees. Finally, Mr. Hamilton, Mr. Gates and Mr.
Precourt also agreed not to solicit, initiate or encourage any Acquisition
Proposals (as defined above under "Summary of the Merger Agreement"), although
this requirement applies to them in their capacity as stockholders and not in
their capacity as directors. See "Summary of the Merger Agreement" above for a
discussion of the Board's obligations in connection with Acquisition Proposals.
The Voting Agreements terminate when the Merger Agreement is terminated.
CERTAIN PROJECTIONS OF FUTURE OPERATING RESULTS
Tejas does not as a matter of course make public forecasts as to its
future financial performance and condition. However, in connection with the
preliminary negotiations with Shell regarding a transaction in which Tejas and
Shell Midstream would be combined and Shell and Tejas' stockholders would share
equity ownership of the combined company, Tejas furnished Shell with certain
information relating to projected future operating results, cash flows and
financial condition. This information included data to permit Shell to analyze
a number of scenarios based on assumptions concerning the level of capital
expenditures and acquisitions that Tejas might make in the future. This
information was later furnished to Morgan Stanley, Goldman Sachs (Shell's
financial advisor) and Merrill Lynch (the Special Committee's financial
advisor).
The projections set forth below were included in the information provided
by Tejas to Shell. These projections were not prepared in compliance with the
published guidelines of the American Institute of Certified Public Accountants
or the Securities and Exchange Commission (the "Commission") regarding
projections or financial forecasts and are included in this proxy statement only
because the projections were provided to Shell.
These projections constitute forward-looking statements and were based
upon numerous assumptions, including, without limitation, assumptions concerning
general economic conditions in the United States, conditions in the capital
markets utilized by Tejas to access capital to finance operations, energy
prices, the general level of natural gas and petroleum product demand and the
ability of Tejas to continue its past history of growth through profitable
acquisitions. For a list of important factors that, in the view of Tejas, could
cause actual results to differ materially from those set forth in these
projections, see "Forward-Looking Statements May Prove Inaccurate." The
projections set forth below have not been adjusted to reflect any effects of the
Merger.
The projections that Tejas provided to Shell included the following base
case information:
Year ended December 31,
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Earnings from
Operations
(in millions) $153 $173 $209 $239 $272 $327 $384 $442 $502 $563
Earnings per
share $2.25 $2.84 $3.92 $4.96 $6.05 $7.43 $8.76 $10.23 $11.78 $13.46
Debt to
Total
Capitalization 64% 63% 57% 48% 38% 36% 34% 30% 25% 19%
The base case earnings from operations (earnings before interest and
taxes) reflected above assume that Tejas would make a $275 million acquisition
during each year beginning in 2002. Capital expenditures included in the base
case prior to 2002 include only identified capital expenditures of $155 million
in 1997 plus annual minor maintenance capital expenditures consistent with past
practices. The acquisition level of $275 million per year was based on
historical average expenditures for acquisitions completed during the five years
preceding 1997. The earnings from operations assumed to be generated from each
of the $275 million acquisitions is $46 million per year (assuming the
acquisition was completed on January 1). Tejas presented the effect of
acquisitions in this manner so that the impact of acquisitions could be included
or deleted from the time period in question. With respect to future
acquisitions, no assurances can be given that any such acquisition opportunities
will be available to Tejas, or, if available, will be on terms acceptable to
Tejas, and if completed, will produce results comparable to the projected
results.
The earnings per share projections assume that all shares of Tejas' 5 1/4%
Convertible Preferred Stock convert to shares of Common Stock as of January 1,
1998, and that all shares of Tejas' 9.96% Cumulative Preferred Stock are
redeemed on February 1, 1998, with Tejas funding the redemption with debt. The
earnings per share projections assume that Tejas does not issue any new equity,
other than Common Stock issued upon the exercise (and at the expiration) of
outstanding stock options.
These projections were prepared by Tejas in June 1997. Forecasts of
future financial performance and condition could differ materially from the data
set forth above if Tejas were to prepare projections based upon circumstances
existing as of the date of this proxy statement. Neither Tejas nor Shell intend
or have any duty or obligation to publicly disclose updates or revisions to the
projections set forth above to reflect circumstances existing or developments
occurring after the preparation of such projections or to reflect the occurrence
of unanticipated events. Tejas' independent accountants have not examined or
compiled the foregoing forward-looking statements and accordingly do not provide
any assurance with respect to such statements.
THESE PROJECTIONS WERE BASED UPON A VARIETY OF ESTIMATES AND ASSUMPTIONS,
SOME (BUT NOT ALL) OF WHICH ARE SET FORTH ABOVE. THE ESTIMATES AND ASSUMPTIONS
UNDERLYING THE PROJECTIONS INVOLVED JUDGMENTS WITH RESPECT TO, AMONG OTHER
THINGS, FUTURE ECONOMIC, COMPETITIVE, REGULATORY AND MARKET CONDITIONS AND
FUTURE BUSINESS DECISIONS WHICH, THOUGH CONSIDERED BY MANAGEMENT OF TEJAS TO BE
REASONABLE AT THE TIME MADE, MAY NOT BE REALIZED AND ARE INHERENTLY SUBJECT TO
SIGNIFICANT BUSINESS, ECONOMIC, COMPETITIVE AND REGULATORY UNCERTAINTIES. ALL
OF THESE CONDITIONS ARE DIFFICULT TO PREDICT AND MANY ARE BEYOND THE CONTROL OF
TEJAS. THERE CAN BE NO ASSURANCE THAT THE PROJECTIONS WILL BE REALIZED AND
ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE SHOWN. IN LIGHT OF THE
UNCERTAINTIES INHERENT IN FORWARD-LOOKING INFORMATION OF ANY KIND, THE INCLUSION
OF THE PROJECTIONS IN THIS PROXY STATEMENT SHOULD NOT BE REGARDED AS AN
INDICATION THAT SHELL OR ANYONE ELSE WHO RECEIVED THIS INFORMATION CONSIDERED OR
CONSIDERS IT A RELIABLE PREDICTOR OF FUTURE OPERATING RESULTS AND THIS
INFORMATION SHOULD NOT BE RELIED ON AS SUCH.
INTERESTS OF TEJAS MANAGEMENT IN THE MERGER
All Tejas Board members and officers own Tejas stock options, Common Stock
and/or preferred stock and, to that extent, their interest in the merger is the
same as yours. For information concerning management's ownership of stock
options, Common Stock and preferred stock, see "Security Ownership of Beneficial
Owners and Management."
After the Merger is completed, Shell will combine Tejas' business with
Shell Midstream. The entity that will run the combined businesses is referred to
in this section as "New Tejas." New Tejas may be formed as a limited liability
company, limited partnership or corporation. Shell and Sierra Acquisition will
directly or indirectly own the equity of New Tejas. However, as described in
this section, the current directors and management of Tejas will become the
directors and management of New Tejas. As a result of the agreements between
the Management Team (as defined below) and Shell, the possibility exists that
the Management Team may have interests that conflict with the interests of Tejas
stockholders.
Shell and five of Tejas' key employees (the "Management Team") have agreed
to a Management Agreement. The Management Team consists of Frederic C. Hamilton
(Tejas' Chairman), Jay A. Precourt (Tejas' Vice Chairman, Chief Executive
Officer and President), James W. Whalen (Tejas' Senior Executive Vice President,
Chief Financial Officer and Treasurer), Rene R. Joyce (Tejas' Senior Executive
Vice President), and P. Anthony Lannie (Tejas' Senior Vice President, General
Counsel and Secretary). The Management Agreement contains a number of
agreements having to do with how New Tejas will be run after its formation. For
example, the Management Agreement contains an agreement on who will be the
directors of New Tejas, the actions that will require the consent of Shell,
incentive compensation to be paid to the key employees of New Tejas, the scope
of New Tejas' business, and loans to be made by Shell to New Tejas.
Shell only has to form New Tejas if the Merger occurs and if the
Management Team fulfills their obligations under the Management Agreement.
Shell is still obligated to complete the Merger if the Management Team does not
fulfill their obligations under the Management Agreement. The Management Team
only has to perform its obligations under the Management Agreement if the Merger
occurs and Shell fulfills its obligations under the Management Agreement, the
Merger Agreement and related agreements.
MANAGEMENT OF NEW TEJAS
The Management Agreement provides that, for a period of five years, New
Tejas will have ten directors, including one director nominated by Mr. Hamilton
and one director nominated by Mr. Precourt, two directors nominated by Shell and
six additional directors nominated by a nominating committee of the New Tejas
board. After five years, Shell may elect the board of New Tejas, after which
time Messrs. Hamilton and Precourt may each nominate one director. All of the
current directors of Tejas will be asked to become directors of New Tejas.
Tejas' senior management will hold identical officer positions with New Tejas.
The five year period can be terminated early if Mr. Hamilton and Mr. Precourt
cease serving as officers of New Tejas or exercise their SARs
(described below). After this period or termination Shell can take control of
the New Tejas board.
Shell and the Management Team do not have any agreements concerning cash
compensation to be paid to the New Tejas management. However, any change in
compensation, other than in the ordinary course of business, will require
Shell's consent.
ROLL OVER OF TEJAS STOCK OPTIONS INTO SARS
The Merger will make all outstanding Tejas stock options held by directors
and employees of Tejas immediately exercisable. All Tejas director and employee
options outstanding at the Effective Time will be cashed out. Members of the
Management Team agreed with Shell to roll a portion of their employee options
over into stock appreciation rights ("SARs") of New Tejas prior to the Effective
Time. (Mr. Hamilton's options are all director options and are not included in
the roll over). In addition, other key employees of Tejas will also roll over a
portion of their Tejas employee options into SARs prior to the Effective Time.
The terms of the rollover SARs will be consistent with the terms of the
options they replace in areas such as the number of options, the pre-Merger
vesting of the options and the exercise price of the options, although the
expiration date of the rollover SARs will be different than the options and the
rollover SARs will become exercisable upon death, disability or termination
without cause. Instead of receiving a share of Tejas Common Stock when an option
is exercised, the holder of a SAR will receive a cash payment. That cash
payment will be equal to New Tejas' SAR Value, less the exercise price of the
SAR. See the section called "The SAR Value" below for a description of how New
Tejas will determine that amount. Some of the other terms of the SARs that will
replace the options are described below.
SARS
In addition to the New Tejas SARs issued upon the rollover of Tejas
employee options, New Tejas will also grant SARs to the members of the
Management Team and to other key employees of New Tejas. These SARs will vest,
or become exercisable, annually in four equal parts, beginning one year after
grant. The exercise price for half of these SARs will be $61.50 per SAR (which
is equal to the Merger Consideration). The exercise price for the next quarter
of these SARs will be equal to the SAR Value on December 31, 1999. The exercise
price for the last quarter of these SARs will be equal to the SAR Value on
December 31, 2000. 62,500 of Mr. Hamilton's SARs will have an exercise price
equal to the SAR Value on December 31, 1999. 62,500 of Mr. Hamilton's SARs will
have an exercise price equal to the SAR Value on December 31, 2000. The balance
of the SARs that will be granted to Mr. Hamilton will be exercisable at $61.50
per SAR.
No SARs may be exercised during the first year. Each member of the
Management Team must exercise all of his SARs at the same time. Other key
employees will have the right to exercise some or all of their SARs after each
fiscal quarter. The SARs will expire ten years after the formation of New
Tejas, subject to early termination due to termination of employment in some
circumstances. With some exceptions, the SARs cannot be transferred by a New
Tejas employee, although the SARs will be transferred automatically if the
employee dies.
The members of the Management Team also have the right to receive
additional interests in New Tejas if New Tejas sells common equity. Such
interests would be determined on a pro rata basis.
THE SAR VALUE
The SAR Value will be determined by a formula. In calculating the
formula, New Tejas will first determine New Tejas' earnings for the four
quarters preceding the determination date, before expenses for income taxes,
interest, depreciation and amortization and several other adjustments
("EBITDA"). The SAR Value is then determined by multiplying EBITDA by ten,
subtracting New Tejas' net debt (which is generally New Tejas' debt less New
Tejas' cash and some other amounts), and then dividing that amount by the number
of outstanding equity interests of New Tejas and the number of outstanding SARs.
The SAR Value is subject to a number of other adjustments described in the
Management Agreement. For example, the SAR Value may be reduced by a portion of
any damages New Tejas suffers as a result of breaches of the warranties made by
Tejas in the Merger Agreement.
The Management Team has some rights in the Management Agreement to contest
New Tejas' calculation of the SAR Value. If members of the Management Team do
not agree with Shell on the calculation, then the decision may be submitted to
arbitration.
The Merger Consideration would represent a multiple of approximately 12.3
times Tejas' EBITDA as of June 30, 1997 (calculated on a basis consistent with
the calculation that will be required for New Tejas SARs as described above).
The SAR Value (i.e., the amount that the holders of the SARs may receive upon
their exercise of the SARs) may be less than or considerably greater than the
Merger Consideration for a number of reasons, including the fact that the New
Tejas SARs may be exercised during a period of up to ten years and the SAR Value
will be calculated on the basis of a multiple of New Tejas' EBITDA rather than
only Tejas' EBITDA.
NUMBER OF SARS TO BE GRANTED
The table below lists the number of SARs to be granted to members of the
Management Team and other key employees of New Tejas.
Name
Number of Rollover
SARs
Number of New SARs
Frederic C. Hamilton
0
600,000
Jay A. Precourt
325,662
250,000
James W. Whalen
105,032
*
Rene Joyce
95,971
*
P. Anthony Lannie
39,544
*
_______
_________
Total
566,209
1,340,000
_______________________
* Tejas and Shell anticipate that up to 200,000 new SARs may be granted
to a new executive, and that 290,000 new SARs will be granted to Messrs.
Whalen, Joyce and Lannie, together with one Shell Midstream employee.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Approximately 35 employees of Tejas, including the members of the
Management Team, have severance agreements with Tejas. Under these agreements,
Tejas will make severance payments to the employee if he or she is fired or if
the employee's position or compensation is reduced after a change of control of
Tejas. The severance payments include payment of a lump sum based upon a
multiple of annual cash compensation. The Merger itself will not cause a change
of control of Tejas as that term is defined under the agreements, but a change
of control will ultimately occur after the Merger when Shell takes control of
the New Tejas board of directors or when certain other events occur. As a
result, after the change of control occurs, the employees with such agreements
will get severance payments if they are fired or if their position or
compensation is reduced prior to the second anniversary of the change of
control.
In connection with the Merger Agreement, the Management Team agreed to
changes in the severance agreements, which, under some circumstances, would
reduce the severance payments if those payments would be subject to special
federal excise taxes on golden parachute payments.
Mr. Hamilton and Mr. Precourt have agreed that they will not compete with
New Tejas at any time before the first anniversary of the date Shell is
permitted to take control of the New Tejas board of directors.
INDEMNIFICATION; INSURANCE
Tejas has agreed to continue to indemnify its present and former officers
and directors after the Effective Time. In addition, subject to limitations on
the cost of such insurance, Holdings has agreed to cover Tejas' present and
former officers and directors under directors and officers' liability insurance
policies. This obligation continues until six years after the Effective Time.
See "Summary of the Merger Agreement - Indemnification and Insurance of Tejas
Directors and Officers" above.
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
FIVE PERCENT BENEFICIAL OWNERS
The following table sets forth persons who own beneficially more than 5%
of the outstanding Common Stock. This information is as of October 1, 1997 for
Mr. Hamilton and Mr. Gates and as of their most recent filings with the
Commission for others. Except as otherwise indicated, all shares are owned
directly, and the indicated owner has sole voting and investment power with
respect to such shares. Mr. Hamilton and Mr. Gates have agreed to vote in favor
of adopting the Merger Agreement. See "The Voting Agreements."
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership (1) of Class
Iridian Asset Management 2,154,647 10.5
LLC Group(2)
276 Post Road West
Westport, CT 06880-4704
Charles C. Gates (3) 1,761,645 8.6
Cody Company
3773 Cherry Creek North Dr. Ste. 680
Denver, CO 80209
Gabelli Funds, Inc.(4) 1,699,864 8.1
One Corporate Center
Rye, New York 10580-1434
Frederic C. Hamilton (5) 1,451,241 7.0
The Hamilton Companies
1560 Broadway, Suite 2200
Denver, CO 80202
Neuberger & Berman LLC (6) 1,205,740 5.9
605 Third Avenue
New York, New York 10158-3698
Foreign & Colonial Management Limited (7) 1,108,625 5.4
Exchange House, Primrose Street
London EC2A 2NY
United Kingdom
(1) Under regulations of the Commission, shares are deemed to be "beneficially
owned" by a person if such person directly or indirectly has or shares the
power to vote or to dispose of the shares, regardless of whether such
person has any economic interest in the shares. In addition, a person is
deemed to own beneficially any shares of which such person has the right
to acquire beneficial ownership within 60 days, such as by exercise of an
option or by conversion of another security. Percentages are rounded to
the nearest one-tenth of one percent.
(2) Based on a Schedule 13G dated February 3, 1997, filed jointly by Iridian
Asset Management LLC ("Iridian"), LC Capital Management, LLC ("Capital"),
CL Investors, Inc. ("CL Investors"), David L. Cohen ("Cohen") and Harold
J. Levy ("Levy"). Capital owns a 98% interest in Iridian, and CL
Investors owns a 96% interest in Capital. Cohen and Levy each own 50% of
the common shares of CL Investors and a 1% interest in Iridian. Cohen and
Levy also are employees of Arnhold & S. Bleichroeder Advisers, Inc., which
acts as investment adviser to First Eagle Fund of America, Inc. ("First
Eagle"). Each of Iridian, Capital and CL Investor report that they
beneficially own 1,995,419 shares and that they have sole voting and
dispositive power with respect to 1,995,419 shares. The Schedule 13G
indicates that neither Iridian, Capital nor CL Investors has the power or
authority, direct or indirect, to vote or dispose of the shares owned by
First Eagle. First Eagle owns 154,278 shares of Common Stock. Cohen
reports that he beneficially owns 2,151,347 shares and that he has sole
voting and dispositive power with respect to 1,650 shares and shared
voting and dispositive power with respect to 2,149,697 shares. Levy
reports that he beneficially owns 2,154,647 shares and that he has sole
voting and dispositive power with respect to 4,950 shares and shared
voting and dispositive power with respect to 2,149,697 shares. Cohen and
Levy disclaim beneficial ownership of the shares owned by First Eagle.
(3) The 1,761,645 shares of Common Stock held by Mr. Gates consist of 1,186
shares of Common Stock owned directly; 28,677 shares of Common Stock owned
by a trust of which Mr. Gates is the indirect beneficiary; 1,694,830
shares of Common Stock owned by Cody Company, of which Mr. Gates is Chief
Executive Officer, a director and a substantial stockholder; 34,650 shares
of Common Stock subject to director stock options, which options are
presently exercisable or exercisable within 60 days of October 1,1997; and
2,302 shares of Common Stock owned by his wife. Mr. Gates disclaims
beneficial ownership of all of the shares of Common Stock owned by his
wife. Mr. Gates states that he has shared voting and dispositive power
with respect to 1,723,507 shares of Common Stock and sole voting and
dispositive power with respect to 35,836 shares of Common Stock.
(4) Based on Amendment No. 1 to Schedule 13D dated October 7, 1997, Gabelli
Funds, Inc. ("GFI") holds as agent 635,147 shares of Common Stock and
Depositary Receipts for Tejas' 5.25% Convertible Preferred Stock
("Convertible DRs") convertible into 254,147 shares of Common Stock.
GAMCO Investors, Inc. ("GAMCO") holds as agent 881,900 shares of Common
Stock and Convertible DRs convertible into 52,687 shares of Common Stock.
GAMCO is a wholly-owned subsidiary of GFI. Gabelli Associates Limited
("GAL") holds 20,000 shares of Common Stock. Gabelli Securities, Inc.
("GSI"), a majority owned subsidiary of GFI, is the investment advisor of
GAL. Gabelli International Limited ("GIL") holds 2,500 shares of Common
Stock. GIL's investments are managed by Mario J. Gabelli. Mr. Gabelli is
the majority stockholder and Chairman and Chief Executive Officer of GFI.
Gabelli International II Limited ("GIL II") holds 5,000 shares of Common
Stock. GIL II's investments are managed by Mr. Gabelli. Gabelli
Associates Fund ("Gabelli Associates") holds 88,700 shares of Common
Stock. Mr. Gabelli and GSI are the general partners of Gabelli
Associates. Gabelli Foundation, Inc. ("Foundation") holds 5,000 shares of
Common Stock and Convertible DRs convertible into 8,930 shares of Common
Stock. Mr. Gabelli is President, a Trustee and the Investment Manager of
the Foundation. Mr. Gabelli and GFI may be deemed to hold beneficial
ownership of the Common Stock beneficially held by each of the foregoing
persons.
(5) Includes 34,650 shares of Common Stock subject to director stock options,
which options are presently exercisable or exercisable within 60 days of
October 1, 1997. Mr. Hamilton has sole voting and dispositive power with
respect to 1,451,241 shares of Common Stock. On October 16, 1997, Mr.
Hamilton contributed 84,000 shares of Common Stock to a foundation.
(6) Based on a Schedule 13G dated February 10, 1997, Neuberger & Berman, LLC
("N&B") and Neuberger & Berman Management Inc. ("NBMI") indicate that they
are deemed to be beneficial owners of these shares for purposes of Rule
13(d). N&B and NBMI serve as sub-advisor and investment manager,
respectively, of N&B's various mutual funds. Further, N&B has shared
power to make decisions whether to retain or dispose of the securities of
many unrelated clients although it does not however, have an economic
interest in such securities. N&B and NBMI report that the securities are
held in the ordinary course of their business and not with the purpose or
with the effect of changing or influencing the control of the issuer. N&B
reports that it has sole voting power with respect to 125,815 shares. N&B
and NBMI have, regarding the mutual funds, shared voting power with
respect to 934,550 shares. N&B as advisor to individual clients and N&B
and NBMI regarding the various mutual funds have shared dispositive power
with respect to 1,205,740 shares.
(7) Based on a Schedule 13G dated February 10, 1997, the shares are
beneficially owned by Foreign & Colonial Management Limited ("F&C
Limited") and Hypo Foreign & Colonial Management (Holdings) Limited ("F&C
Holdings"). F&C Holdings owns 100% of the outstanding capital stock of
F&C Limited. F&C Limited and F&C Holdings report that they have shared
voting and dispositive power with respect to 1,108,625 shares of Common
Stock.
BENEFICIAL OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth information at October 1, 1997 for the
shares of Common Stock and depositary shares ("9.96% Depositary Shares"), each
such depositary share representing a one-tenth interest in a share of Tejas'
9.96% Cumulative Preferred Stock, par value $1.00 per share, beneficially owned
by each director, each executive officer and by all directors and executive
officers of Tejas as a group and the percentage of such stock so owned. Except
as otherwise indicated, all shares are owned directly, and the indicated owner
has sole voting and investment power with respect to such shares.
Amount and Nature of Amount
and Nature of
Name and Address Beneficial Ownership Percent Beneficial
Ownership of Percent
of Beneficial Owner of Common Stock (1) of Class 9.96% Depositary
Shares (2) of Class
Frederic C. Hamilton (3) 1,451,241 7.0 14,000 *
The Hamilton Companies
1560 Broadway, Suite 2200
Denver, CO 80202
Charles C. Gates (4) 1,761,645 8.6
4,000 *
Cody Company
3773 Cherry Creek North Dr.
Suite 680
Denver, CO 80209
Jay A. Precourt (5) 977,105 4.8 46,200 2.3
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, TX 77010
Robert G. Stone, Jr. (6) 67,498 *
-- --
Kirby Corporation
405 Lexington Avenue, 39th Floor
New York, NY 10174
Arthur L. Kelly (7) 16,099 *
-- --
KEL Enterprises L.P.
Two First National Plaza
20 S. Clark St., Suite 2222
Chicago, Illinois 60603
A.J. Miller (8) 9,999 * 58,700 2.9
The Hamilton Companies
1560 Broadway, Suite 2200
Denver, CO 80202
James W. Whalen (9) 107,139 * 10,000 *
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, Texas 77010
Amount and Nature of Amount
and Nature of
Name and Address Beneficial Ownership Percent Beneficial
Ownership of Percent
of Beneficial Owner of Common Stock (1) of Class 9.96% Depositary
Shares (2) of Class
Rene R. Joyce (10) 97,499 * -- --
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, TX 77010
P. Anthony Lannie (11) 31,755 * -- --
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, TX 77010
Frank T. Whittinghill, III (12) 42,697 * -- --
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, TX 77010
James W. Street (13) 15,169 * -- --
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, TX 77010
All directors and executive 4,577,846 22.2 132,900 6.7
officers of Tejas as a
group (11 persons) (14)
* Less than 1%
(1) See footnote (1) in the table set forth under "Five Percent Beneficial
Owners."
(2) Generally, the 9.96% Depositary Shares have no voting rights unless
quarterly dividends are in arrears for more than six quarters or except in
the case of some amendments to Tejas' Certificate of Incorporation.
(3) See footnote (5) in the table set forth under "Five Percent Beneficial
Owners" for a description of the nature of the beneficial ownership of
Common Stock.
(4) See footnote (3) in the table set forth under "Five Percent Beneficial
Owners" for a description of the nature of the beneficial ownership of
Common Stock.
(5) The 977,105 shares of Common Stock held by Mr. Precourt consist of 304,306
shares of Common Stock owned directly; 199,121 shares of Common Stock
subject to employee stock options held by a family limited partnership,
which options are presently exercisable or exercisable within 60 days of
October 1, 1997; 40,768 shares of Common Stock in Tejas' Thrift Plan (as
of September 30, 1997); 3,772 shares of Common Stock held in an individual
retirement account; 173,439 shares held by a Subchapter S corporation
wholly owned by Mr. Precourt; 227,994 shares of Common Stock held by a
family partnership; and 27,705 shares of Common Stock held by his wife.
Mr. Precourt disclaims beneficial ownership of the shares of Common Stock
held by his wife and the shares of Common Stock exceeding his pecuniary
interest held by the family partnership. Mr. Precourt states that he has
sole voting and dispositive power with respect to 949,400 shares of Common
Stock. Mr. Precourt states that he has sole voting and dispositive power
with respect to 45,200 9.96% Depositary Shares. Mr. Precourt disclaims
beneficial ownership of 1,000 9.96% Depositary Shares held by his wife.
(6) The 67,498 shares of Common Stock held by Mr. Stone consist of 7,021
shares of Common Stock owned directly; 34,650 shares of Common Stock
subject to director stock options, which are presently exercisable or
exercisable within 60 days of October 1, 1997; 15,000 shares of Common
Stock held by trusts of which Mr. Stone is trustee; and 10,827 shares of
Common Stock owned by his wife. Mr. Stone states that he has sole voting
and dispositive power with respect to 41,671 shares of Common Stock, and
shared voting and dispositive power with respect to 25,827 shares of
Common Stock. Mr. Stone disclaims beneficial ownership of the 15,000
shares of Common Stock held by the trusts.
(7) The 16,099 shares of Common Stock held by Mr. Kelly consist of 504 shares
of Common Stock owned directly; 10,395 shares of Common Stock subject to
director stock options, which are presently exercisable or exercisable
within 60 days of October 1, 1997; 3,750 shares of Common Stock held by
Mr. Kelly indirectly through KEL Enterprises, L.P.; 1,250 shares of Common
Stock held by Mr. Kelly indirectly through the Kelly Family Trust; and 200
shares of Common Stock held by the Mildred Wetten Kelly McDermott Living
Trust, of which Mr. Kelly is trustee. Mr. Kelly has sole voting and
dispositive power with respect to 16,099 shares of Common Stock.
(8) The 9,999 shares of Common Stock held by Mr. Miller consist of 1,584
shares of Common Stock owned directly and 8,415 shares of Common Stock
subject to director stock options, which are presently exercisable or
exercisable within 60 days of October 1, 1997. Mr. Miller states that he
has sole voting and dispositive power with respect to 41,700 9.96%
Depositary Shares and 9,999 shares of Common Stock. Mr. Miller disclaims
beneficial ownership of 17,000 9.96% Depositary Shares, which are owned by
his wife.
(9) The 107,139 shares of Common Stock held by Mr. Whalen consist of 104,195
shares of Common Stock subject to employee stock options, which are
presently exercisable or exercisable within 60 days of October 1, 1997,
and 2,944 shares of Common Stock in Tejas' Thrift Plan (as of September
30, 1997). Mr. Whalen has sole voting and dispositive power with respect
to all such shares of Common Stock. Mr. Whalen disclaims beneficial
ownership of such number of the 10,000 9.96% Depositary Shares held by
Diversified Diagnostic Products, Inc., a corporation in which Mr. Whalen
is a stockholder, as exceeds his pecuniary interest.
(10) The 97,499 shares of Common Stock held by Mr. Joyce consist of 9,105
shares of Common Stock owned directly; 73,459 shares of Common Stock
subject to employee stock options, which are presently exercisable or
exercisable within 60 days of October 1, 1997; and 14,935 shares of Common
Stock in Tejas' Thrift Plan (as of September 30, 1997). Mr. Joyce has
sole voting and dispositive power with respect to all such shares of
Common Stock.
(11) The 31,755 shares of Common Stock held by Mr. Lannie consist of 30,300
shares of Common Stock subject to employee stock options, which are
presently exercisable or exercisable within 60 days of October 1, 1997,
and 1,455 shares of Common Stock in Tejas' Thrift Plan (as of September
30, 1997). Mr. Lannie has sole voting and dispositive power with respect
to all such shares of Common Stock.
(12) The 42,697 shares of Common Stock held by Mr. Whittinghill consist of
4,708 shares of Common Stock owned directly; 31,712 shares of Common Stock
subject to employee stock options, which are presently exercisable or
exercisable within 60 days of October 1, 1997; 4,050 shares of Common
Stock in Tejas' Thrift Plan (as of September 30, 1997); and 2,227 shares
of Common Stock in an individual retirement account. Mr. Whittinghill has
sole voting and dispositive power with respect to all such shares of
Common Stock.
(13) The 15,169 shares of Common Stock held by Mr. Street consist of 14,570
shares of Common Stock subject to employee stock options, which are
presently exercisable or exercisable within 60 days of October 1, 1997,
and 599 shares of Common Stock in Tejas' Thrift Plan (as of September 30,
1997). Mr. Street has sole voting and dispositive power with respect to
all such shares of Common Stock.
(14) Includes 576,117 shares of Common Stock subject to director stock options
and employee stock options, which are presently exercisable or exercisable
within 60 days of October 1, 1997.
MARKET PRICE AND DIVIDEND INFORMATION
The Common Stock is principally traded on the New York Stock Exchange
under the ticker symbol "TEJ." The following tables present historical trading
information about the Common Stock:
PRICE
HIGH LOW
PERIOD:
1995
First Quarter . . . . . . . . . . . $28 55/64 $24 35/64
Second Quarter . . . . . . . . . . . 33 15/16 26 3/4
Third Quarter . . . . . . . . . . . 35 59/64 30
Fourth Quarter . . . . . . . . . . . 36. 30 1/2
1996
First Quarter . . . . . . . . . . . $35 59/64 $29 53/64
Second Quarter . . . . . . . . . . . 39. 32 43/64
Third Quarter . . . . . . . . . . . 36 7/8 32 1/8
Fourth Quarter . . . . . . . . . . . 47 5/8 35 3/4
1997
First Quarter . . . . . . . . . . . $47 3/8 $42
Second Quarter . . . . . . . . . . . 47 7/8 38 1/2
Third Quarter . . . . . . . . . . . 60 1/4 38 3/4
Fourth Quarter (through November 20, 1997). 60 5/8 58 7/8
September 22, 1997 (Last trading day
before the Board's approval of the Merger
Agreement with Shell) . . . . . . . $50 $49 1/4
November 20, 1997 . $60 5/8 $60 9/16
On the record date, there were 897 stockholders of record of the Common
Stock.
On July 19, 1995, Tejas' Board authorized a stock dividend of one-tenth of
one share of Common Stock for each share of Common Stock outstanding payable to
stockholders of record on July 27, 1995. On April 11, 1996, Tejas' Board
authorized a three-for-two stock split effected in the form of a stock dividend,
effective May 13, 1996 for stockholders of record as of April 26, 1996. Stock
prices used in the table above have been adjusted to give retroactive effect to
the 1995 stock dividend and the 1996 three-for-two stock split for periods prior
to April, 1996. Such adjusted prices may not reflect prices which may actually
have occurred had such transactions been in effect during the periods presented.
No cash dividends have been paid on the Common Stock by Tejas since its
shares were publicly distributed, and Tejas does not currently intend to pay
cash dividends on its Common Stock. Tejas' dividend policy has been reviewed by
the Board of Tejas from time to time in light of, among other things, Tejas'
earnings and financial position, capital requirements and limitations imposed by
its credit facilities. The terms of Tejas' outstanding 9.96% Cumulative
Preferred Stock restrict the distributions Tejas may make if there is any
arrearage in dividends. In addition, Tejas' credit facilities restrict the
distributions it may receive from its subsidiaries.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
TO TEJAS STOCKHOLDERS AND OPTIONHOLDERS
For federal income tax purposes, your receipt of cash in exchange for your
Common Stock in the Merger will be taxable. You will recognize gain or loss for
federal income tax purposes at the Effective Time. Gain or loss will be
measured by the difference between the Merger Consideration received for your
shares and your adjusted basis in the shares. If the shares constitute a capital
asset in your hands, the rate at which any gain is taxed for federal income tax
purposes will depend on how long you have held the shares on the date of the
Merger. Under recently enacted changes to the federal tax laws, the holding
period necessary to receive the benefit of the lowest capital gains rate has
been extended from twelve months to eighteen months.
If you are a nonresident alien individual, a foreign corporation, a
nonresident alien fiduciary of a foreign estate or trust, or a foreign
partnership with certain types of partners (a "non-U.S. holder"), you may not be
subject to federal income tax with respect to any gain or loss on the Common
Stock. However, this exemption is subject to a number of complex limitations
that depend on your particular circumstances. One limitation will apply to a
non-U.S. holder who held more than five percent of the Common Stock at any time
during the five year period prior to the Effective Time. Because Tejas believes
it is a U.S. real property holding corporation, such holders may be subject to
federal income tax.
In general, if you hold employee or director stock options, you will be
required to report as ordinary taxable income any cash you receive in
cancellation of the options. In addition, any cash payable to you will be
reduced by the amount of any taxes required to be withheld on such ordinary
income.
THIS SUMMARY DESCRIBES ALL OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER. IT DOES NOT DISCUSS ALL POTENTIALLY RELEVANT FEDERAL INCOME TAX
MATTERS OR THE CONSEQUENCES TO ANY STOCKHOLDERS OR OPTIONHOLDERS SUBJECT TO
SPECIAL TAX TREATMENT. IT DOES NOT DISCUSS ANY STATE OR LOCAL TAX CONSEQUENCES
OF THE MERGER. YOUR TAX CONSEQUENCES WILL DEPEND ON YOUR PARTICULAR
CIRCUMSTANCES. FOR THIS REASON, AND PARTICULARLY IN LIGHT OF THE RECENT CHANGES
TO THE FEDERAL TAX LAWS REGARDING CAPITAL GAINS, YOU ARE URGED TO CONSULT YOUR
OWN TAX ADVISOR CONCERNING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE
MERGER.
APPRAISAL RIGHTS
If you hold Common Stock and you do not wish to accept the Merger
Consideration, then Section 262 of the Delaware General Corporation Law provides
that you may elect to have the fair value of your shares (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
determined by the Delaware Chancery Court. This amount would then be paid in
cash, together with a fair rate of interest. Section 262 is set forth in its
entirety in Annex C to this proxy statement.
If you wish to exercise your appraisal right or to preserve the right to do
so, you should carefully review Annex C. If you fail to comply with the
procedures specified in Section 262 in a timely manner you may lose your
appraisal right. Because of the complexity of these procedures, you should seek
the advice of counsel if you are considering exercising your appraisal rights.
If you wish to exercise the right to demand appraisal under Section 262, you
must satisfy each of the following conditions:
You must not vote in favor of the Merger.
You must deliver to Tejas a written demand for appraisal of your
Common Stock before the vote on the Merger Agreement at the Special
Meeting. This written demand for appraisal must be in addition to and
separate from any proxy or vote against the Merger Agreement. Merely
voting against, or abstaining from voting, or failing to vote in favor
of adoption of the Merger Agreement will not constitute a demand for
appraisal within the meaning of Section 262.
You must continuously hold your Common Stock from the date you make
your demand through the Effective Time. If you transfer your Common
Stock before the Effective Time, you will lose your right to
appraisal.
You must file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of your Common Stock within 120 days
after the Effective Time.
Demands for appraisal must be made in writing and must be mailed or
delivered to: James W. Whalen, Senior Executive Vice President and Chief
Financial Officer, Tejas Gas Corporation, 1301 McKinney, Suite 700, Houston,
Texas 77010.
IF YOU ARE CONSIDERING SEEKING APPRAISAL, YOU SHOULD BE AWARE THAT THE FAIR
VALUE OF YOUR SHARES OF COMMON STOCK AS DETERMINED UNDER SECTION 262 COULD BE
GREATER THAN, THE SAME AS, OR LESS THAN THE MERGER CONSIDERATION. THE MERRILL
LYNCH OPINION IS NOT AN OPINION AS TO FAIR VALUE UNDER SECTION 262.
If you demand appraisal of your Common Stock under Section 262 and you fail
to perfect, or withdraw or lose, your right to appraisal, your Common Stock will
be converted into the Merger Consideration. You may withdraw a demand for
appraisal by delivering to Tejas a written withdrawal of the demand and
acceptance of the Merger Consideration, except that if you try to withdraw more
than 60 days after the Effective Time, Tejas must give its consent.
The foregoing is a summary of the provisions of Section 262 of the General
Corporation Law of the State of Delaware and is qualified in its entirety by
reference to the full text of such Section, which is included as Annex C.
STOCKHOLDER PROPOSALS
Proposals by stockholders for which consideration is desired at the 1998
annual meeting of stockholders must be received by Tejas by December 8, 1997, in
order to be considered for inclusion in proxy materials for the 1998 annual
meeting. However, if the Merger is consummated, Tejas will not have public
stockholders and will not send any proxy materials.
OTHER MATTERS
TEJAS WILL PROVIDE WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS SOLICITED
HEREBY, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF TEJAS' ANNUAL
REPORT ON FORM 10-K (INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
THERETO, BUT EXCLUDING EXHIBITS) REQUIRED TO BE FILED WITH THE COMMISSION FOR
THE YEAR ENDED DECEMBER 31, 1996. SUCH REQUESTS SHOULD BE DIRECTED TO JAMES W.
WHALEN, SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF TEJAS, AT
TEJAS' ADDRESS SET FORTH ON THE NEXT PAGE.
By Order of the Board of Directors,
P. Anthony Lannie
Secretary
Houston, Texas
November 20, 1997
YOU ARE URGED TO SEND IN YOUR EXECUTED PROXY PROMPTLY.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, Tejas files reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information contain additional information about Tejas. You can inspect and
copy these materials at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
Suite 1300, New York, New York 10048. For further information concerning the
Commission's public reference rooms, you may call the Commission at
1-800-SEC-0330. Some of this information may also be accessed on the World
Wide Web through the Commission's Internet address at "http://www.sec.gov."
The Commission allows Tejas to "incorporate by reference" information into
this proxy statement, which means that Tejas can disclose important information
by referring you to another document filed separately with the Commission.
Information incorporated by reference is considered part of this proxy
statement, except to the extent that the information is superseded by
information in this proxy statement. This proxy statement incorporates by
reference the information contained in the following documents previously filed
by Tejas with the Commission (Commission file number 1-17389):
(a) Tejas' Annual Report on Form 10-K for the fiscal year ended December
31, 1996;
(b) Tejas' Quarterly Reports on Form 10-Q for the periods ended March 31,
1997, June 30, 1997 and September 30, 1997; and
(c) Tejas' Current Report on Form 8-K dated September 26, 1997.
Tejas also incorporates by reference the information contained in all
other documents Tejas files with the Commission after the date of this proxy
statement and before the special meeting. The information contained in any such
document will be considered part of this proxy statement from the date the
document is filed.
If you are a stockholder of Tejas and would like to receive a copy of any
document incorporated by reference into this proxy statement (which will not
include any of the exhibits to the document other than those exhibits that are
themselves specifically incorporated by reference into this proxy statement),
you should call or write to James W. Whalen, Senior Executive Vice President,
Chief Financial Officer and Treasurer, Tejas Gas Corporation, 1301 McKinney,
Suite 700, Houston, Texas 77010 (telephone: (713) 658-0509). In order to ensure
timely delivery of the documents you request, you should make your request by
December 19, 1997.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN (OR INCORPORATED BY
REFERENCE INTO) THIS PROXY STATEMENT. TEJAS HAS NOT AUTHORIZED ANYONE TO GIVE
ANY INFORMATION DIFFERENT FROM THE INFORMATION CONTAINED IN (OR INCORPORATED BY
REFERENCE INTO) THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED NOVEMBER
20, 1997. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT IS ACCURATE AS OF ANY LATER DATE, AND THE MAILING OF THIS PROXY
STATEMENT TO STOCKHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.<PAGE>
ANNEX A
MERGER AGREEMENT
dated as of
September 23, 1997
among
TEJAS GAS CORPORATION,
SHELL OIL COMPANY,
TRANGO HOLDINGS CORPORATION
and
TANGO ACQUISITION CORPORATION
TABLE OF CONTENTS
PAGE
ARTICLE 1
THE MERGER
SECTION 1.01. The Merger . . . . . . . . . . . . . . . . .
2
SECTION 1.02. Conversion of Shares . . . . . . . . . . . .
. .
3
SECTION 1.03. Surrender and Payment . . . . . . . . . . . .
.
4
SECTION 1.04. Dissenting Shares . . . . . . . . . . . . . .
.
6
SECTION 1.05. Stock Options . . . . . . . . . . . . . . . .
. .
6
SECTION 1.06. Redemption of the Company 5 1/4%
Preferred . . . . . . . . . . . . . . . . .
7
SECTION 1.07. Transfer Taxes, etc . . . . . . . . . . . . .
. .
7
SECTION 1.08. Creation of Sierra Acquisition . . . . . . .
. .
7
SECTION 1.09. Shell Guarantee . . . . . . . . . . . . . . .
. .
7
ARTICLE 2
PAGE
THE SURVIVING CORPORATION
SECTION 2.01. Certificate of Incorporation . . . . . . . .
. .
8
SECTION 2.02. By-laws . . . . . . . . . . . . . . . . . . .
. .
8
SECTION 2.03. Directors and Officers . . . . . . . . . . .
. .
8
ARTICLE 3
WARRANTIES OF THE COMPANY
SECTION 3.01. Corporate Existence and Power . . . . . . . .
. .
9
SECTION 3.02. Corporate Authorization . . . . . . . . . . .
. .
9
SECTION 3.03. Governmental Authorization . . . . . . . . .
. .
9
SECTION 3.04. Non-Contravention . . . . . . . . . . . . . .
. .
10
SECTION 3.05. Capitalization . . . . . . . . . . . . . . .
. .
10
SECTION 3.06. Subsidiaries . . . . . . . . . . . . . . . .
. .
11
SECTION 3.07. SEC Filings . . . . . . . . . . . . . . . . .
. .
13
SECTION 3.08. Financial Statements . . . . . . . . . . . .
. .
13
SECTION 3.09. Disclosure Documents . . . . . . . . . . . .
. .
14
SECTION 3.10. Absence of Certain Changes . . . . . . . . .
. .
14
SECTION 3.11. Litigation; Compliance . . . . . . . . . . .
. .
16
SECTION 3.12. Taxes . . . . . . . . . . . . . . . . . . . .
. .
17
SECTION 3.13. ERISA . . . . . . . . . . . . . . . . . . . .
. .
19
SECTION 3.14. Permits . . . . . . . . . . . . . . . . . . .
. .
22
SECTION 3.15. Required Stockholder Vote . . . . . . . . . .
. .
23
SECTION 3.16. Finders Fees . . . . . . . . . . . . . . . .
. .
23
SECTION 3.17. Environmental Matters . . . . . . . . . . . .
. .
23
SECTION 3.18. Restrictions on Business Activities . . . . .
. .
23
SECTION 3.19. Title to Property . . . . . . . . . . . . . .
. .
24
SECTION 3.20. Interested Party Transactions . . . . . . . .
. .
24
SECTION 3.21. Insurance . . . . . . . . . . . . . . . . . .
. .
24
SECTION 3.22. Opinion of Financial Advisor . . . . . . . .
. .
25
SECTION 3.23. Intellectual Property . . . . . . . . . . . .
. .
25
SECTION 3.24. Certain Obligations . . . . . . . . . . . . .
. .
26
SECTION 3.25. Public Utility
. . . . . . . . . . . . . . . . . . . . .
.
27
SECTION 3.26. Takeover Statutes . . . . . . . . . . . . . .
. .
27
SECTION 3.27. Minute Books . . . . . . . . . . . . . . . .
. .
27
ARTICLE 4
WARRANTIES OF SHELL
SECTION 4.01. Corporate Existence and Power . . . . . . . .
. .
28
SECTION 4.02. Corporate Authorization . . . . . . . . . . .
. .
28
SECTION 4.03. Governmental Authorization . . . . . . . . .
. .
28
SECTION 4.04. Non-Contravention . . . . . . . . . . . . . .
. .
29
SECTION 4.05. Disclosure Documents . . . . . . . . . . . .
. .
29
SECTION 4.06. Public Utility . . . . . . . . . . . . . . .
. .
30
SECTION 4.07. Finders Fees . . . . . . . . . . . . . . . .
. .
30
SECTION 4.08. Litigation . . . . . . . . . . . . . . . . .
. .
30
SECTION 4.09. Financing . . . . . . . . . . . . . . . . . .
. .
30
SECTION 4.10. Ownership of Company Common Shares . . . . .
. .
30
ARTICLE 5
COVENANTS OF THE COMPANY
SECTION 5.01. Affirmative Covenants of the Company . . . .
. .
31
SECTION 5.02. Negative Covenants of the Company . . . . . .
. .
31
SECTION 5.03. No Solicitation . . . . . . . . . . . . . . .
. .
35
SECTION 5.04. Settlement of Certain Claims . . . . . . . .
. .
36
SECTION 5.05. Antitakeover Statutes . . . . . . . . . . . .
. .
37
ARTICLE 6
COVENANTS OF EACH PARTY
SECTION 6.01. Reasonable Efforts . . . . . . . . . . . . .
. .
37
SECTION 6.02. Pending and Upcoming FERC Proceedings . . . .
. .
38
SECTION 6.03. Public Announcements . . . . . . . . . . . .
. .
39
PAGE
SECTION 6.04. Notification of Certain Matters . . . . . . .
. .
39
SECTION 6.05. Proxy Statement; Stockholder Meeting . . . .
. .
39
SECTION 6.06. Access to Information;
Confidentiality . . . . . . . . . . . . . .
.
40
SECTION 6.07. Confidentiality Agreement . . . . . . . . . .
. .
40
SECTION 6.09. Director and Officer Liability . . . . . . .
. .
40
SECTION 6.10. Revised Schedules . . . . . . . . . . . . . .
. .
41
ARTICLE 7
CONDITIONS
SECTION 7.01. Conditions to the Obligations of Each
Party . . . . . . . . . . . . . . . . . . .
.
42
SECTION 7.02. Conditions to the Obligations of
Shell, Sierra Acquisition,
Holdings and MergerSub . . . . . . . . . .
.
43
SECTION 7.03. Conditions to the Obligations of the
Company . . . . . . . . . . . . . . . . . .
.
44
ARTICLE 8
TERMINATION
SECTION 8.01. Termination . . . . . . . . . . . . . . . . .
. .
45
SECTION 8.02. Effect of Termination . . . . . . . . . . . .
. .
47
SECTION 8.03. Certain Fees . . . . . . . . . . . . . . . .
. .
47
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices . . . . . . . . . . . . . . . . . . .
. .
48
SECTION 9.02. Amendments; No Waivers . . . . . . . . . . .
. .
50
SECTION 9.03. Rules of Construction . . . . . . . . . . . .
. .
50
SECTION 9.04. Successors and Assigns . . . . . . . . . . .
. .
50
SECTION 9.05. Governing Law; etc . . . . . . . . . . . . .
50
SECTION 9.06. Counterparts; Effectiveness . . . . . . . . .
. .
51
SECTION 9.07. Parties in Interest . . . . . . . . . . . . .
. .
51
SECTION 9.08. Severability . . . . . . . . . . . . . . . .
. .
52
SECTION 9.09. Entire Agreement . . . . . . . . . . . . . .
. .
52
SECTION 9.10. Survival of Warranties . . . . . . . . . . .
. .
52
EXHIBITS
Exhibit A Amended Certificate of Incorporation of the
Company
Exhibit B Press Release
SCHEDULES
Schedule 3.04(b)(i) Non-Contravention
Schedule 3.05(a) Capitalization
Schedule 3.06(a) Subsidiaries
Schedule 3.06(b) Subsidiaries
Schedule 3.08 Financial Statements
Schedule 3.10 Absence of Certain Changes
Schedule 3.11(a) Litigation; Compliance
Schedule 3.11(b) Litigation; Compliance
Schedule 3.12(b) Taxes
Schedule 3.12(c) Taxes
Schedule 3.14(1) Permits
Schedule 3.14(2) Permits
Schedule 3.17 Environmental Matters
Schedule 3.18 Restrictions on Business Activities
Schedule 3.19 Title to Property
Schedule 3.20 Interested Party Transactions
iii
PAGE
Schedule 3.21 Insurance
Schedule 3.23(b) Intellectual Property
Schedule 3.23(c) Intellectual Property
Schedule 3.24(a)(1) Intellectual Property
Schedule 3.24(a)(2) Intellectual Property
Schedule 3.24(b) Intellectual Property
Schedule 3.24(c) Intellectual Property
Schedule 4.04(b)(i) Non-Contravention
Schedule 4.08 Litigation
Schedule 5.02 Negative Covenants of the Company
Schedule 5.02(e) Negative Covenants of the Company
Schedule 5.02(f) Negative Covenants of the Company
MERGER AGREEMENT
MERGER AGREEMENT dated as of September 23, 1997 among
TEJAS GAS CORPORATION, a Delaware corporation (the COMPANY ), SHELL
OIL COMPANY, a Delaware corporation ( SHELL ), TRANGO HOLDINGS
CORPORATION, a Delaware corporation ( HOLDINGS ), and TANGO
ACQUISITION CORPORATION, a Delaware corporation and a wholly
owned subsidiary of Holdings ( MERGERSUB , and, together with Shell,
Holdings and SIERRA ACQUISITION, an entity to be formed prior
to the Effective Time ( SIERRA ACQUISITION ), the SHELL GROUP ).
Capitalized terms used but not defined in this Agreement shall
have the meanings assigned to them in Annex I.
WHEREAS, by approval of their Boards of Directors, each
of Shell, Holdings, MergerSub and the Company have determined to
engage in the transactions contemplated hereby, pursuant to
which, among other things, at the Effective Time, (i) MergerSub shall
merge with and into the Company, and (ii) each share of Common
Stock, par value $.25 per share, of the Company ( COMPANY
COMMON SHARES ) (except for Company Common Shares owned by the
Company and Company Common Shares as to which appraisal rights have
been perfected) shall be converted into the right to receive, in
exchange for such Company Common Share, cash from Sierra
Acquisition in an amount equal to $61.50, without interest
(the MERGER CONSIDERATION ), as set forth herein;
WHEREAS, the Board of Directors of the Company (at a
meeting duly called and held, and acting on the unanimous
recommendation of a special committee of the Board of
Directors ofthe Company comprised entirely of non-management independent
directors (the SPECIAL COMMITTEE )), has approved this
Agreement and the Merger contemplated hereby and resolved to recommend,
subject to its fiduciary duties, that stockholders of the
Company approve and adopt this Agreement and the Merger;
WHEREAS, the Boards of Directors of each of Shell,
Holdings, and MergerSub have approved the transactions contemplated
hereby;
WHEREAS, Shell and the Company desire to make certain
warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to prescribe certain
conditions to the transactions contemplated hereby; and
WHEREAS, as inducements to Shell, Holdings, and
MergerSub
entering into this Agreement and incurring the obligations set
forth herein, and contemporaneously with the execution and
delivery of this Agreement, Messrs. Charles C. Gates, Jay A.
iv
PAGE
Precourt and Frederic C. Hamilton and certain of their
respective
Affiliates have entered into three separate Voting Agreements
with
Shell (the VOTING AGREEMENTS ) pursuant to which, among other
things, each such stockholder has agreed to vote all of its
Company Common Shares in favor of this Agreement and the
Merger.
NOW, THEREFORE, in consideration of the foregoing and
the
warranties, covenants and agreements contained herein, the
parties
hereto agree as follows:
ARTICLE 1
The Merger
SECTION 1.01 The Merger. (a) At the Effective Time,
MergerSub shall be merged (the MERGER ) with and into the
Company
in accordance with the General Corporation Law of the State of
Delaware (the DELAWARE LAW ), whereupon the separate
existence of
MergerSub shall cease, and the Company shall be the surviving
corporation (the SURVIVING CORPORATION ).
(b) The Closing shall take place at the offices of Shell
in
Houston, Texas at 10:00 a.m. on December 31, 1997 or at such
other
place, time and date as the parties hereto may agree. The
date on
which the Effective Time occurs is referred to herein as the
CLOSING DATE.
(c) At the Closing, upon fulfillment or waiver of
the
conditions precedent to the Merger set forth in Article 7, the
parties shall cause a Certificate of Merger to be filed with
the
Secretary of State of the State of Delaware, in such form as
required by, and duly executed in accordance with, the
relevant
provisions of the Delaware Law using the procedures permitted
in Section 251 of the Delaware Law. The Merger shall become
effective at such time as the certificate of merger is duly
filed with the Secretary of State of the State of Delaware or at
such later time as the Company and Shell agree to specify in the
certificate of merger (the EFFECTIVE TIME ).
(d) From and after the Effective Time, the
Surviving
Corporation shall possess all the rights, privileges, powers
and
franchises and be subject to all of the restrictions,
disabilities
and duties of the Company and MergerSub, all as provided under
Delaware Law.
(e) The Surviving Corporation may, at any time
after
the Effective Time, take any action (including the execution
and
delivery of any document) in the name and on behalf of either
of
the Company and MergerSub in order to carry out and effectuate
the
transactions contemplated by this Agreement.
(f) The Company hereby represents that (x) the
Special
Committee has unanimously (i) determined that this Agreement
and
the Merger are fair to and in the best interests of the
Company s
stockholders, and (ii) recommended that this Agreement and the
Merger be approved by the full Board of Directors and (y) its
Board of Directors, at a meeting duly called and held, and
acting
on such unanimous recommendation of the Special Committee, has
unanimously determined that this Agreement and the Merger are
fair to and in the best interests of the Company s
stockholders,
approved this Agreement and the Merger (and for purposes of
Section 203 of the Delaware Law, the Voting Agreements), which
v
PAGE
approval satisfies in full the requirements of the
Delaware Law
that the Agreement be approved by the Company s Board of
Directors
and resolved to recommend approval and adoption of this
Agreement
and the Merger by its stockholders; provided, that such
recommendation may be withdrawn, modified or amended to the
extent
the Board of Directors of the Company deems it necessary to do
so
in the exercise of its fiduciary obligations to the Company s
stockholders based on the advice of counsel. The Company
further
represents that Merrill Lynch, Pierce, Fenner & Smith
Incorporated
( MERRILL LYNCH ) has delivered to the Company s Board of
Directors its written opinion that, as of the date of such
opinion, the Merger Consideration to be paid in the Merger was
fair to the holders of Company Common Shares from a financial
point of view. The Company has been advised that all of its
directors and executive officers who hold Company Common
Shares
intend to vote in favor of the Merger.
SECTION 1.02 Conversion of SharesAt the Effective Time:
(a) each Company Common Share held by the Company as
treasury stock shall be canceled and no payment shall be made
with
respect thereto;
(b) each Company Common Share outstanding immediately
prior
to the Effective Time shall (except as otherwise provided in
Section 1.02(a) or as provided in Section 1.04 with respect to
Company Common Shares as to which appraisal rights have been
perfected) be converted into the right to receive in exchange
for
such Company Common Share cash from Sierra Acquisition in an
amount equal to the Merger Consideration, without interest.
The
Company Common Shares so converted and exchanged as provided
in
this paragraph shall remain outstanding and be held by Sierra
Acquisition as common stock of the Surviving Corporation.
After
the Effective Time, the Company Common Shares held by Sierra
Acquisition shall constitute the only outstanding common stock
of
the Surviving Corporation. If, subsequent to the date of this
Agreement but prior to the Effective Time, the Company changes
the
number of Company Common Shares outstanding as a result of any
stock split, stock dividend, recapitalization or similar
transaction, the Merger Consideration obtainable upon
conversion
of a Company Common Share as provided in this Section 1.02(b)
shall be appropriately adjusted;
(c) each share of common stock, par value $.01 per
share, of
MergerSub outstanding immediately prior to the Effective Time
shall be canceled, and no payment shall be made with respect
thereto; and
(d) each share of the Company s 9.96% Cumulative
Preferred
Stock, par value $1.00 per share (the COMPANY 9.96% PREFERRED
),
shall remain outstanding as one share of 9.96% Preferred of
the
Surviving Corporation.
SECTION 1.03. Surrender and Payment. (a) On and after
the
Effective Time, Sierra Acquisition will make available to the
Exchange Agent, as needed to permit prompt payment of the
Merger
Consideration in accordance with this Agreement, the Merger
Consideration to be exchanged for Company Common Shares in
accordance with Section 1.02 (b). Promptly after the
Effective
Time, Sierra Acquisition will send, or will cause the Exchange
Agent to send, to each holder of Company Common Shares at the
Effective Time a letter of transmittal for use in such
exchange
vi
PAGE
(which shall specify that the delivery shall be
effected, and risk
of loss shall pass, only upon proper delivery of the
certificates
representing Company Common Shares to the Exchange Agent).
(b) Each holder of Company Common Shares that have been
converted into the right to receive in exchange for each
Company
Common Share the Merger Consideration, upon surrender to the
Exchange Agent of a certificate or certificates representing
such
Company Common Shares, together with a properly completed
letter
of transmittal covering such Company Common Shares, will be
entitled immediately upon such surrender to receive the Merger
Consideration payable in respect of such Company Common
Shares;
provided that the Exchange Agent will withhold from payment
all
amounts required to be withheld by applicable law, including,
without limitation, under the provisions of Code section 1445,
unless the holder of Company Common Shares makes applicable
affidavits or certifications reasonably satisfactory to the
Exchange Agent (based on instructions from Sierra Acquisition)
that the Merger Consideration is not subject to withholding.
Until so surrendered, each certificate representing Company
Common
Shares that have been converted into the right to receive in
exchange for each Company Common Share the Merger
Consideration
shall, after the Effective Time, represent for all purposes,
only
the right to receive the Merger Consideration.
(c) If any portion of the Merger Consideration is to be
paid
to a Person other than the registered holder of the Company
Common
Shares represented by the certificate or certificates
surrendered
in exchange therefor, it shall be a condition to such payment
that
the certificate or certificates so surrendered shall be
properly
endorsed or otherwise be in proper form for transfer and that
the
Person requesting such payment shall pay to the Exchange Agent
any
transfer or other taxes required as a result of such payment
to a
Person other than the registered holder of such Company Common
Shares or establish to the satisfaction of the Exchange Agent
(based on instructions from Sierra Acquisition) that such tax
has
been paid or is not payable.
(d) After the Effective Time, there shall be no further
registration of transfers of Company Common Shares other than
any
such registration into the names of Sierra Acquisition or
Holdings, and other than registration of any subsequent
transfers
by Sierra Acquisition or Holdings. If, after the Effective
Time,
certificates representing Company Common Shares are presented
to
the Surviving Corporation (by any Person other than by Sierra
Acquisition or Holdings or any subsequent transferee from
Sierra
Acquisition or Holdings), they shall be exchanged for the
consideration provided for, and in accordance with the
procedures
set forth, in this Article 1 and the relevant certificates
formerly representing Company Common Shares shall be delivered
to
Sierra Acquisition as provided in Section1.02(b).
(e) Any Merger Consideration made available to the
Exchange
Agent pursuant to Section 1.03(a) that remains unclaimed by
the
holders of Company Common Shares one year after the Effective
Time
shall be returned to Sierra Acquisition, upon demand, and any
such
holders who have not exchanged their Company Common Shares for
the
Merger Consideration in accordance with this Section prior to
that
time shall thereafter look only to Sierra Acquisition for
payment
of the Merger Consideration in respect of their Company Common
Shares, subject to applicable abandoned property, escheat and
other similar laws. Notwithstanding the foregoing, Sierra
vii
PAGE
Acquisition shall not be liable to any former holder
of Company
Common Shares for any amount paid to a public official
pursuant to
applicable abandoned property, escheat or other similar laws.
Any
Merger Consideration remaining unclaimed by holders of Company
Common Shares one day prior to such time as such amounts would
otherwise escheat to or become property of any governmental
entity
shall, to the extent permitted by applicable law, become the
property of Sierra Acquisition free and clear of any claims or
interest of any Person previously entitled thereto.
(f) Any Merger Consideration made available to the
Exchange
Agent pursuant to Section 1.03(a) to pay for Company Common
Shares
for which appraisal rights have been perfected shall be
returned
to Sierra Acquisition upon its demand.
(g) Shell, Sierra Acquisition, Holdings, MergerSub and
the
Company, respectively, shall use all reasonable efforts to
take
all such action as may be necessary or appropriate in order to
effectuate the Merger as promptly as possible, subject, in the
case of the Company, to applicable fiduciary duties as
provided in
Section 5.03. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the
purposes
of this Agreement and to vest the Surviving Corporation with
full
right, title and possession to all assets, property, rights,
privileges, immunities, powers and franchises of either of the
Company or MergerSub, the officers and directors of the
Surviving
Corporation are fully authorized in the name of either of the
Company or the MergerSub or otherwise to take, and shall take,
all
such action.
SECTION 1.04. Dissenting SharesNotwithstanding Section
1.02, Company Common Shares outstanding immediately prior to
the
Effective Time and held by a holder who has not voted in favor
of
the Merger or consented thereto in writing and who has
demanded
appraisal for such Company Common Shares in accordance with
Delaware Law ( DISSENTING SHARES ) shall not be converted into
a
right to receive the Merger Consideration, unless such holder
fails to perfect or withdraws or otherwise loses its right to
appraisal or it is determined that such holder does not have
appraisal rights in accordance with Delaware Law. If after
the
Effective Time such holder fails to perfect or withdraws or
loses
its right to appraisal, or if it is determined that such
holder
does not have an appraisal right, such Company Common Shares
shall
be treated as if they had been converted as of the Effective
Time
into a right to receive in exchange for each Company Common
Share
the Merger Consideration. The Company shall give Shell,
Holdings
and Sierra Acquisition prompt notice of any demands received
by
the Company for appraisal of Company Common Shares, and Shell,
Holdings and Sierra Acquisition shall have the right to
participate in all negotiations and proceedings with respect
to
such demands except as required by applicable law. The Company
shall not, except with the prior written consent of Shell,
Holdings and Sierra Acquisition, make any payment with respect
to,
or settle or offer to settle, any such demands.
SECTION 1.05. Stock Options. Except as otherwise
agreed in
writing prior to the Effective Time between Holdings and the
holder of any stock option, each stock option to purchase
Company
Common Shares outstanding at the Effective Time shall be
canceled
and each holder of any such option, whether or not then vested
or
exercisable, shall be paid by the Company promptly after the
Effective Time for each such option an amount in cash
determined
viii
PAGE
by multiplying (i) the excess, if any, of the amount
of the Merger
Consideration over the applicable per share exercise price of
such
option by (ii) the number of Company Common Shares such holder
could have purchased (assuming full vesting of all options)
had
such holder exercised such option in full immediately prior to
the
Effective Time.
SECTION 1.06. Redemption of the Company 5-1/4%
Preferred.
Prior to the Effective Time, the Company shall take all
necessary
steps to redeem all of its 5-1/4% Convertible Preferred Stock,
par
value $1.00 per share (the COMPANY 5-1/4% PREFERRED ), in
accordance with the Certificate of Designation for such
Company 5-
1/4% Preferred, so that such redemption shall be completed on
or
prior to the record date for the Company Stockholder Meeting.
SECTION 1.07. Transfer Taxes, etc. Except as set forth
in
Section 1.03(c), (i) Holdings shall bear and be responsible
for
the payment of all transfer, stamp, documentary, sales, use,
registration and other similar Taxes (but excluding any
federal,
state, or local taxes measured by the income of the Person
responsible for paying such Taxes) (collectively, the
TRANSFER
TAXES ) incurred in connection with the exchange of Company
Common
Shares for the Merger Consideration up to the amount which
would
have been incurred had such shares been acquired by Holdings,
and
(ii) Sierra Acquisition shall bear and be responsible for the
payment of any such Transfer Taxes in excess of the amount
payable
by Holdings.
SECTION 1.08. Creation of Sierra Acquisition. Shell
will
take all actions necessary to create Sierra Acquisition and to
cause it to become a party to and be bound by this Agreement
prior
to the Effective Time.
SECTION 1.09. Shell Guarantee. Shell hereby
irrevocably
guarantees and agrees that Sierra Acquisition will have
sufficient
funds to pay when due the aggregate Merger Consideration and
will
comply with its obligations in Section 1.03(a). The liability
of
Shell under this Section shall be absolute and unconditional,
shall be as principal and not as a surety, and shall be
binding
upon Shell and its successors and assigns without regard to
the
insolvency, bankruptcy or reorganization of Sierra Acquisition
or
otherwise. Shell hereby waives promptness, diligence,
presentment, demand, protest and notice of any kind as to such
obligations and its guarantee thereof and acceptance of or
reliance on its obligations contained in this Section or any
other
circumstance that would constitute an equitable or legal
discharge
of Sierra Acquisition s obligations under Section 1.03(a).
ARTICLE 2
The Surviving Corporation
SECTION 2.01. Certificate of Incorporation. At the
Effective Time, the certificate of incorporation of the
Company
shall be amended to read in its entirety substantially in the
form
set forth in Exhibit A and as so amended shall be the
certificate
of incorporation of the Surviving Corporation until thereafter
amended in accordance with applicable law.
SECTION 2.02. By-laws. The by-laws of MergerSub in
effect
ix
PAGE
at the Effective Time shall be the bylaws of the
Surviving
Corporation until amended in accordance with applicable law.
SECTION 2.03. Directors and Officers. From and after
the
Effective Time, the directors and officers of the Company
shall be
the directors and officers of the Surviving Corporation.
ARTICLE 3
Warranties of the Company
Each member of the Shell Group acknowledges that it is
an
informed and sophisticated buyer, and has engaged expert
advisors,
experienced in the evaluation of transactions such as those
contemplated by this Agreement. Each member of the Shell
Group
acknowledges that it has undertaken (or will prior to the
Effective Time undertake) such investigation and has been (or
will
be) provided with and has evaluated (or will evaluate) such
documents and information as it deems necessary to enable it
to
make an informed and intelligent decision with respect to the
execution, delivery and performance of this Agreement. In
particular, each member of the Shell Group acknowledges that
it
and its representatives have been afforded (or will prior to
the
Effective Time be afforded) the opportunity to inspect the
assets
of the Company and to examine the records of the Company and
its
Subsidiaries with respect to all information in possession of
the
Company and its Subsidiaries relating to the Company and its
Subsidiaries that has been requested by any member of the
Shell
Group. EACH MEMBER OF THE SHELL GROUP FURTHER ACKNOWLEDGES
THAT,
EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 3, THE COMPANY
AND
ITS SUBSIDIARIES AND THEIR OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES AND AGENTS (IN THEIR CAPACITIES AS SUCH) HAVE
MADE
NO, AND THE COMPANY AND ITS SUBSIDIARIES HEREBY EXPRESSLY
DISCLAIM
ANY, REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OR
COMPLETENESS OF SUCH INFORMATION, AS TO THE TITLE OF THE
COMPANY
OR ANY OF ITS SUBSIDIARIES TO ANY ASSETS OF THE COMPANY AND
ITS
SUBSIDIARIES, OR AS TO ANY OTHER INFORMATION, DATA OR OTHER
MATERIALS (WRITTEN OR ORAL) FURNISHED TO THE SHELL GROUP OR
ITS
REPRESENTATIVES BY OR ON BEHALF OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES. THE COMPANY AND ITS SUBSIDIARIES EXPRESSLY
DISCLAIM
ANY WARRANTY OF MERCHANTABILITY OF ANY OF THE ASSETS OF THE
COMPANY OR OF THE FITNESS OF ANY OF THE ASSETS OF THE COMPANY
AND
ITS SUBSIDIARIES FOR ANY PURPOSE. IT IS EXPRESSLY UNDERSTOOD
AND
AGREED THAT NONE OF THE WARRANTIES IN THIS AGREEMENT BY THE
COMPANY SHALL BE DEEMED TO COVER CORAL. Subject to the
foregoing,
the Company hereby warrants to Shell as follows:
SECTION 3.01. Corporate Existence and Power. The
Company is
a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, and has all
corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on
its
business as now conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in
each
jurisdiction where the character of the property owned or
leased
by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to
be
so qualified would not, individually or in the aggregate, have
a
Company Material Adverse Effect. The Company has heretofore
delivered to Shell true and complete copies of the Company s
certificate of incorporation and bylaws as currently in
effect.
x
PAGE
SECTION 3.02. Corporate Authorization. The
execution,
delivery and performance by the Company of this Agreement and
the
consummation by the Company of the transactions contemplated
hereby are within the Company s corporate powers and, except
for
any required approval by the Company s stockholders in
connection
with the consummation of the Merger, have been duly authorized
by
all necessary corporate action. This Agreement constitutes a
valid
and binding agreement of the Company, enforceable against the
Company in accordance with its terms, subject to applicable
bankruptcy, insolvency or other similar laws relating to or
affecting the enforcement of creditors rights generally and
to
legal principles of general applicability governing the
application and availability of equitable remedies.
SECTION 3.03. Governmental Authorization. The
execution,
delivery and performance by the Company of this Agreement and
the
consummation of the transactions contemplated by this
Agreement by
the Company require no action or waiting period by or in
respect
of, or filing with, any governmental body, agency, official or
authority other than (a) the filing of a certificate of merger
in
accordance with Delaware Law; (b) compliance with any
applicable
requirements of the HSR Act; (c) compliance with any
applicable
requirements of the Securities Act, the Exchange Act or any
Blue
Sky Laws; (d) compliance with the rules and regulations of the
FERC, of the Minerals Management Service of the Department of
the
Interior and of any other Governmental Authority in Texas,
Louisiana and Oklahoma having jurisdiction, which rules and
regulations apply generally to natural gas and natural gas
liquids
pipelines and plants; (e) compliance with Environmental Laws;
and
(f) compliance with those Laws, Regulations and Orders
noncompliance with which would not reasonably be expected to
have
a Company Material Adverse Effect or to prevent, impair or
result
in significant delay of the consummation of the Merger.
SECTION 3.04. Non-Contravention. The execution, delivery
and
performance by the Company of this Agreement and the
consummation
by the Company of the transactions contemplated hereby do not
and
will not (a)contravene or conflict with the certificate of
incorporation or bylaws of the Company or (b) assuming
effectuation of all filings and registrations with, the
termination or expiration of any applicable waiting periods
imposed by, and receipt of all Permits and Orders of,
Governmental
Authorities indicated as required in Section 3.03. (i) except
as
set forth in Schedule3.04(b)(i), constitute a default under or
give rise to a right of termination, cancellation,
acceleration,
amendment or modification with respect to the Company or any
of
its Subsidiaries, a loss of any benefit to which the Company
or
any of its Subsidiaries is entitled or an increase in the
obligations of the Company or any of its Subsidiaries, in each
case, under any provision of any Material Contract of the
Company
or any of its Subsidiaries which, in any such case,
individually
or in the aggregate, would have a Company Material Adverse
Effect,
(ii) except as set forth in Schedule 3.04(b)(ii), result in
the
creation or imposition of any material Lien (other than any
Permitted Encumbrances) on any material asset of the Company
or
any of its Subsidiaries or (iii) except as set forth in
Schedule
3.04(b)(iii), violate or cause a breach under any Law,
Regulation,
Order or Permit applicable to the Company, its Subsidiaries
and
their respective assets except for any such matters that would
not
reasonably be expected, individually or in the aggregate, to
have
a Company Material Adverse Effect.
xi
PAGE
SECTION 3.05. Capitalization. (a) The
authorized capital
stock of the Company consists of (x) 30,000,000 authorized
Company
Common Shares, and (y) 6,000,000 authorized preferred shares,
par
value $1.00 per share, of which 260,000 shares have been
designated as the Company 5-1/4% Preferred, 200,000 shares
have
been designated as the Company 9.96% Preferred, and 300,000
shares
have been designated as the Company s Series C Junior
Participating Preferred Stock, par value $1.00 per share, and
have
been reserved for issuance pursuant to the Rights Plan. As of
the
date of this Agreement, there were issued and outstanding
20,578,467 Company Common Shares, 260,000 shares of Company
5-1/4%
Preferred (convertible into an aggregate of 1,532,180 Company
Common Shares), 200,000 shares of Company 9.96% Preferred and
options to purchase an aggregate of 1,453,385 Company Common
Shares. All outstanding shares of capital stock of the
Company
have been duly authorized and validly issued and are fully
paid
and nonassessable. Except as set forth in this Section,
changes
since the date of this Agreement resulting from the exercise
of
employee stock options outstanding on such date, the
redemption of
the 5-1/4% Preferred as contemplated by this Agreement, the
award
of up to $10,000 of Company Common Shares issued in accordance
with the Director Stock Award Plan to directors electing to
receive stock in lieu of quarterly fees after the date of this
Agreement, and the issuance by the Company of Company Common
Shares upon conversion of the Company 5-1/4% Preferred, there
are
outstanding (i) no shares of capital stock or other voting
securities of the Company, (ii) no securities of the Company
convertible into or exchangeable for shares of capital stock
or
voting securities of the Company, and (iii) no options or
other
rights to acquire from the Company, and no obligation of the
Company to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock
or
voting securities of the Company (the items in clauses
3.05(a)(i),
3.05(a)(ii) and 3.05(a)(iii) being referred to collectively as
the
COMPANY SECURITIES ). Except as set forth in this Agreement
or
on Schedule 3.05(a), there are no outstanding obligations of
the
Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities.
(b) The Company has adopted an amendment to the Rights
Plan,
a true and correct copy of which has been delivered to Shell,
pursuant to which Shell, Sierra Acquisition and Holdings will
not
be deemed to be Acquiring Persons (as defined in the Rights
Plan)
as a result of the execution or consummation of the
transactions
provided for by this Agreement and the Voting Agreements (in
the
manner provided for therein), including without limitation,
the
consummation of the Merger.
SECTION 3.06. Subsidiaries. (a) Each of the Company s
Subsidiaries is a corporation or other legal entity duly
incorporated or organized, validly existing and in good
standing
under the laws of its jurisdiction of incorporation or
organization, has all corporate or entity powers and all
governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, except to
the
extent the failure to have such licenses, authorizations,
consents
and approvals would not, individually or in the aggregate,
have a
Company Material Adverse Effect, and is duly qualified to do
business as a foreign corporation or entity and is in good
standing in each jurisdiction where the character of the
property
owned or leased by it or the nature of its activities makes
such
qualification necessary, except for those jurisdictions where
xii
PAGE
failure to be so qualified would not, individually or
in the
aggregate, have a Company Material Adverse Effect. All of the
Company s Subsidiaries and their respective jurisdictions of
incorporation or organization are identified on Schedule
3.06(a).
Complete copies of the certificate of incorporation and bylaws
or
other organizational documents of each Subsidiary of the
Company,
as amended to the date hereof, have been made available to
Shell.
(b) The authorized, issued and outstanding capital stock
of,
or other equity interests in, each of the Company s
Subsidiaries
and the names and addresses of the holders of record of the
capital stock or other equity interests of each such
Subsidiary
are set forth in Schedule 3.06(b). The issued and outstanding
shares of capital stock of, or other equity interests in, each
of
the Subsidiaries of the Company that are owned by the Company
or
any of its Subsidiaries have been duly authorized and are
validly
issued, and, with respect to capital stock, are fully paid and
nonassessable, and were not issued in violation of any
preemptive
or similar rights of any past or present equity holder of such
Subsidiary. All such issued and outstanding shares, or other
equity interests, that are indicated as owned by the Company
or
one of its Subsidiaries in Schedule 3.06(b) are owned (i)
beneficially as set forth therein and (ii) free and clear of
all
Liens other than Liens in favor of the Company s and its
Subsidiaries lenders pursuant to credit facilities attached
as
exhibits to the Company 10-K. Except as set forth in Schedule
3.06(b) and except as set forth in the agreements or
organizational documents listed on Schedule 3.06(b), no shares
of
capital stock of, or other equity interests in, any Subsidiary
of
the Company are reserved for issuance, and there are no
contracts,
agreements, commitments or arrangements obligating the Company
or
any of its Subsidiaries (i) to offer, sell, issue, grant,
pledge,
dispose of or encumber any shares of capital stock of, or
other
equity interests in, or any options, warrants or rights of any
kind to acquire any shares of capital stock of, or other
equity
interests in, or any securities that are convertible into or
exchangeable for any shares of capital stock of, or other
equity
interests in, any of the Subsidiaries of the Company or (ii)
to
redeem, purchase or acquire, or offer to purchase or acquire,
any
outstanding shares of capital stock of, or other equity
interests
in, or any outstanding options, warrants or rights of any kind
to
acquire any shares of capital stock of or other equity
interest
in, or any outstanding securities that are convertible into or
exchangeable for, any shares of capital stock of, or other
equity
interests in, any of the Subsidiaries of the Company or (iii)
to
grant any Lien on any outstanding shares of capital stock of,
or
other equity interest in, any of the Subsidiaries of the
Company;
provided, however, that certain terms and provisions of, and
applicable law relating to, the partnership or joint venture
agreements or arrangements listed in Schedule 3.06(b) may
require
the partnerships or joint ventures to which such agreements or
arrangements relate or the partners or venturers therein to
take
certain actions not material to the Company with respect to
the
equity interests in such partnerships and joint ventures
contrary
to clauses (i), (ii) or (iii) above; and provided further,
that
the warranties set forth in this Section are subject to such
other
matters as would not result in a Company Material Adverse
Effect.
SECTION 3.07. SEC Filings. (a) The Company has
delivered
to Shell (i) its annual reports on Form 10-K for its fiscal
years
ended December 31, 1994, 1995 and 1996, (ii) its quarterly
reports
on Form 10-Q for its fiscal quarters ended March 31, 1997 and
June
xiii
PAGE
30, 1997 ( COMPANY 10-Q ), (iii) its proxy or
information
statements relating to meetings of, or actions taken without a
meeting by, the stockholders of the Company held since January
1,
1996, and (iv) all of its other reports, statements, schedules
and
registration statements filed with the Securities and Exchange
Commission (the SEC ) since January 1, 1996 ( COMPANY SEC
REPORTS ).
(b) As of its filing date, each such report or statement
filed pursuant to the Exchange Act did not contain any untrue
statement of a material fact or omit to state any material
fact
necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading.
(c) Each such registration statement, as amended or
supplemented, if applicable, filed pursuant to the Securities
Act
as of the date such statement or amendment became effective
did
not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary
to make the statements therein, in the light of the
circumstances
under which they were made, not misleading.
SECTION 3.08. Financial Statements. The audited
consolidated
financial statements and unaudited consolidated interim
financial
statements of the Company included in its annual reports on
Form
10-K and the quarterly reports on Form 10-Q referred to in
Section
3.07 fairly present, in conformity with generally accepted
accounting principles applied on a consistent basis (except as
may
be indicated in the notes thereto), the consolidated financial
position of the Company and its consolidated subsidiaries as
of
the dates thereof and their consolidated results of operations
and
changes in financial position for the periods then ended
(subject
to normal year-end adjustments in the case of any unaudited
interim financial statements). For purposes of this Agreement,
COMPANY BALANCE SHEET means the consolidated balance sheet
of
the Company as of June 30, 1997 set forth in the Company 10-Q
and
COMPANY BALANCE SHEET DATE means June 30, 1997. Except as
set
forth in Schedule 3.08, as of the date of this Agreement,
there
exist no liabilities or obligations of the Company and its
Subsidiaries, whether accrued, absolute, contingent or
threatened,
which would be required to be reflected, reserved for or
disclosed
under generally accepted accounting principles in the
financial
statements of the Company as of and for the period ended June
30,
1997, other than (i) liabilities or obligations which are
adequately reflected, reserved for or disclosed in the June
30,
1997 financial statements of the Company, (ii) liabilities
incurred in the ordinary course of business since June 30,
1997
and (iii) such as would not have a Company Material Adverse
Effect.
SECTION 3.09. Disclosure Documents. (a) Each document
required to be filed by the Company with the SEC in connection
with the transactions contemplated by this Agreement (the
COMPANY
DISCLOSURE DOCUMENTS ), including, without limitation, the
proxy
statement (the PROXY STATEMENT ) to be filed with the SEC in
connection with the Merger and any amendments or supplements
thereto will, when filed, comply as to form in all material
respects with the applicable requirements of the Exchange Act
and
the Securities Act, except that no warranty is made hereby
with
respect to any information supplied by the Shell Group
expressly
for inclusion in the Company Disclosure Documents.
xiv
PAGE
(b) At the time the Proxy Statement or any
amendment or
supplement thereto is first mailed to stockholders of the
Company,
and at the time such stockholders vote on adoption of this
Agreement, the Proxy Statement, as supplemented or amended, if
applicable, will not contain any untrue statement of a
material
fact or omit to state any material fact necessary in order to
make
the statements made therein, in the light of the circumstances
under which they were made, not misleading, except that no
warranty is made hereby with respect to any information
supplied
by the Shell Group for inclusion in the Proxy Statement.
SECTION 3.10. Absence of Certain Changes. Except for
this
Agreement and except as set forth in Schedule 3.10 or in the
Company SEC Reports, from the Company Balance Sheet Date
through
the date of this Agreement, the Company and its Subsidiaries
have
conducted their business in all material respects in the
ordinary
course consistent with past practice and there has not been:
(a) any event, occurrence or development (including the
commencement of any action, suit or proceedings or, to the
Knowledge of the Company, any investigation) of a state of
circumstances or facts which, individually or together with
other
similar events, has had or reasonably would be expected to
have a
Company Material Adverse Effect;
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of
capital stock of the Company (other than the regular quarterly
cash dividends on the Company 5-1/4% Preferred and the Company
9.96% Preferred, each having customary record and payment
dates),
or any repurchase, redemption (other than (i) the redemption
of
the Company 5-1/4% Preferred as contemplated by this
Agreement,
(ii) the receipt of Company Common Shares in payment of the
exercise price of employee or director stock options and Taxes
in
respect of such exercise, and (iii) repurchases to fulfill the
Company s matching contribution under its 401(k) plan) or
other
acquisition by the Company or any of its Subsidiaries of any
outstanding shares of capital stock or other securities of, or
other ownership interests in, the Company or any of its
Subsidiaries;
(c) any amendment of any material term of any
outstanding
security of the Company or any of its Subsidiaries other than
amendments to the terms of the existing credit facilities of
the
Company or its Subsidiaries or borrowings under such
facilities;
(d) any incurrence, assumption or guarantee by the
Company
or any of its Subsidiaries of any indebtedness for borrowed
money
other than in the ordinary course of business and in amounts
and
on terms consistent with past practices and other than
indebtedness to provide funds for the redemption of the
Company 5-
1/4% Preferred;
(e) any creation or assumption by the Company or any of
its
Subsidiaries of any Lien (other than Permitted Encumbrances)
on
any material asset of the Company or any of its Subsidiaries
other
than in the ordinary course of business consistent with past
practices;
(f) any making of any loan, advance or capital
contribution
to or investment in any Person other than loans, advances or
capital contributions to or investments in wholly-owned
xv
PAGE
Subsidiaries made in the ordinary course of business
consistent
with past practices;
(g) any damage, destruction or other casualty loss
(whether
or not covered by insurance) affecting the business or assets
of
the Company or any of its Subsidiaries which, individually or
in
the aggregate, has had or would reasonably be expected to have
a
Company Material Adverse Effect;
(h) any transaction or commitment made, or any contract
or
agreement entered into, by the Company or any of its
Subsidiaries
relating to its assets or business (including the acquisition
or
disposition of any assets) or any relinquishment by the
Company or
any of its Subsidiaries of any contract or other right, in
either
case, material to the Company and its Subsidiaries taken as a
whole, other than transactions and commitments in the ordinary
course of business consistent with past practice and those
contemplated by this Agreement;
(i)any change in any method of accounting or accounting
practice by the Company or any of its Subsidiaries, whether or
not
any such change is required by reason of a concurrent change
in
generally accepted accounting principles;
(j) any (i) grant of any severance or termination pay to
any
director, officer or employee of the Company or any of its
Subsidiaries, (ii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to
any
such existing agreement) with any director, officer or
employee of
the Company or any of its Subsidiaries, (iii) increase in
benefits
payable under any existing severance or termination pay
policies
or employment agreements or (iv) increase in compensation,
bonus
or other benefits payable to directors, officers or employees
of
the Company or any of its Subsidiaries except for such grants,
payments, increases or changes in the ordinary course of
business
consistent with past practice; or
(k) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the
Company or
any of its Subsidiaries, which employees were not subject to a
collective bargaining agreement at the Company Balance Sheet
Date,
or any lockouts, strikes, slowdowns, work stoppages or threats
thereof by or with respect to such employees, which in any
such
case would reasonably be expected to have a Company Material
Adverse Effect.
Except as disclosed in Schedule 3.10 or in the Company SEC
Reports, during the period from June 30, 1997 to the date of
this
Agreement, neither the Company nor any of its Subsidiaries has
engaged in any conduct that is proscribed during the period
from
the date of this Agreement to the Effective Time by Section
5.02
or agreed in writing during such period prior to the date of
this
Agreement to engage in any such conduct.
SECTION 3.11. Litigation; Compliance. (a) Except as set
forth in the Company SEC Reports or Schedule 3.11(a), as of
the
latest date through which the Company has supplemented its
Schedules pursuant to Section 6.10, there is no action, suit
or
proceeding pending against, or (to the Knowledge of the
Company)
threatened against or affecting, or (to the Knowledge of the
Company) any pending investigation against, the Company or any
of
xvi
PAGE
its Subsidiaries or any of their respective properties
before any
court or arbitrator or any governmental body, agency or
official
which would reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect or which
in
any manner challenges or seeks to prevent, enjoin, alter or
materially delay the Merger or any of the other transactions
contemplated hereby.
(b) Except as set forth in Schedule 3.11(b), the Company
and
its Subsidiaries are in substantial compliance with all
applicable
Laws and Regulations and are not in default with respect to
any
Order applicable to the Company or any of its Subsidiaries,
except
such events of noncompliance or defaults that, individually or
in
the aggregate, would not reasonably be expected to have a
Company
Material Adverse Effect.
SECTION 3.12. Taxes. (a) For purposes of this Agreement,
TAX or TAXES shall mean taxes, fees, levies, duties,
tariffs,
imposts, and governmental impositions or charges of any kind
in
the nature of (or similar to) taxes, payable to any federal,
state, local or foreign taxing authority, including (without
limitation) (i) income, franchise, profits, gross receipts, ad
valorem, net worth, value added, sales, use, service, real or
personal property, special assessments, capital stock,
license,
payroll, withholding, employment, social security, workers
compensation, utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, alternative or add-on
minimum, estimated, environmental (including taxes under Code
section 59A), unemployment, transfer and gains taxes, and (ii)
interest, penalties, additional taxes, fines and other
additions
to tax imposed with respect thereto and any interest in
respect of
such penalties, additional taxes, fines and other additional
amounts; and TAX RETURNS shall mean returns, reports, and
information statements with respect to Taxes required to be
filed
with the IRS or any other taxing authority, domestic or
foreign,
including, without limitation, consolidated, combined and
unitary
tax returns (including returns required in connection with any
Employee Plan).
(b) Other than as disclosed in Schedule 3.12 (b) or the
Company SEC Reports, the Company and its Subsidiaries have
timely
filed all required United States federal, state, local and
foreign
and other Tax Returns and such Tax Returns are true, complete
and
correct, and the Company and its Subsidiaries have timely paid
and
discharged all Taxes due in connection with or with respect to
the
periods or transactions covered by such Tax Returns and have
paid
all other Taxes as are due, except such as are being contested
in
good faith by appropriate proceedings (to the extent that any
such
proceedings are required) and there are no other Taxes that
would
be due if asserted by a taxing authority, except Taxes with
respect to which the Company is maintaining reserves to the
extent
required by generally accepted accounting principles, except
where
the failure of any of the foregoing to be true would not,
individually or in the aggregate, reasonably be expected to
have a
Company Material Adverse Effect. Except as disclosed in
Schedule
3.12(b) or as does not involve or would not result in
liability to
the Company or any of its Subsidiaries that would reasonably
be
expected to have a Company Material Adverse Effect, (i) there
are
no Tax Liens on any assets of the Company or any of its
Subsidiaries (other than Permitted Encumbrances); (ii) neither
the
Company nor any of its Subsidiaries has granted any waiver of
any
statute of limitations with respect to, or any extension of a
xvii
PAGE
period for the assessment or payment of, any Tax;
(iii) there is
no written claim against the Company or any of its
Subsidiaries
for any Taxes, and no assessment, deficiency or adjustment has
been asserted or proposed with respect to any Tax Return; (iv)
all
Tax Returns filed by the Company and its Subsidiaries have
been
audited by the applicable Governmental Authority or the
applicable
statute of limitations has expired for the period covered by
such
Tax Returns; (v) none of the Company and its Subsidiaries,
during
the last ten years, has been a member of an affiliated group
filing a consolidated federal income Tax Return (other than
Company s Tax Group); (vi) neither the Company nor any of its
Subsidiaries has any liability for the Taxes of any Person
(other
than any of the Company and its Subsidiaries) under Treasury
Regulation section 1.1502-6 (or any similar provision of
state,
local or foreign law), as a transferee or successor, by
contract
or otherwise; (vii)neither the Company nor any of its
Subsidiaries
has filed a consent under Code section 341(f) concerning
collapsible corporations; (viii) neither the Company nor any
of
its Subsidiaries has any deferred intercompany gains or losses
from any deferred intercompany transactions (as defined in
Treasury Regulation section 1.1502-13); (ix) neither the
Company
nor any of its Subsidiaries has any Tax attribute carry
forwards
(including, but not limited to, any net operating loss carry
forward, net capital loss carry forward, credit carry forward
or
carry forward of any other Tax attribute); (x) none of the
Company
or Subsidiary Tax attribute carry forwards are limited by
applicable law, such as the provisions of Code sections 382,
383
and 384 and of Treasury Regulations promulgated under Code
section
1502; (xi) neither the Company nor its Subsidiaries has agreed
to
any adjustments under Code section 481; and (xii) neither the
Company nor any of its Subsidiaries has an excess loss account
under Treasury Regulation section 1.1502. The accruals and
reserves (including deferred taxes) reflected in the Company
Balance Sheet are in all material respects adequate to cover
all
Taxes accruable through the date thereof (including interest
and
penalties, if any, thereon and Taxes being contested) in
accordance with generally accepted accounting principles.
(c) Other than as disclosed on Schedule 3.12(c) or in
the
Company SEC Reports, and other than with respect to items the
inaccuracy of which would not reasonably be expected to have a
Company Material Adverse Effect, neither the Company nor any
of
its Subsidiaries is obligated under any agreement with respect
to
industrial development bonds or other obligations with respect
to
which the excludability from gross income of the holder for
federal or state income tax purposes could be affected by the
transactions contemplated hereunder, and to the Knowledge of
the
Company, neither the Company nor any of its Subsidiaries owns
any
property of a character, the indirect transfer of which, as a
consequence of the Merger, would give rise to any material
documentary, stamp or other transfer tax.
(d) The Company is a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code).
SECTION 3.13. ERISA. (a) The Company has provided Shell
with a list identifying each Company Employee Plan. True and
complete copies of such plans (and, if applicable, related
trust
agreements) and all amendments thereto and written
interpretations
thereof have been made available for review to Shell together
with
(A) the most recent annual report (Form 5500 including, if
applicable, Schedule B thereto) required to be prepared in
xviii
PAGE
connection with any such plan, (B) the most recent
actuarial
valuation report prepared in connection with any such plan,
(C)
summary descriptions of any amendments not included in the
most
recent restated plan instrument, which amendments have been
approved by the person in the Company having the final
authority
to adopt plan amendments, whether or not such amendments have
been
previously reduced to writing, and (D) the dollar amount of
unfunded liabilities resulting from any benefit increases that
have been adopted in an amendment but are not yet reflected in
the
latest actuarial report. The only Company Employee Plans
which
individually or collectively would constitute an employee
pension
benefit plan as defined in Section 3(2) of ERISA (the
COMPANY
PENSION PLANS ) have been identified as such in the
information
provided to Shell by the Company.
(d) No Company Employee Plan constitutes a Company
Multiemployer Plan. Except as otherwise identified in the
list
referred to in Section 3.13(a), no Company Employee Plan is
maintained in connection with any trust described in Section
501(c)(9) of the Code. The only Company Pension Plans that are
subject to Title IV of ERISA (the COMPANY RETIREMENT PLANS )
have
been identified as such in information provided to Shell by
the
Company. The funding status of each Company Retirement Plan is
disclosed in the Company s annual report in the Company 10-K;
no
Company Retirement Plan is omitted from such discussion. With
respect to each Company Retirement Plan, as of the date of the
latest actuarial valuation report for such Company Retirement
Plan, the fair market value of all of the assets of such
Company
Retirement Plan (excluding for these purposes any accrued but
unpaid contributions) exceeded the accrued benefits under such
Company Retirement Plan, calculated on an accumulated benefit
obligation basis and based upon the actuarial assumptions used
for
accounting purposes (i.e., those determined in accordance with
FASB statement no. 87 and used in preparing such Company
Retirement Plan s financial statements). With respect to each
Company Retirement Plan, as of the date of this Agreement,
such
fair market value of assets exceeded said accrued benefits,
taking
into account: (i) any shortfall between the actual return on
assets and the expected return on assets; (ii) any change in
funding assumptions; (iii) any change in participant
demographics;
and (iv) benefit increases that have been adopted in an
amendment
but are not yet reflected in the latest actuarial report. No
ACCUMULATED FUNDING DEFICIENCY , as defined in Section 412 of
the
Code, has been incurred with respect to any Company Pension
Plan,
whether or not waived. The Company knows of no REPORTABLE
EVENT ,
within the meaning of Section 4043 of ERISA, and no event
described in Section 4041, 4042, 4062 or 4063 of ERISA has
occurred in connection with any Company Employee Plan, other
than
a REPORTABLE EVENT or other such event that will not have a
Company Material Adverse Effect. No condition exists and no
event
has occurred that would be expected to constitute grounds for
termination of any Company Retirement Plan and neither the
Company
nor any of its affiliates has incurred any liability which
would
have a Company Material Adverse Effect under Title IV of ERISA
arising in connection with the termination of, or complete or
partial withdrawal from, any plan covered or previously
covered by
Title IV of ERISA. To the Knowledge of the Company, nothing
done
or omitted to be done and no transaction or holding of any
asset
under or in connection with any Company Employee Plan has or
will
make the Company or any of its Subsidiaries, any officer or
director of the Company or any of its Subsidiaries subject to
any
liability under Title I of ERISA or liable for any tax
pursuant to
xix
PAGE
Section 4975 of the Code that could directly or
indirectly have a
Company Material Adverse Effect. For purpose of this Section,
AFFILIATE of any Person means any other Person which,
together
with such Person, would be treated as a single employer under
Section 414 of the Code.
(c) Each Company Employee Plan which is intended to be
qualified under Section 401(a) of the Code has received from
the
Internal Revenue Service favorable determination letters with
respect to each such Plan. The Company has made available to
Shell true and complete copies of such determination letters.
No
event has occurred, and no condition exists, which could
reasonably be expected to result in the revocation of such
determination. Any terms and conditions of the determination
letter have been complied with. Each Company Employee Plan
has
been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules
and
regulations, including but not limited to ERISA and the Code,
which are applicable to such Company Employee Plan except for
failures to comply which, singly or in the aggregate, would
not
have a Company Material Adverse Effect.
(d) The Company has provided Shell with a list of each
enforceable employment, severance or other similar contract,
arrangement or policy and each plan or arrangement providing
for
insurance coverage (including any self-insured arrangements),
workers compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits
or
for deferred compensation, profit-sharing, bonuses, stock
options,
stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (i)
is
not a Company Employee Plan, (ii) is entered into, maintained
or
contributed to, as the case may be, by the Company or any of
its
affiliates and (iii) covers any employee or former employee of
the
Company or any of its affiliates and will become an obligation
of
the Company after the Effective Time. Such contracts, plans
and
arrangements as are described above, copies or descriptions of
all
of which have been made available for review previously to
Shell
are referred to collectively herein as the COMPANY BENEFIT
ARRANGEMENTS . Each Company Benefit Arrangement has been
maintained in substantial compliance with its terms and with
the
requirements prescribed by any and all statutes, orders, rules
and
regulations that are applicable to such Company Benefit
Arrangement except for failures to comply which, singly or in
the
aggregate, would not have a Company Material Adverse Effect.
(e) Except as disclosed on Schedule 3.13(e), the Company
has
not established, and does not maintain, any post-retirement
benefits for its employees, including but not limited to post-
retirement life insurance or post-retirement medical. No
condition exists that would prevent the Company or any of its
Subsidiaries from amending or terminating any Company Employee
Plan or Company Benefit Arrangement providing health or
medical
benefits in respect of any active employee of the Company or
any
of its Subsidiaries other than limitations imposed under the
terms
of a collective bargaining agreement. The Company has, at all
times, reserved in the summary plan description or other plan
document with respect to its employee health, welfare and
pension
plan, the right to amend any and all such plans with respect
to
benefits which are not vested as of the date of the amendment
to
the extent permitted by applicable law.
xx
PAGE
(f) Except as disclosed in writing to Shell
prior to the
date hereof, there has been no amendment to, written
interpretation or announcement (whether or not written) by the
Company or any of its affiliates relating to, or change in
employee participation or coverage under, any Company Employee
Plan or Company Benefit Arrangement which would increase the
expense of maintaining such Company Employee Plan or Company
Benefit Arrangement above the level of the expense incurred in
respect thereof for the fiscal year ended on the Company
Balance
Sheet Date by an amount which would have a Company Material
Adverse Effect.
(g) Prior to the date of this Agreement, neither the
Company
nor any of its Subsidiaries has made any representations to
its
employees as to employment opportunities with the Shell Group
or
benefits available to them under the Shell Group employee
benefit
plans except as agreed in writing by Shell. After the date of
this Agreement, the Company or its Subsidiaries may make
representations to its employees as to employment
opportunities by
Holdings or its Subsidiaries; provided that any such
representations indicate that such employees will be employed
at
will; provided further that any such representations will not
include any representations as to benefits available to such
employees different from those available prior to the date of
this
Agreement except as agreed in writing by Shell and the
Company.
(h) The agreements listed in the letter dated the date
hereof from the Company to Shell constitute all agreements or
arrangements of the Company or its Subsidiaries in effect on
the
date hereof that provide for the payment of income or the
provision of benefits (including vesting, entitlement,
receipt,
creation or transfer of any rights, privileges, income or
title to
property or beneficial ownership) to any employees of the
Company
as a result of a change of control of the Company. There is
no
acceleration of payments under the Annual Incentive Plan of
the
Company that would result from the Merger, nor is any
forfeiture
provision of such Annual Incentive Plan altered by the Merger.
The person to whom the Company granted 180,000 stock options
in
September 1997 has no right to accelerate the vesting of those
options as a result of the Merger, and, except for a change of
control agreement substantively identical to that of Rene
Joyce,
as of the date hereof there are no other arrangements between
that
individual and the Company that would provide for the payment
of
income or the provision of benefits (including vesting,
entitlement, receipt, creation or transfer of any rights,
privileges, income or title to property or beneficial
ownership)
to such individual as a result of a change of control of the
Company.
SECTION 3.14. Permits. To the Knowledge of the Company
and
except as set forth in Schedule 3.14(1), the Company and its
Subsidiaries have all Permits, including all certificates of
public convenience and necessity and rate authorizations
required
by the LCC and by the FERC, as are necessary to carry on their
businesses as currently conducted, except for any such Permits
for
which the Company has made due application and except for any
such
Permits that the failure to possess which, individually or in
the
aggregate, would not reasonably be expected to have a Company
Material Adverse Effect. Except as set forth in Schedule
3.14(2),
the Company has not received notice from any Governmental
Authority (i) that such Permits are not in full force and
effect
or have been violated, in either case in any respect that
would
xxi
PAGE
reasonably be expected to have a Company Material
Adverse Effect
or (ii) threatening to suspend, revoke or suspend any such
Permits
which, in any such case, would reasonably be expected to have
a
Company Material Adverse Effect.
SECTION 3.15. Required Stockholder Vote. The affirmative
vote by stockholders of the Company Common Shares of the
Company
representing a majority of the outstanding Company Common
Shares
is the only vote of the Company stockholders required by Law
for
the adoption and approval of this Agreement, the Merger and
the
transactions contemplated hereby.
SECTION 3.16. Finders Fees. Except for the fees and
expenses of Morgan Stanley & Co. Incorporated (a copy of whose
engagement agreement has been provided to Shell) incurred in
connection with the transactions contemplated hereby, which
will
be paid 50% by the Company and 50% by Shell, there is no
investment banker, broker, finder or other intermediary which
has
been retained by or is authorized to act on behalf of the
Company
or any of its Subsidiaries who might be entitled to any fee or
commission from Shell or any of its Subsidiaries in connection
with the transactions contemplated by this Agreement. The
parties
acknowledge that the Special Committee has retained Merrill
Lynch
as financial advisor and that the fees and expenses of Merrill
Lynch will be paid by the Company.
SECTION 3.17. Environmental Matters. Except for matters
disclosed in Schedule 3.17 and except for matters that,
individually or in the aggregate, would not reasonably be
expected
to have a Company Material Adverse Effect, (a) to the
Knowledge of
the Company, the properties, operations and activities of the
Company and its Subsidiaries are in compliance with all
applicable
Environmental Laws; (b) the Company and its Subsidiaries and
the
properties and operations of the Company and its Subsidiaries
are
not subject to any existing, pending or, to the Knowledge of
the
Company, threatened action, suit, or proceeding by or before
any
Court or Governmental Authority under any Environmental Law;
and
(c) all Permits, if any, required to be obtained or filed by
the
Company or any of its Subsidiaries under any Environmental Law
in
connection with the business of the Company and its
Subsidiaries
have been obtained or filed and are valid and currently in
full
force and effect. To the Knowledge of the Company, the
Company
and its Subsidiaries have made available to Shell all material
written internal and external environmental audits and studies
in
each case relevant to the Company and which to the Knowledge
of
the Company are in the possession of the Company or its
Subsidiaries.
SECTION 3.18. Restrictions on Business Activities.
Except
for this Agreement, and except as set forth in Schedule 3.18,
there is no agreement, judgment, injunction, order or decree
binding upon the Company or any of its Subsidiaries which has
or
would reasonably be expected to have the effect of prohibiting
any
acquisition of property by the Company or any of its
Subsidiaries
or the conduct of business by the Company or any of its
Subsidiaries as currently conducted or as proposed to be
conducted
by the Company, except for any prohibition or impairment as
would
not reasonably be expected to have a Company Material Adverse
Effect.
SECTION 3.19. Title to Property. Except as set forth in
Schedule 3.19 and subject to the Permitted Encumbrances and
all
xxii
PAGE
Material Contracts, the Company and its Subsidiaries
have good and
valid title against any Person claiming by, through or under
the
Company to all of their properties reflected as owned by them
in
the Company 10-K or the Company 10-Q (other than any such
properties reflected in the Company 10-K or the Company 10-Q
that
(i) have been sold or otherwise disposed of since the date of
the
Company 10-K or the Company 10-Q without breaching Section
3.10 or
(ii) the failure to have such good and valid title would not,
individually or in the aggregate, reasonably be expected to
have a
Company Material Adverse Effect. Each member of the Shell
Group
acknowledges that for the assets of the Company or any of its
Subsidiaries of which a third party is the operator, title to
the
relevant assets may be held in the names of such operator
subject
to the terms of the applicable contractual arrangements. The
Company or its Subsidiaries, individually or together, hold
under
valid lease agreements all real and personal properties
reflected
in the Company 10-K or the Company 10-Q as being held under
capitalized leases, and all real and personal property that is
subject to the operating leases to which reference is made in
the
notes to the Company 10-K or the Company 10-Q, and enjoy
peaceful
and undisturbed possession of such properties under such
leases,
other than (i) any properties as to which such leases have
terminated in the ordinary course of business since the date
of
the Company 10-K or the Company 10-Q and (ii) any matters
that,
individually or in the aggregate, would not reasonably be
expected
to have a Company Material Adverse Effect.
SECTION 3.20. Interested Party Transactions. Except as
a
result of the transactions contemplated by this Agreement or
as
set forth in Schedule 3.20 or the Company SEC Reports, since
the
date of the Company s proxy statement dated April 7, 1997, no
event has occurred that would be required to be reported as a
Certain Relationship or Related Transaction pursuant to Item
404
of Regulation S-K promulgated by the SEC.
SECTION 3.21. Insurance. Except as disclosed in
Schedule
3.21, all insurance policies maintained by the Company or any
of
its Subsidiaries (i) are with reputable insurance carriers,
(ii)
provide adequate coverage for all normal risks incident to the
business of the Company and its Subsidiaries and their
respective
properties and assets and (iii) are in character and amount at
least equivalent to that carried by entities engaged in
similar
businesses and subject to the same or similar perils or
hazards,
except in each case as would not reasonably be expected to
have a
Company Material Adverse Effect.
SECTION 3.22. Opinion of Financial Advisor. The Special
Committee has received an opinion dated September 23, 1997 of
its
financial advisor, Merrill Lynch, that, as of such date, the
Merger Consideration was fair to the Company s stockholders
from a
financial point of view.
SECTION 3.23. Intellectual Property. (a) The Company
and/or
each of its Subsidiaries owns, or is licensed or otherwise
possesses legally enforceable rights to use all patents,
trademarks, trade names, service marks, copyrights, and any
applications therefor, technology, know-how, computer software
programs or applications, and tangible or intangible
proprietary
information or material that are used in the business of the
Company and its Subsidiaries as currently conducted, except as
would not reasonably be expected to have a Company Material
Adverse Effect.
xxiii
PAGE
(b) Except as disclosed in Schedule 3.23(b) or
the Company
SEC Reports or as would not reasonably be expected to have a
Company Material Adverse Effect: (i) the Company is not, nor
will
it be as a result of the execution and delivery of this
Agreement
or the performance of its obligations hereunder, in violation
of
any licenses, sublicenses and other agreements as to which the
Company is a party and pursuant to which the Company is
authorized
to use any third-party patents, trademarks, service marks and
copyrights ( THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS ); (ii)
no
claims with respect to the patents, registered and material
unregistered trademarks and service marks, registered
copyrights,
trade names and any applications therefor owned by the Company
or
any of its Subsidiaries (the COMPANY INTELLECTUAL PROPERTY
RIGHTS ), any trade secret material to the Company, or Third
Party
Intellectual Property Rights to the extent arising out of any
use,
reproduction or distribution of such Third Party Intellectual
Property Rights by or through the Company or any of its
Subsidiaries, are currently pending or, to the Knowledge of
the
Company, are overtly threatened by any Person; and (iii) to
the
Company s knowledge, there are no valid grounds for any bona
fide
claims (A) to the effect that the manufacture, sale, licensing
or
use of any product as now used, sold or licensed or proposed
for
use, sale license by the Company or any of its Subsidiaries
infringes on any copyright, patent, trademark, service mark or
trade secret; (B) against the use by the Company or any of its
Subsidiaries of any trademarks, trade names, trade secrets,
copyrights, patents, technology, know-how or computer software
programs and applications used in the business of the Company
or
any of its Subsidiaries as currently conducted or as proposed
to
be conducted; (C) challenging the ownership, validity or
effectiveness of any part of the Company Intellectual Property
Rights or other trade secret material to the Company, or (D)
challenging the license or legally enforceable right to use of
the
Third Party Intellectual Rights by the Company or any of its
Subsidiaries.
(c) Except as set forth in Schedule 3.23(c) or the
Company
SEC Reports, and except as would not reasonably be expected to
have a Company Material Adverse Effect, to the Company s
Knowledge, (i) all patents, registered trademarks and
copyrights
held by the Company and its Subsidiaries are valid and
subsisting,
and (ii) there is no material unauthorized use, infringement
or
misappropriation of any of the Company Intellectual Property
by
any third party, including any employee or former employee of
the
Company or any of its Subsidiaries.
SECTION 3.24. Certain Obligations. (a) Except as set
forth
in Schedule 3.24(a)(1), except for this Agreement and the
transactions contemplated hereby, and except for Material
Contracts entered into after the date hereof in accordance
with
Section 5.02, neither the Company nor any of its Subsidiaries
is a
party to or bound by any Material Contract. Except as set
forth
in Schedule 3.24(a)(2), all Material Contracts relating to the
Company or any of its Subsidiaries are in full force and
effect,
the Company and its Subsidiaries have performed their
obligations
thereunder to date and, to the Knowledge of the Company, each
other party thereto has performed its obligations thereunder
to
date (including, in the case of all Hydrocarbons delivered
under
any Material Contract, conforming such Hydrocarbons to the
quality
specifications of such Material Contracts and the transporting
pipelines), other than any failure of a Material Contract to
be in
full force and effect or any nonperformance thereof that would
not
xxiv
PAGE
reasonably be expected to have a Company Material
Adverse Effect.
(b) Except as set forth in Schedule 3.24(b) and for
matters
that would not reasonably be expected to have a Company
Material
Adverse Effect, none of the Company and its Subsidiaries
engages
in any natural gas or other futures or options trading or is a
party to any price swaps, hedges, futures or similar
instruments,
except for transactions and agreements entered into primarily
to
hedge contracts for the purchase or sale of Hydrocarbons which
will be binding upon the Company or its Subsidiaries after
September 1, 1997. Schedule 3.24(b) sets forth a true and
correct
statement of the position, as of the date hereof, of the
Company
and its Subsidiaries with respect to obligations under Fixed
Price
Contracts (including, with respect to each Fixed Price
Contract,
location of delivery and variations in the obligation to take
or
deliver) and related Hydrocarbon price swaps, hedges, futures
or
similar instruments to which the Company or any of its
Subsidiaries is a party and that are material to the Company.
(c) Except as set forth in Schedule 3.24(c) or as
referred
to in the Company SEC Reports, neither the Company nor its
Subsidiaries has entered into, or is a party to, or has any
obligations under, any contract for the purchase of
Hydrocarbons
or other property or services that require payment be made by
the
Company or its Subsidiaries regardless of whether or not
delivery
is ever made of such Hydrocarbons or other property or
services.
SECTION 3.25. Public Utility. The Company is not a
holding company, a subsidiary company of a holding
company,
an affiliate of a holding company, or a public utility
company, as such terms are defined in the Holding Company
Act.
SECTION 3.26. Takeover Statutes. The action of the
Board of
Directors of the Company in approving the Merger, this
Agreement
and the Voting Agreements for purposes of Section 203 of the
Delaware Law is sufficient to render inapplicable to the
Merger
and this Agreement and the Voting Agreements (and the
transactions
provided for herein and therein) the provisions of Section 203
of
the Delaware Law.
SECTION 3.27. Minute Books. The minute books of the
Company (and those of its Subsidiaries for which the Company
or
its Subsidiaries maintain such minute books) that have been
made
available to Shell for review constitute all of the minute
books
of the Company and its Subsidiaries and contain a complete and
accurate record in all material respects of all resolutions
and
formal actions of the stockholders and directors (and any
committees thereof) of the Company and its Subsidiaries.
ARTICLE 4
Warranties of Shell
The Company acknowledges that it is an informed and
sophisticated party, and has engaged expert advisors,
experienced
in the evaluation of transactions such as those contemplated
by
xxv
PAGE
this Agreement. The Company acknowledges that it has
undertaken
such investigation and has been (or will be) provided with and
has
evaluated (or will evaluate) such documents and information as
it
deems necessary to enable it to make an informed and
intelligent
decision with respect to the execution, delivery and
performance
of this Agreement. The Company will undertake prior to the
Effective Time such further investigation and request such
additional documents and information as it deems necessary.
THE
COMPANY FURTHER ACKNOWLEDGES THAT, EXCEPT AS EXPRESSLY
PROVIDED IN
THIS ARTICLE 4, SHELL AND ITS SUBSIDIARIES AND THEIR OFFICERS,
DIRECTORS, EMPLOYEES, REPRESENTATIVES AND AGENTS (IN THEIR
CAPACITIES AS SUCH) HAVE MADE NO, AND SHELL AND ITS
SUBSIDIARIES
HEREBY EXPRESSLY DISCLAIM ANY, REPRESENTATIONS OR WARRANTIES
AS TO
THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION OR AS TO ANY
OTHER INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL)
FURNISHED TO THE COMPANY, OR ITS REPRESENTATIVES BY OR ON
BEHALF
OF SHELL OR ANY OF ITS SUBSIDIARIES. IT IS EXPRESSLY
UNDERSTOOD
AND AGREED THAT NONE OF THE WARRANTIES IN THIS AGREEMENT BY
SHELL
SHALL BE DEEMED TO COVER CORAL. Subject to the foregoing,
Shell
hereby warrants to the Company as follows:
SECTION 4.01. Corporate Existence and Power. Each of
Shell, Holdings and MergerSub is, and, at the Effective Time,
Sierra Acquisition will be, a corporation or other legal
entity
duly incorporated or organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation
or
organization, and has (or will have) all corporate or entity
powers and all governmental licenses, authorizations, consents
and
approvals required to carry on its business as now conducted,
except to the extent the failure to have such licenses,
authorizations, consents and approvals would not, individually
or
in the aggregate, be reasonably expected to prevent, impair or
result in significant delay of the consummation of the Merger.
Shell is duly qualified to do business as a foreign
corporation
and is in good standing in each jurisdiction where the
character
of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for
those
jurisdictions where the failure to be so qualified would not,
individually or in the aggregate, be reasonably expected to
prevent, impair or result in significant delay of the
consummation
of the Merger. Shell has heretofore delivered to the Company
true
and complete copies of Holdings and MergerSub s certificate
of
incorporation and bylaws as currently in effect.
SECTION 4.02. Corporate Authorization. The execution,
delivery and performance of this Agreement by each member of
the
Shell Group and the consummation by such member of the
transactions contemplated hereby are (or, in the case of
Sierra
Acquisition, will be) within such member s corporate or other
powers and have been (or, in the case of Sierra Acquisition,
will
be) duly authorized by all necessary corporate or other
action.
This Agreement constitutes (or in the case of Sierra
Acquisition,
will constitute) the valid and binding agreement of each
member of
the Shell Group enforceable against such member in accordance
with
its terms, subject to applicable bankruptcy, insolvency or
other
similar laws relating to or affecting the enforcement of
creditors rights generally and to legal principles of general
applicability governing the application and availability of
equitable remedies.
SECTION 4.03. Governmental Authorization. The
execution,
delivery and performance by each member of the Shell Group of
this
xxvi
PAGE
Agreement and the consummation of the transactions
contemplated
hereby by such member require no action or waiting period by
or in
respect of, or filing with, any governmental body, agency,
official or authority other than (a) the filing of a
certificate
of merger in accordance with Delaware Law; (b) compliance with
any
applicable requirements of the HSR Act; (c) compliance with
any
applicable requirements of the Securities Act, the Exchange
Act or
any Blue Sky Laws; (d) compliance with the rules and
regulations
of FERC, of the Minerals Management Service of the Department
of
the Interior and of any other Governmental Authority in Texas,
Mississippi and Louisiana having jurisdiction, which rules and
regulations apply generally to natural gas and natural gas
liquids
pipelines and plants; (e) compliance with Environmental Laws;
and
(f) compliance with those Laws, Regulations and Orders
noncompliance with which would reasonably be expected to
prevent,
impair or result in significant delay of the consummation of
the
Merger.
SECTION 4.04. Non-Contravention. The execution,
delivery
and performance by each member of the Shell Group of this
Agreement and the consummation by each such member of the
transactions contemplated hereby do not and will not (a)
contravene or conflict with the certificate of incorporation
or
bylaws or other organizational documents of such member or (b)
assuming effectuation of all filings and registrations with,
the
termination or expiration of any applicable waiting periods
imposed by, and receipt of all Permits and Orders of,
Governmental
Authorities indicated as required in Section 4.03, (i) except
as
set forth in Schedule 4.04(i), constitute a default under or
give
rise to (A) a right of termination, cancellation,
acceleration,
amendment or modification with respect to any assets or
liabilities of such member, (B) a loss of any benefit to which
such member is entitled or (C) an increase in the obligations
of
such member, in each case, under any provision of any Material
Contract of such member, which, in any such case, individually
or
in the aggregate, would prevent, impair or result in
significant
delay of the consummation of the Merger, (ii) except as set
forth
in Schedule 4.04(b)(ii), result in the creation or imposition
of
any material Lien (other than a Permitted Encumbrance) on any
material assets of such member or (iii) except as set forth in
Schedule 4.04(b)(iii), violate or cause a breach under any
Law,
Regulation, Order or Permit applicable to any member of the
Shell
Group, except for any such matters that would not reasonably
be
expected, individually or in the aggregate, to prevent, impair
or
result in significant delay of the consummation of the Merger.
SECTION 4.05. Disclosure Documents. (a) Each document,
if
any, required to be filed by the Shell Group with the SEC in
connection with the transactions contemplated by this
Agreement
(the SHELL DISCLOSURE DOCUMENTS ) will, when filed, comply as
to
form in all material respects with the applicable requirements
of
the Exchange Act and the Securities Act, except that no
warranty
is made hereby with respect to any information supplied by the
Company expressly for inclusion in the Shell Disclosure
Documents.
(b) At the time the Proxy Statement or any amendment or
supplement thereto is first mailed to stockholders of the
Company
and at the time such stockholders vote on adoption of this
Agreement, the information supplied by the Shell Group for
inclusion in the Proxy Statement will not contain any untrue
statement of a material fact or omit to state any material
fact
necessary in order to make the statements made therein, in the
xxvii
PAGE
light of the circumstances under which they were made,
not
misleading.
SECTION 4.06. Public Utility. Shell is not a holding
company, a subsidiary company of a holding company, an
affiliate of a holding company, or a public utility
company,
as such terms are defined in the Holding Company Act.
SECTION 4.07. Finders Fees. Except for the fees and
expenses of Morgan Stanley & Co. Incorporated (a copy of whose
engagement agreement has been provided to the Company)
incurred in
connection with the transactions contemplated hereby, which
will
be paid 50% by the Company and 50% by Shell, there is no
investment banker, broker, finder or other intermediary which
has
been retained by, or is authorized to act on behalf of, the
Shell
Group who might be entitled to any fee or commission from the
Company or Holdings or any of their Subsidiaries in connection
with the transactions contemplated by this Agreement.
SECTION 4.08. Litigation. Except as set forth in
Schedule
4.08, as of the latest date through which Shell has
supplemented
its Schedules pursuant to Section 6.10, there is no action,
suit
or proceeding pending against, or (to the Knowledge of Shell)
threatened against or affecting, or (to the Knowledge of
Shell)
any pending investigation against any member of the Shell
Group or
any of their respective properties before any court or
arbitrator
or any governmental body, agency or official which in any
manner
challenges or seeks to prevent, enjoin, alter or materially
delay
the Merger or any of the other transactions contemplated
hereby.
SECTION 4.09. Financing. Prior to the Effective Time,
Shell will have available all necessary funds or financing to
provide funds in an amount necessary to pay the aggregate
Merger
Consideration.
SECTION 4.10. Ownership of Company Common Shares. As
of
the date of this Agreement, no member of the Shell Group nor
any
of its Affiliates beneficially owns any Company Common Shares.
ARTICLE 5
Covenants of the Company
SECTION 5.01. Affirmative Covenants of the Company.
Except
as expressly contemplated by this Agreement or consented to in
writing by Shell, during the period from the execution of this
Agreement by the Company to the Effective Time, the Company
will,
and will cause its Subsidiaries to:
(a) operate their businesses in all material respects in
the
usual and ordinary course consistent with past practices;
(b) use all reasonable efforts to preserve substantially
intact their business organizations, maintain the rights and
franchises that are material to the Company, retain the
services
of their officers and maintain the relationships with the
customers and suppliers that are material to the Company;
(c) maintain supplies and inventories in quantities
deemed
appropriate by the Company and maintain and keep the
properties
xxviii
PAGE
and assets that are material to the Company in as good
repair and
condition in all material respects as on the date of this
Agreement, ordinary wear and tear excepted;
(d) use all commercially reasonable efforts to keep in
full
force and effect insurance comparable in amount and scope of
coverage to that set forth in Section 3.21;
(e) use all commercially reasonable efforts to comply in
all
material respects with all applicable Laws, Regulations and
Orders; and
(f) provide Shell with at least 180 days advance
written
notice of its intent to terminate any Company Pension Plan or
to
freeze accruals thereunder.
SECTION 5.02. Negative Covenants of the Company.
Except as
(i) expressly contemplated by this Agreement, (ii) required or
contemplated by the partnership or joint venture agreements or
arrangements listed in Schedule 5.02 with respect to the
business,
condition (financial or otherwise), operations, performance or
properties of the partnerships and joint ventures created
thereby,
or (iii) otherwise consented to in writing by Shell, from the
execution of this Agreement by the Company until the Effective
Time, the Company will not, and will not permit any of its
Subsidiaries to:
(a) adopt or propose any change in the certificate of
incorporation or bylaws of the Company or any of its
Subsidiaries
that are less than wholly-owned;
(b) (i) acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets
of, or
in any other manner, any business or any corporation,
partnership,
association or other business organization or division
thereof, or
(other than in the routine conduct of its business) otherwise
acquire or agree to acquire any assets of any other Person if,
in
any such case, either (x) Shell believes, in its discretion,
that
such acquisition or agreement would delay, impede or prevent
the
consummation of the transactions contemplated by this
Agreement,
(y) such acquisition or agreement would, if consummated after
the
Effective Time, require the consent of Shell under any
arrangements described in the memorandum of understanding (the
memorandum of understanding ) dated the date of this
Agreement
among Shell, certain stockholders of the Company and certain
other
Persons (or in the attachments thereto) or (z) such
acquisition or
agreement would not, if consummated after the Effective Time,
satisfy the other conditions for such acquisition or agreement
set
forth in any arrangements described in the memorandum of
understanding (or in the attachments thereto), (ii) incur any
Indebtedness or issue any debt securities or assume, guarantee
or
endorse or otherwise become responsible for the obligations of
any
other Person or make any loans or advances, except in each
case in
the ordinary course of business and consistent with past
practice
(for purposes hereof, ordinary course of business consistent
with
past practice includes the incurrence of Indebtedness (A) to
finance acquisitions permitted by Section 5.02(b)(i) above,
(B)
needed to provide funds for the redemption of the Company
5-1/4%
Preferred, (C) to acquire gas for storage in the Company s
underground storage facilities (including payments under
derivative instruments entered into in connection with such
storage operations) and (D) to fund capital expenditures
xxix
PAGE
consistent with the Company s 1997 operating plan;
provided that
in the case of any Indebtedness incurred in accordance with
this
clause (ii), the Company will, to the extent commercially
practicable, minimize any early termination costs associated
with
the Company s financing activities), (iii) make or authorize
any
capital expenditures other than capital expenditures in
accordance
with the Company s existing capital plan, capital expenditures
to
repair or replace casualty losses or other capital
expenditures in
the ordinary course of the Company s business or (iv) enter
into
or amend in any material respect any contract, agreement,
commitment or arrangement with respect to any of the matters
set
forth in this Section 5.02(b);
(c) sell, lease, license or otherwise dispose of any
material assets or property except (i) pursuant to existing
contracts or commitments, (ii) dispositions for fair market
value
of properties that the Company does not consider strategic in
its
business and which aggregate less than $75 million in sale
proceeds or (iii) in the ordinary course consistent with past
practice;
(d) (i)take or agree or commit to take any action that
would make any warranty of the Company hereunder inaccurate in
any
respect at, or as of any time prior to, the Effective Time
such
that the conditions set forth in Section 7.02(a) would not be
satisfied or (ii) omit or agree or commit to omit to take any
action necessary to prevent any such warranty from being
inaccurate in any respect at any such time such that the
conditions set forth in Section 7.02(a) would not be
satisfied;
provided that, in each case where the covenants in this
Agreement
permit the Company and its Subsidiaries to acquire any
business or
assets they shall not be restricted by this clause from taking
such actions so long as the Company updates any applicable
Schedules (whether before or after November 1, 1997 so long as
such date is no later than three (3) Business Days prior to
the
Effective Time and otherwise in accordance with and subject to
Section 6.10) to reflect such acquisition;
(e) except as set forth on Schedule 5.02(e) and except
as
contemplated by this Agreement, split, combine or reclassify
any
shares of its capital stock, declare, set aside or pay any
dividend or other distribution (whether in cash, stock or
property
or any combination thereof) in respect of its capital stock
(other
than regular quarterly cash dividends on the Company 5-1/4%
Preferred and the Company 9.96% Preferred, the redemption of
the
Company 5-1/4% Preferred as contemplated by this Agreement, or
cash dividends and distributions by a wholly owned Subsidiary
of
the Company to the Company or to a Subsidiary, all of the
capital
stock of which is owned directly or indirectly by the
Company), or
redeem, repurchase or otherwise acquire or offer to redeem,
repurchase or otherwise acquire any of its securities or any
securities of its Subsidiaries (other than the redemption of
the
Company 5-1/4% Preferred, receipt of Company Common Shares in
payment of the exercise price of employee or director stock
options and Taxes in respect of such exercise and repurchases
to
fulfill the Company s matching contribution obligations under
its
401(k) plan);
(f) except as set forth in Schedule 5.02(f), adopt any
change in executive compensation except in the ordinary course
consistent with past practices or adjust or amend any bonus,
profit sharing, compensation, severance, termination, stock
xxx
PAGE
option, pension, retirement, deferred compensation,
employment or
employee benefit plan, agreement, trust, plan, fund or other
arrangement for the benefit and welfare of any director,
officer
or employee (except as required to comply with ERISA or to
continue then existing tax and securities law status);
(g) revalue in any material respect any significant
portion
of its assets, including, without limitation, writing down the
value of inventory in any material manner or writing-off of
notes
or accounts receivable in any material manner except as
required
by generally accepted accounting principles;
(h) pay, discharge or satisfy any material claims,
liabilities or obligations (whether absolute, accrued,
asserted or
unasserted, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business,
consistent with past practices, of liabilities reflected or
reserved against in the consolidated financial statements of
the
Company referred to in Section 3.08 or incurred in the
ordinary
course of business, consistent with past practices;
(i) make any tax election with respect to or settle or
compromise any material income tax liability;
(j) offer, sell, issue or grant, or authorize the
offering,
sale, issuance or grant, of any shares of capital stock of, or
other equity interests in, any securities convertible into or
exchangeable for any shares of capital stock of, or other
equity
interests (or phantom equity interests) in, or any options,
warrants or rights of any kind to acquire any shares of
capital
stock of, or other equity interests (or phantom equity
interests)
in, the Company or any of its Subsidiaries (other than the
issuance of Company Common Shares upon the exercise of
outstanding
options or rights or the conversion of outstanding convertible
securities or to fund obligations under the Company s 401(k)
plan
or quarterly awards of up to $10,000 of Company Common Shares
under the Director Stock Award Plan);
(k) grant any Lien (except Permitted Encumbrances) with
respect to any material assets including any shares of capital
stock of, or other equity interests in, any Subsidiary of the
Company;
(l) (i) change any of its policies or practices with
respect to business transactions between the Company and its
Subsidiaries, on the one hand, and the Company s Affiliates
(other
than the Company and its Subsidiaries), on the other hand,
(ii)
change any of its methods of accounting in effect at December
31,
1996, except as may be required to comply with generally
accepted
accounting principles, or (iii) change any of its methods of
reporting income or deductions for federal income tax purposes
from those employed in the preparation of the federal income
tax
returns for the taxable year ending December 31, 1996, except,
in
each case, as may be required by Law and except, in the cases
of
clauses (i), (ii) and (iii), for matters that would not
reasonably
be expected to have a Company Material Adverse Effect;
(m) (i) take any action to revoke, amend or nullify the
amendment to the Rights Plan referred to in Section 3.05(b)
and
(ii) except to the extent the Board of Directors of the
Company
deems it necessary to do so in the exercise of its fiduciary
obligations to its stockholders based on the advice of
counsel,
xxxi
PAGE
redeem or make any other amendment to its Rights Plan;
(n) enter into or adopt any new agreements or
arrangements
that provide for the payment of income or the provision of
benefits (including vesting, entitlement, receipt, creation or
transfer of any rights, privileges, income or title to
property or
beneficial ownership) to employees of the Company as a result
of a
change of control of the Company; or
(o) agree or commit to do any of the foregoing.
SECTION 5.03. No Solicitation. From and after the date
of
this Agreement, the Company will not, and will not authorize
or
permit any of the officers, directors, employees, agents and
other
representatives of the Company and its Subsidiaries
(collectively,
the REPRESENTATIVES ) to, directly or indirectly, solicit,
encourage or initiate any Acquisition Proposal or negotiate
with
any prospective buyer in connection therewith; provided,
however,
that (a) nothing herein shall restrict the Company from filing
a
Current Report on Form 8-K describing this Agreement, the
Merger
and the transactions contemplated hereby and by any other
agreements being entered into by the Company on the date of
this
Agreement (which filing may include this Agreement as an
exhibit)
promptly after the date hereof or from complying with its
obligations under the Securities Act, the Exchange Act and any
other applicable Law; (b) the Company s Board of Directors
and/or
the Special Committee may authorize the Company to engage in
discussions or negotiations with any Person who (without any
solicitation or initiation, directly or indirectly, by the
Company
or any Representative after the date of this Agreement) seeks
to
initiate such discussions or negotiations and may furnish such
third party information concerning and access to the Company
and
its Subsidiaries and their respective businesses, properties
and
assets, and the Company s Board of Directors and/or the
Special
Committee may direct the Company s Representatives to
cooperate
with and be available to consult with any such Person;
provided
that in the case of this clause (b), the Company s Board of
Directors and/or the Special Committee shall have determined
in
the exercise of its fiduciary duties based on the advice of
its
counsel that such action is in the best interests of the
Company s
stockholders, (c) following receipt of an Acquisition Proposal
that is financially superior to the Merger (as determined in
good
faith by the Company s Board of Directors after consultation
with
the Company s financial advisors), the Board of Directors of
the
Company may withdraw, modify or not make its recommendation in
favor of the Merger; provided that in the case of this clause
(c),
the Company s Board of Directors shall have concluded in good
faith and upon advice of counsel that such action is necessary
in
order for the Company s Board of Directors to act in a manner
that
is consistent with its fiduciary obligations under applicable
law
and (d) the Company s Board of Directors may take and disclose
to
the Company s stockholders any position contemplated by Rule
14e-
2(a) promulgated under the Exchange Act; provided that, in
each
case referred to in the foregoing clauses (a), (b), (c) and
(d),
the Company shall not engage in negotiations with, or disclose
any
nonpublic information to, any Person unless it receives from
such
Person an executed confidentiality agreement with terms, in
the
aggregate, not materially less favorable to the Company than
the
Confidentiality Agreement. The Company shall immediately
cease
and cause to be terminated any existing solicitation of, and
any
discussion or negotiation conducted prior to the date of this
Agreement by the Company or any of the Company s
Representatives
xxxii
PAGE
with respect to any Acquisition Proposal. Except to
the extent
the Company s Board of Directors or the Special Committee
deems it
necessary not to do so in the exercise of its fiduciary
obligations to its stockholders based on the advice of
counsel,
the Company will promptly notify Shell of the receipt of any
Acquisition Proposal not less than two business days prior to
entering into any agreement in connection with the Acquisition
Proposal, including the identity of the Person or group making
such Acquisition Proposal and the material terms and
conditions of
such Acquisition Proposal; provided that, except to the
extent
the Company s Board of Directors deems it necessary not to do
so
in the exercise of its fiduciary obligations to its
stockholders
based on the advice of counsel, in no event shall the Company
enter into a definitive agreement in connection with the
Acquisition Proposal less than five business days after the
Company s initial notification to Shell of an inquiry or
proposal
relating to an Acquisition Proposal. Within the
two-business-day
or five-business-day period referred to above, if any, Shell
may
propose an improved transaction.
SECTION 5.04. Settlement of Certain Claims. Without
the
prior written agreement of Shell, prior to the Effective Time,
the
Company shall not settle or compromise any claim brought by
any
present, former or purported holder or owner of Company Common
Shares or other securities of the Company, or by any other
Person,
which relates to or seeks to challenge or enjoin the
transactions
contemplated by this Agreement, if in any such case such
settlement or compromise involves the payment of cash or
securities to such Person, or an order restraining or
enjoining
the transactions contemplated by this Agreement or limiting
the
ability of any member of the Shell Group to consummate the
transactions contemplated hereby or to exercise control of the
business and operations of the Company and its Subsidiaries
after
the Effective Time.
SECTION 6.01. Antitakeover Statutes. If any takeover
statute is or may become applicable to the transactions
contemplated hereby, the Company and the members of its Board
of
Directors shall use all reasonable efforts to grant such
approvals
and to take such actions as are necessary so that the
transactions
contemplated by this Agreement may be consummated as promptly
as
practicable on the terms contemplated hereby and otherwise act
to
eliminate or minimize the effects of any takeover statute on
any
of the transactions contemplated by this Agreement.
ARTICLE 6
Covenants of Each Party
Each party agrees that:
SECTION 6.01. Reasonable Efforts. (a) Subject to the
terms
and conditions of this Agreement, each party shall use, and
shall
cause each of its respective Subsidiaries to use, all
commercially
reasonable efforts (i) to take, or to cause to be taken, all
appropriate action, and to do, or to cause to be done, all
things
necessary, proper or advisable under applicable Law or
otherwise
to consummate and make effective the transactions contemplated
by
this Agreement, (ii) to obtain from any Governmental
Authorities
any Licenses, Permits or Orders required to be obtained by
such
xxxiii
PAGE
party or any of its Subsidiaries in connection with
the
authorization, execution and delivery of this Agreement and
the
performance of its obligations hereunder and (iii) to make all
necessary filings and thereafter to make promptly any other
required submissions, with respect to this Agreement required
under (A) the HSR Act or (B) any other applicable Law,
Regulation
or Order; provided, that the Company and Shell shall cooperate
with each other in connection with the making of all such
filings
and in supplying any information requested supplementally or
by
second request from any Governmental Authority. The Company
and
Shell shall request early termination of the waiting period
under
the HSR Act with respect to the transactions contemplated
hereby.
(b) The parties agree to cooperate and to cause their
respective Subsidiaries to cooperate with respect to, and
agree to
use all commercially reasonable efforts vigorously to contest
and
resist and to have vacated, lifted, reversed or overturned,
any
action, including legislative, administrative or judicial
action,
including any Order (whether temporary, preliminary or
permanent)
of any Governmental Authority, that is in effect and that
restricts, prevents or prohibits the consummation of the
transactions contemplated by this Agreement. Each of the
parties
also agrees to take any and all commercially reasonable
actions
that may be required by any Governmental Authority as a
condition
to the granting of any Permit or Order required in order to
permit
the consummation of the transactions contemplated hereby or as
may
be required to vacate, lift, reverse or overturn any
administrative or judicial action that would otherwise cause
any
condition to the Effective Time not to be satisfied; provided,
however, that in no event shall any party be required to take
any
action that could reasonably be expected to have a Company
Material Adverse Effect or to result in a breach of this
Agreement.
(c) Each of the parties shall use, and shall cause its
Subsidiaries to use, all commercially reasonable efforts to
obtain
from all Persons (other than Governmental Authorities) all
consents that are (i) necessary, proper or advisable or (ii)
otherwise required under any contracts, licenses, leases,
easements or other agreements to which such party or any of
its
Subsidiaries is a party or by which it is bound, in order to
permit such party to perform its obligations hereunder.
(d) If any party shall fail to obtain any third party
consent described in Section 6.01(c), such party shall use all
commercially reasonable efforts, and shall take any such
actions
reasonably requested by the other parties, to limit the
adverse
effect upon the Company and its Subsidiaries, and Shell and
its
Subsidiaries, and each of their respective businesses
resulting,
or which could reasonably be expected to result after the
Effective Time, from the failure to obtain such consent.
(e) Upon learning thereof, each party shall promptly
notify
the other parties of (i) any complaints, investigations or
hearings (or communications indicating that the same may be
contemplated) from or by any Governmental Authorities with
respect
to the transactions contemplated hereby or (ii) the
institution or
the threat of litigation involving this Agreement or the
transactions contemplated hereby.
SECTION 6.02. Pending and Upcoming FERC Proceedings.
Except for the rate reduction filing planned for the
Mississippi
xxxiv
PAGE
Canyon pipeline project in 1997, from the date of this
Agreement
until the Effective Time, with respect to any pending
certificate
and tariff proceedings before the FERC, Shell and the Company
shall use reasonable efforts to consult with one another
regarding
any agreement (x) to obtain approval for rates that are less
than
the rates that have been requested in such proceedings prior
to
the date hereof or (y) to settle all or any material part of
the
issues in such proceedings, including any material issues
regarding the appropriate rate, fuel component, rate of return
or
other cost of service or rate design aspect.
SECTION 6.03. Public Announcements. Each party will
consult with each other before issuing any press release or
making
any public statement with respect to this Agreement and the
transactions contemplated hereby and, except as may be
required by
applicable Law or any listing agreement with any national
securities exchange, will not issue any such press release or
make
any such public statement prior to such consultation;
provided,
however, that following the execution hereof the Company and
Shell
may each issue a press release in the form of Exhibit B
attached
hereto.
SECTION 6.04. Notification of Certain Matters. Each
party
shall use all commercially reasonable efforts to give prompt
notice to the other parties of (i) the occurrence or
nonoccurrence
of any event the occurrence or nonoccurrence of which would be
likely to cause any warranty contained in this Agreement to be
materially untrue or inaccurate, or (ii) any failure of any
party
materially to comply with or satisfy any covenant, condition
or
agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies
available hereunder to the parties receiving such notice; and
provided further that failure to give such notice shall not be
treated as a breach of covenant for the purposes of Sections
7.02(a) or 7.03(a) hereof unless the failure to give such
notice
results in material prejudice to the other parties.
SECTION 6.05. Proxy Statement; Stockholder Meeting. (a)
As
promptly as practicable after the execution of this Agreement,
the
Company and Shell shall prepare, and the Company shall file
with
the SEC, the preliminary Proxy Statement relating to the
adoption
of this Agreement and approval of the transactions
contemplated
hereby by the stockholders of the Company, subject to Section
5.03. As promptly as practicable after comments are received
from
the SEC thereon and after the furnishing by the Company and
Shell
of all information required to be contained therein, the
Company
shall file with the SEC a revised Proxy Statement and will use
all
commercially reasonable efforts to have it cleared by the SEC
as
soon thereafter as practicable, subject to Section 5.03.
(b) Subject to Section 5.03, the Company shall cause a
meeting of its stockholders (the COMPANY STOCKHOLDER MEETING
) to
be duly called and held as soon as reasonably practicable
after
the SEC clears the Proxy Statement for the purpose of voting
on
the approval and adoption of this Agreement and the Merger and
will (i) thereafter mail to its stockholders as promptly as
practicable the Proxy Statement, (ii) include in the Proxy
Statement the Board s recommendation set forth in Section
1.01(f),
(iii) use all commercially reasonable efforts to obtain the
necessary approval by its stockholders of this Agreement and
the
transactions contemplated hereby and (iv) otherwise comply
with
xxxv
PAGE
all legal requirements applicable to such meeting.
SECTION 6.06. Access to Information; Confidentiality.
(a)
From the date of this Agreement until the Effective Time, the
Company shall (i) afford Shell and its officers, directors,
employees, accountants, consultants, legal counsel, agents and
other representatives, including environmental engineers
(collectively, the SHELL REPRESENTATIVES ), reasonable access
at
reasonable times, upon reasonable prior notice, to the
officers,
employees, agents, properties, offices and other facilities of
the
Company and its Subsidiaries and to the books and records
thereof
and (ii) furnish promptly to Shell and the Shell
Representatives
such information concerning the business, properties,
contracts,
records and personnel of the Company and its Subsidiaries
(including financial, operating and other data and
information) as
may be reasonably requested, from time to time, by Shell.
(b) Notwithstanding the foregoing provisions of this
Section, the Company shall not be required to (i) grant access
to
or furnish any Company Proprietary Information to Shell or any
of
the Shell Representatives or (ii) grant access or furnish
information to Shell or any of Shell Representatives to the
extent
that such information is subject to an attorney/client or
attorney
work product privilege or that such access or the furnishing
of
such information is prohibited by Law or by a confidentiality
agreement with a third party; provided, however, that, in the
latter instance, if so requested by Shell, the Company will
use
all commercially reasonable efforts to obtain from such third
party a waiver of such prohibition.
SECTION 6.07. Confidentiality Agreement. From the date
hereof until the Effective Time, each party shall keep all
information received pursuant to this Agreement confidential
in
accordance with the terms of the Confidentiality Agreement.
The
Confidentiality Agreement will expire at the Effective Time.
SECTION 6.08. No Reorganization. It is the intention
of
the parties that the Merger will not qualify as a
reorganization
described in Section 368(a) of the Code (and any comparable
provisions of applicable state law). The parties will not
characterize the Merger as such a reorganization for purposes
of
any income tax returns and other filings.
SECTION 6.09. Director and Officer Liability. The
Surviving Corporation will indemnify and hold harmless the
present
and former officers and directors of the Company and its
Subsidiaries (the COVERED EMPLOYEES ) in respect of acts or
omissions occurring prior to the Effective Time to the extent
provided under the Company s certificate of incorporation and
bylaws in effect on the date hereof until any applicable
statute
of limitations has expired; provided that such indemnification
shall be subject to any limitation imposed from time to time
under
applicable Law. For not less than six years after the
Effective
Time, Holdings will provide officers and directors liability
insurance in respect of acts or omissions occurring prior to
the
Effective Time covering each such Person currently covered by
the
Company s officers and directors liability insurance policy
on
terms with respect to coverage and amount no less favorable
than
those of the Company s policy in effect on the date hereof;
provided that in satisfying its obligation under this Section,
Holdings shall not be obligated to pay premiums in excess of
150%
of the amount per annum that the Company paid for this purpose
in
xxxvi
PAGE
its last full fiscal year, which amount has been
disclosed to
Shell; but provided further, that Holdings shall be obligated
to
provide such coverage as may be obtained for such amount. The
provisions of this Section 6.09 are for the benefit of and may
be
enforced after the Effective Time by the Covered Employees.
SECTION 6.10. Revised Schedules. The parties
acknowledge
that the Schedules attached to this Agreement as of the date
of
this Agreement may not be complete, and may need to be
revised.
Accordingly, the parties agree that Shell or the Company may
revise their respective Schedules to this Agreement by
delivering
revised Schedules to the other party at any time prior to
November
1, 1997; provided that no party will be entitled to insert
generic
exceptions to the Schedules that would modify the scope of the
warranties or covenants set forth herein. Any revised
Schedules
will be marked to show all additions and deletions to the
previous
Schedules. The Company or Shell, as the case may be, shall
have
the right to review the revised Schedules for a period of 5
business days after receipt thereof. At any time within the 5
business-day time period the Company or Shell, as the case may
be,
shall have the right to terminate this Agreement by notice to
the
other parties if the revised or supplemented information would
reasonably be likely to have a Company Material Adverse Effect
or
discloses that a condition to the terminating party s
obligations
to consummate the transactions contemplated hereby is not
capable
of satisfaction. This notice, if given, shall specify the
information forming the basis for the decision to terminate.
Shell or the Company, as the case may be, shall have 10
business
days after receipt of the notice to review with the other
parties
the information forming the basis for the decision to
terminate
and to attempt to agree on corrective measures, if any. If
the
parties cannot agree on corrective measures within such 10
business-day period, then this Agreement shall terminate. If
this
Agreement is not terminated as permitted by this Section, the
Company or Shell, as the case may be, shall be deemed to have
accepted such revisions, and the Schedules attached to this
Agreement as of the date hereof shall be deemed to be
superseded
by the revised Schedules (and the applicable warranties to
which
such revised Schedules refer shall be deemed qualified by the
matters included in the applicable Schedules).
ARTICLE 7
Conditions
SECTION 7.01. Conditions to the Obligations of Each
Party.
The obligations of the Company, Shell, Sierra Acquisition,
Holdings and MergerSub to consummate the Merger are subject to
the
satisfaction of the following conditions:
(a) this Agreement and the Merger shall have been
adopted
and approved by the stockholders of the Company in accordance
with
the Delaware Law;
(b) any applicable waiting period under the HSR Act
relating
to the Merger and the other transactions contemplated hereby
shall
xxxvii
PAGE
have expired;
(c) no provision of any applicable law or regulation and
no
judgment, injunction, order or decree shall prohibit the
consummation of the Merger or the other transactions
contemplated
hereby;
(d) all material actions by or in respect of or filings
with
any governmental body, agency, official or authority required
to
permit the consummation of the Merger and the other
transactions
contemplated hereby shall have been obtained;
(e) there shall not be pending any action or proceeding
(or
any investigation or other inquiry that might result in such
an
action or proceeding) by any governmental authority or
administrative agency before any governmental authority,
administrative agency or court of competent jurisdiction,
domestic
or foreign, nor shall there be in effect any judgment, decree
or
order of any governmental authority, administrative agency or
court of competent jurisdiction, or any other legal restraint,
(i)
preventing or seeking to prevent consummation of the Merger or
the
other transactions contemplated hereby, (ii) prohibiting or
seeking to prohibit or limiting or seeking to limit any party
from
exercising all material rights and privileges pertaining to
its
ownership of the Company or any of its Subsidiaries, or (iii)
compelling or seeking to compel Shell, Holdings, the Company
or
any of their Subsidiaries to dispose of or hold separate all
or
any material portion of the business or assets of the Company
or
any of its Subsidiaries (including the Surviving Corporation
and
its Subsidiaries), in each case as a result of the Merger or
the
other transactions contemplated by this Agreement, nor shall
there
be any threat of any matter of a type referred to in clauses
(ii)
or (iii) above which would reasonably be expected to have a
Company Material Adverse Effect; and
(f) no statute, rule, regulation or order shall be
enacted,
entered, enforced or deemed applicable to the Merger which
makes
the consummation of the transactions contemplated hereby
illegal.
SECTION 7.02. Conditions to the Obligations of Shell,
Sierra Acquisition, Holdings and MergerSub. The obligations
of
Shell, Sierra Acquisition, Holdings and MergerSub to
consummate
the Merger and the other transactions contemplated by this
Agreement, are subject to the satisfaction of the following
further conditions:
(a) (i) the Company shall have performed in all material
respects all of its obligations hereunder required to be
performed
by it at or prior to the Effective Time, and (ii) except for
such
inaccuracies or omissions the consequences of which do not
singly
or in the aggregate constitute a Company Material Adverse
Effect,
the warranties of the Company contained in this Agreement and
in
any certificate or other writing delivered by the Company
pursuant
hereto shall be true in all respects at and as of the
Effective
Time as if made at and as of such time (except to the extent
such
warranty is made as of an earlier date, in which case the
warranty
shall be true in all respects as of such date) and Shell shall
have received a certificate signed by the Chairman, the CEO or
the
Chief Financial Officer of the Company to the foregoing
effect;
xxxviii
PAGE
(b) all consents, waivers, approvals,
authorizations or
orders required to be obtained, and all filings required to be
made, by the Company for the consummation by it of the
transactions contemplated by this Agreement shall have been
obtained and made by the Company, except where the failure to
receive such consents, etc. would not reasonably be expected
to
have a Company Material Adverse Effect;
(c) Shell shall have received all documents it may
reasonably request relating to the existence of the Company
and
the authority of the Company for this Agreement, all in form
and
substance satisfactory to Shell; and
(d) there shall not have been any event, occurrence or
development since the date hereof which, individually or
together
with other similar events, has had or would reasonably be
expected
to have a Company Material Adverse Effect.
SECTION 7.03. Conditions to the Obligations of the
Company.
The obligations of the Company to consummate the Merger are
subject to the satisfaction of the following further
conditions:
(a) (i) each member of the Shell Group shall have
performed
in all material respects all of its obligations hereunder
required
to be performed by it at or prior to the Effective Time, and
(ii)
except for such inaccuracies or omissions the consequences of
which would not singly or in the aggregate reasonably be
expected
to impede the receipt of the Merger Consideration by the
Company s
stockholders, the warranties of each member of the Shell Group
contained in this Agreement and in any certificate or other
writing delivered by any member of the Shell Group pursuant
hereto
shall be true in all respects at and as of the Effective Time
as
if made at and as of such time (except to the extent such
warranty
is made as of an earlier date, in which case the warranty
shall be
true in all respects as of such date) and the Company shall
have
received a certificate signed by the President, any Vice
President
or the Treasurer of Shell to the foregoing effect;
(b) all consents, waivers, approvals, authorizations or
orders required to be obtained, and all filings required to be
made, by each member of the Shell Group for the consummation
by it
of the transactions contemplated by this Agreement shall have
been
obtained and made by such member, except where the failure to
receive such consents, etc. would not reasonably be expected
to
impede the receipt of the Merger Consideration by the Company
s
stockholders; and
(c) the Company shall have received all documents it may
reasonably request relating to the authority of each member of
the
Shell Group for this Agreement, all in form and substance
satisfactory to the Company.
ARTICLE 8
Termination
SECTION 8.01. Termination. This Agreement may be
terminated and the Merger and the other transactions
contemplated
by this Agreement may be abandoned at any time prior to the
Effective Time (notwithstanding any approval of this Agreement
by
xxxix
PAGE
the stockholders of the Company):
(a) by mutual written consent of the Company and Shell;
(b) by either the Company or Shell, if the Merger has
not
been consummated by March 31, 1998;
(c) by either the Company or Shell, if there shall be
any
law or regulation that makes consummation of the Merger
illegal or
otherwise prohibited or if any judgment, injunction, order or
decree enjoining any member of the Shell Group or the Company
from
consummating the Merger is entered and such judgment,
injunction,
order or decree shall become final and nonappealable;
(d) by Shell, if any Person, entity or group (as
defined
in Section 13(d)(3) of the Exchange Act) other than Shell and
its
Affiliates (including, for purposes of this clause only, any
parent of Shell and its Subsidiaries) shall have increased its
beneficial ownership (calculated in accordance with Rule 13d-3
under the Exchange Act) of Company Common Shares by an amount
equal to 25% or more of the outstanding Company Common Shares
compared with its level of ownership on the date of this
Agreement;
(e) (i) by Shell if any warranty of the Company set
forth in
this Agreement shall be untrue when made such that the
condition
set forth in Section 7.02(a) would not be satisfied; provided
that, if such warranty is curable prior to the date 60 days
after
notice to the Company by Shell of such breach, through the
exercise by the Company of its reasonable best efforts, so
that
the condition in Section 7.02(a) would be satisfied, and for
so
long as the Company continues to exercise such reasonable best
efforts, Shell will not have the right to terminate this
Agreement
under this Section, or (ii) by the Company if any warranty of
any
member of the Shell Group set forth in this Agreement shall be
untrue when made such that the condition set forth in Section
7.03(a) would not be satisfied; provided that, if such
warranty is
curable prior to the date 60 days after notice to Shell by the
Company of such breach, through the exercise by Shell of its
reasonable best efforts, so that the condition in Section
7.02(a)
would be satisfied, and so long as Shell continues to exercise
such reasonable best efforts, the Company will not have the
right
to terminate this Agreement under this Section;
(f) (i) by Shell upon a breach of any covenant or
agreement
on the part of the Company set forth in this Agreement such
that
the condition set forth in Section 7.02(a) would not be
satisfied;
provided that, if such breach is curable prior to the date 60
days
after notice to the Company by Shell of such breach, through
the
exercise by the Company of its reasonable best efforts, so
that
the condition in Section 7.02(a) would be satisfied, and for
so
long as the Company continues to exercise such reasonable best
efforts, Shell will not have the right to terminate this
Agreement
under this Section, or (ii) by the Company upon a breach of
any
covenant or agreement on the part of Shell set forth in this
Agreement such that the condition set forth in Section 7.03(a)
would not be satisfied; provided that, if such breach is
curable
prior to the date 60 days after notice to Shell by the Company
of
such breach, through the exercise by Shell of its reasonable
best
efforts, so that the condition in Section 7.03(a) would be
satisfied, and for so long as Shell continues to exercise such
reasonable best efforts, the Company will not have the right
to
xl
PAGE
terminate this Agreement under this Section;
(g) by Shell (i) if the Board of Directors of the
Company
shall have withdrawn or modified or amended, in a manner
adverse
in any material respect to Shell, its approval of this
Agreement
and the Merger or its recommendation set forth in Section
1.01(f),
(ii) if the Board of Directors of the Company shall have
approved,
recommended or endorsed any Acquisition Proposal other than
the
Merger or (iii) if the Company shall have failed to call the
Company Stockholders Meeting within a reasonable time after
completion of the SEC review process or shall have failed as
promptly as reasonably practicable thereafter to mail the
Proxy
Statement to its stockholders or (iv) if the Company shall
have
failed to include in such Proxy Statement the recommendation
referred to above;
(h) by the Company if (i) its Board of Directors
determines
in good faith (after reviewing the advice of its financial
advisor) that an Acquisition Proposal is financially superior
to
the transactions contemplated hereby and is reasonably capable
of
being financed, (ii) the Company has complied with the
requirements of Section 5.03, (iii) concurrently with such
termination, the Company makes all payments required by
Section
8.03(b) and (iv) concurrently with such termination, the
Company
enters into a definitive agreement to effect the financially
superior Acquisition Proposal;
(i) by Shell or the Company if, at a duly held
stockholders
meeting of the Company or any adjournment thereof at which
this
Agreement and the Merger is voted upon, the requisite
stockholder
adoption and approval (the STOCKHOLDER APPROVAL ) shall not
have
been obtained; and
(j) by Shell or the Company in accordance with Section
6.10.
The party desiring to terminate this Agreement pursuant to
clauses
8.01(b) through 8.01(j) shall give written notice of such
termination to the other parties in accordance with Section
9.01.
SECTION 8.02. Effect of Termination. If this Agreement
is
terminated pursuant to Section 8.01, this Agreement shall
become
void and of no effect with no liability on the part of any
party
hereto, except for liability or damages resulting from a
willful
breach of this Agreement and except that the agreements
contained
in this Section 8.02 and in Sections 6.06 and 8.03 and Article
9
shall survive the termination hereof.
SECTION 8.03. Certain Fees. (a) Except as provided in
Section 8.03(b) and (c), all costs and expenses incurred in
connection with this Agreement shall be paid by the party
incurring such cost or expense; provided, that Shell and the
Company shall share equally all SEC filing fees and printing
expenses incurred in connection with the printing and filing
of
the Proxy Statement (including financial statements and
exhibits)
and any amendments or supplements thereto.
(b) So long as no member of the Shell Group shall have
materially breached its warranties or obligations under this
Agreement, the Company agrees to pay Shell a fee in
immediately
available funds equal to $25 million in the following
circumstances and at the following times only:
xli
PAGE
(i) promptly, but in no event later
than two
business days after the termination by Shell of this Agreement
pursuant to Section 8.01(g);
(ii)concurrently with any termination of this
Agreement by the Company pursuant to Section 8.01(h); and
(iii) if Shell or the Company has terminated
this
Agreement pursuant to Section 8.01(i) and within 12 months
after
the termination of this Agreement, either (x) any Person,
entity
or group (as defined in Section 13(d)(3) of the Exchange
Act)
other than Shell and its Affiliates (including, for purposes
only
of this clause, any parent of Shell and its Subsidiaries)
shall
have increased its beneficial ownership (calculated in
accordance
with Rule 13d-3 under the Exchange Act) of Company Common
Shares
by an amount equal to 25% or more of the outstanding Company
Common Shares compared with its level of ownership on the date
of
this Agreement or (y) the Company shall have entered into an
agreement to consummate a transaction contemplated by an
Acquisition Proposal, and such transaction shall subsequently
be
consummated, such payment to be made upon such acquisition of
Company Common Shares or the consummation of such Acquisition
Proposal.
(c) So long as no member of the Shell Group shall have
materially breached its warranties or obligations under this
Agreement, the Company agrees to pay to Shell up to $5 million
of
Shell s Expenses promptly, but in no event later than two
business
days, after Shell terminates this Agreement pursuant to
Section
8.01(e) or (f). So long as the Company shall not have
materially
breached its warranties or obligations under this Agreement,
Shell
agrees to pay to the Company up to $5 million of the Company s
Expenses promptly, but in no event later than two business
days,
after the Company terminates this Agreement pursuant to
Section
8.01(e) or (f).
ARTICLE 9
Miscellaneous
SECTION 9.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing
(including telecopy or similar writing) and shall be given,
if to Shell, Sierra Acquisition, Holdings or
MergerSub, to:
President, Shell Exploration & Production
Company
Shell Oil Company
One Shell Plaza, Room 4401
Houston, TX 77002
Telecopy: (713) 241-7913
with a copy to:
xlii
PAGE
David W. Ferguson
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
if to the Company, to:
James W. Whalen
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, TX 77010
Telecopy: (713) 658-9600
with a copy to:
James L. Palenchar
Bartlit Beck Herman Palenchar & Scott
The Kittredge Building
511 Sixteenth Street
Denver, CO 80202
Telecopy: (303) 592-3140
to:
Robert G. Stone
Kirby Exploration
405 Lexington Avenue
39th Floor
New York, NY 10174-0039
Telecopy: (212) 687-7829
xliii
PAGE
and to:
Richard I. Beattie
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopy: (212) 455-2502
or such other address or telecopy number as such party may
hereafter specify for the purpose by notice to the other
parties
hereto. Each such notice, request or other communication shall
be
effective (a) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified in this Section
and
the appropriate telecopy confirmation is received or (b) if
given
by any other means, when delivered at the address specified in
this Section.
SECTION 9.02. Amendments; No Waivers. (a) Any
provision of
this Agreement may be amended or waived prior to the Effective
Time if, and only if, such amendment or waiver is in writing
and
signed, in the case of an amendment, by the parties hereto, in
the
case of a waiver, by the party against whom the waiver is to
be
effective; provided that after the adoption of this Agreement
by
the stockholders of the Company, no such amendment or waiver
shall, without the further approval of such stockholders,
alter or
change (i) the Merger Consideration, (ii) any term of the
certificate of incorporation of the Surviving Corporation or
(iii)
any of the terms or conditions of this Agreement if such
alteration or change would adversely affect the holders of any
shares of capital stock of the Company.
(b) No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof
preclude
any other or further exercise thereof or the exercise of any
other
right, power or privilege.
SECTION 9.03. Rules of Construction. Unless the
context
otherwise requires, as used in this Agreement: (i) all
defined
terms used herein and not otherwise defined have the meanings
assigned to such terms in Annex I hereto, (ii) an accounting
term
not otherwise defined has the meaning ascribed to it in
accordance
with generally accepted accounting principles; (iii) or is
not
exclusive; (iv) including means including, without
limitation,
(v) words in the singular include the plural and words in the
plural include the singular, and (vi) masculine pronouns shall
be
deemed to include the feminine counterpart and vice versa.
SECTION 9.04. Successors and Assigns. The provisions
of
this Agreement shall be binding upon and inure to the benefit
of
the parties hereto and their respective successors and
assigns,
provided that no party may assign, delegate or otherwise
transfer
any of its rights or obligations under this Agreement without
the
consent of the other parties hereto.
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PAGE
SECTION 9.05. Governing Law; etc. (a)
Governing Law. The
terms of this Agreement shall be construed in accordance with
and
governed by the law of the State of Delaware (without regard
to
principles of conflict of laws).
(b) Jurisdiction. Each of the parties hereto agrees
that
any suit, action or proceeding seeking to enforce any
provision
of, or based on any matter arising out of or in connection
with,
this Agreement or the transactions contemplated hereby may be
brought against any of the parties in the United States
District
Court for the District of Delaware or any state court sitting
in
the City of Wilmington, Delaware, and each of the parties
hereby
consents to the exclusive jurisdiction of such courts (and of
the
appropriate appellate courts) in any such suit, action, or
proceeding and waives any objection to venue laid therein.
Process
in any suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the State of
Delaware. Without limiting the foregoing, each of the parties
hereto agrees that service of process upon such party at the
address referred to in Section 9.01, together with written
notice
of such service to such party, shall be deemed effective
service
of process upon such party.
(c) Specific Performance. Each of the parties
acknowledges
and agrees that the parties respective remedies at law for a
breach or threatened breach of any of the provisions of this
agreement would be inadequate and, in recognition of that
fact,
each agrees that, in the event of a breach or threatened
breach by
any party of the provisions of this Agreement, in addition to
any
remedies at law, each party, respectively, without posting any
bond, shall be entitled to obtain equitable relief in the form
of
specific performance, a temporary restraining order, a
temporary
or permanent injunction or any other equitable remedy which
may
then be available.
(d) Waiver of Jury Trial. Each of the parties hereto
hereby
irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the
actions of any of them in the negotiation, administration,
performance and enforcement thereof.
SECTION 9.06. Counterparts; Effectiveness. This
Agreement
may be signed in any number of counterparts, each of which
shall
be an original, with the same effect as if the signatures
thereto
and hereto were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received
counterparts (or signature pages) hereof signed by all of the
other parties hereto.
SECTION 9.07. Parties in Interest. Except as expressly
provided in Article 1 and Section 6.09 in this Agreement,
express
or implied, is intended to or shall confer upon any other
Person,
other than the parties hereto and their respective permitted
successors and assigns, any right, benefit or remedy of any
nature
or kind whatsoever under or by reason of this Agreement.
SECTION 9.08. Severability. If any provisions of this
Agreement or the application thereof to either party or set of
circumstances shall in any jurisdiction and to any extent, be
finally held invalid or unenforceable, such term or provision
shall only be ineffective as to such jurisdiction, and only to
the
xlv
PAGE
extent of such invalidity or unenforceability, without
invalidating or rendering unenforceable any other terms or
provisions of this Agreement or under any other circumstances,
and
the parties shall negotiate in good faith a substitute
provision
which comes as close as possible to the invalidated or
unenforceable term or provision, and which puts each party in
a
position as nearly comparable as possible to the position it
would
have been in but for the finding of invalidity or
unenforceability, while remaining valid and enforceable.
SECTION 9.09. Entire Agreement. This Agreement,
together
with the letter agreement dated April 15, 1997 between Shell
and
the Company (which the parties agree shall terminate as of the
Effective Time), constitute the entire agreement among the
parties
hereto with respect to the subject matter hereof and supersede
all
prior agreements and undertakings, both written and oral,
among
the parties with respect to the subject matter hereof.
SECTION 9.10. Survival of Warranties. The warranties
contained herein and in any certificate or writing delivered
pursuant hereto shall not survive the Effective Time or, if
earlier, the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
TEJAS GAS CORPORATION
By:
Name: Jay A. Precourt
Title:
Chief Executive Officer and
President
TRANGO HOLDINGS CORPORATION
By:
Name: Curtis R. Fraiser
Title:
President
SHELL OIL COMPANY
By:
Name: Jack E. Little
Title:
Executive Vice President
(Exploration and Production)
TANGO ACQUISITION CORPORATION
By:
Name: Richard W. Bohan
Title:
xlvi
PAGE
Vice President and
Secretary
ANNEX I
DEFINED TERMS
The following terms when used in the Agreement shall have the
meanings set forth below unless the context shall otherwise
require:
ACQUISITION PROPOSAL shall mean any proposal or offer with
respect to (i) a tender or exchange offer, a merger,
consolidation or other business combination involving the Company or any of
its
Subsidiaries (including a merger of equals of the Company but
excluding a transaction where the Company or its Subsidiaries
is
acquiring the stock or assets of another Person unless the
transaction involves the issuance (other than in a broadly
marketed public offering) by the Company of 20% or more of its
outstanding Company Common Shares (or securities convertible
into
or exercisable for 20% or more of the outstanding Company
Common
Shares)), or (ii) the acquisition of an equity interest in the
Company representing in excess of 25% of the power to vote for
the
election of a majority of directors of the Company or (iii)
the
acquisition of assets of the Company or its Subsidiaries
(including stock of one or more Subsidiaries of the Company)
representing 25% or more of the consolidated assets of the
Company, in each case by any Person other than Shell or its
Affiliates (including for purposes of this definition any
parent
of Shell or any Subsidiaries of such parent).
AFFILIATE shall, with respect to any Person, mean any other
Person that controls, is controlled by or is under common
control
with the former; provided that, for purposes of this
Agreement,
none of the members of the Shell Group or their Subsidiaries
shall
be considered an Affiliate of any entity that controls Shell
or
any Subsidiaries of such entity (other than the members of the
Shell Group and their Subsidiaries), and none of the entities
that
control Shell shall be considered an Affiliate of any member
of
the Shell Group or their Subsidiaries. The term CONTROL and
correlative terms shall have the meanings ascribed to them in
Rule
405 under the Securities Act.
BLUE SKY LAWS shall mean any applicable state securities
laws.
CODE shall mean the Internal Revenue Code of 1986, as
amended,
and the rules and regulations promulgated thereunder.
CORAL means Coral Energy, L.P., a Delaware limited
partnership.
COMPANY 10-K means the Company s annual report on Form 10-K
for
the fiscal year ended December 31, 1996.
COMPANY EMPLOYEE PLANS means each EMPLOYEE BENEFIT PLAN ,
as
defined in Section 3(3) of ERISA, which (i) is subject to any
provision of ERISA and (ii) is maintained, administered or
contributed to by the Company or any affiliate (as defined
below)
and covers any director, officer or employee or former
director,
officer or employee of the Company or of any affiliate, or
under
which the Company or any affiliate has any liability.
COMPANY INTELLECTUAL PROPERTY RIGHTS means patents,
registered
and material unregistered trademarks and service marks,
registered
xlvii
PAGE
copyrights, trade names and any applications therefor
owned by the
Company or any of its Subsidiaries.
COMPANY MATERIAL ADVERSE EFFECT shall mean a material adverse
effect on the condition (financial or otherwise), business,
assets
or results of operations of the Company and its Subsidiaries,
taken as a whole, other than changes in general economic
conditions or in the economic conditions affecting the
Industry.
COMPANY MULTIEMPLOYER PLAN means an Employee Plan that
constitutes a multiemployer plan as defined in Section 3(37)
or
ERISA.
COMPANY PROPRIETARY INFORMATION means documents containing
operating, financial, technical or other information relating
to
the Company s evaluation of the transactions contemplated by
this
Agreement.
COMPANY REPRESENTATIVES shall mean the officers, directors,
employees, accountants, consultants, legal counsel, agents and
other representatives, including environmental engineers, of
the
Company.
CONFIDENTIALITY AGREEMENT shall mean the confidentiality
agreement between the Company and Shell, dated as of April 15,
1997.
COURT shall mean any court, federal, state or local, or
arbitration tribunal.
ENVIRONMENTAL LAW OR LAWS shall mean any and all laws,
statutes,
ordinances, rules, regulations, or orders of any Governmental
Authority pertaining to the protection of the environment, as
in
effect at the applicable time and that are applicable to a
specified Person and such Person s Subsidiaries, including the
Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 ( CERCLA ),
as
amended, the Federal Water Pollution Control Act, as amended,
the
Resource Conservation and Recovery Act of 1976 ( RCRA ), as
amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Hazardous & Solid
Waste
Amendments Act of 1984, as amended, the Superfund Amendments
and
Reauthorization Act of 1986, as amended, the Hazardous
Materials
Transportation Act, as amended, the Oil Pollution Act of 1990
( OPA ), any state laws implementing the foregoing federal
laws,
and any state laws pertaining to the handling of oil and gas
exploration and production wastes or the use, maintenance, and
closure of pits and impoundments, and all other environmental
conservation or protection laws. For purposes of the
Agreement,
ENVIRONMENTAL LAWS shall not include laws primarily related
to
the protection of human health and safety and the terms
hazardous
substance and releases have the meanings specified in
CERCLA
(but without regard to the exclusions set forth in the
definition
of hazardous substance); provided, however, that to the extent
other federal laws or the laws of the state in which the
property
is located establish a meaning for hazardous substance or
release that is broader than that specified in CERCLA, such
broader meaning shall apply, and the term hazardous substance
shall include all dehydration and treating wastes, waste (or
spilled) oil, and waste (or spilled) petroleum products, and
(to
the extent in excess of background levels) radioactive
material,
xlviii
PAGE
even if such items are not classified as hazardous
substances or
wastes pursuant to CERCLA, or RCRA or the analogous statutes
of
any applicable jurisdiction.
ERISA means the Employee Retirement Income Security Act of
1974,
as amended.
EXCHANGE ACT shall mean the Securities Exchange Act of 1934,
as
amended, and the rules and regulations promulgated thereunder.
EXCHANGE AGENT means a national bank or trust company
designated
by Shell and the Company prior to the Effective Time to act as
exchange agent in exchanging Company Common Shares for the
Merger
Consideration.
EXPENSES shall mean all actual, documented and reasonable
out-
of-pocket expenses (including all reasonable fees and expenses
of
counsel, accountants, investment bankers, experts and
consultants
to a party hereto and its affiliates), but excluding general
and
administrative costs and overhead, incurred by a party or on
its
behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of the
Agreement, and all other matters related to the consummation
of
the transactions contemplated thereby.
FERC shall mean the Federal Energy Regulatory Commission
including its predecessor, the Federal Power Commission, and
any
successors thereto.
FIXED PRICE CONTRACTS shall mean any contracts, commitments
or
agreements for the purchase or sale of Hydrocarbons (i) having
a
remaining term of more than sixty (60) days, wherein the
purchase
or sale price thereunder throughout part of the remaining life
of
such contract, commitment or agreement is a fixed amount or an
amount that is otherwise reasonably determinable as of the
date
hereof pursuant to the terms of such contract, commitment or
agreement, or (ii) which has been hedged with futures
contracts or
otherwise; provided, however, that the term Fixed Price
Contracts
will not include any contract, commitment or agreement under
which
the purchase or sales price throughout the remaining life of
the
contract, commitment or agreement is based on a market
responsive
reference price for a Hydrocarbon.
GOVERNMENTAL AUTHORITY shall mean any federal, state or
local
governmental agency or authority (other than a Court).
HOLDING COMPANY ACT shall mean the Public Utility Holding
Company Act of 1935, as amended, and the rules and regulations
promulgated thereunder.
HSR ACT shall mean the Hart-Scott-Rodino Antitrust
Improvements
Act of 1976, as amended, and the rules and regulations
promulgated
thereunder.
HYDROCARBONS shall mean crude oil, natural gas, natural gas
liquids and other hydrocarbons produced from crude oil or
natural
gas.
INDUSTRY shall mean the business of purchasing, gathering,
processing, treating, storing, transporting and marketing
natural
gas.
xlix
PAGE
IRS shall mean the Internal Revenue Service.
KNOWLEDGE OF THE COMPANY (and any other phrase to
substantially
similar effect) means the actual knowledge of any of J.A.
Precourt, J.W. Whalen, R.F. Joyce, P.A. Lannie and F.T.
Whittinghill, and with respect to (i) employee benefit
matters,
J.A. Street, (ii) Taxes, J.W. Bracewell and (iii)
environmental
matters, B. Salinas, in each case after reasonable inquiry
with
the head of the department who is principally responsible for
the
subject matter of any warranty given to the Knowledge of the
Company.
LAW shall mean all laws, statutes, ordinances, rules and
regulations of the United States, any foreign country, or any
domestic or foreign state, and any political subdivision or
agency
thereof, including all decisions of Courts having the effect
of
law in each such jurisdiction.
LCC shall mean the Office of Conservation, Department of
Natural
Resources of the State of Louisiana, and any predecessors or
successors thereto.
LIEN shall mean, with respect to any asset, any mortgage,
pledge, security interest, encumbrance, lien or charge of any
kind
(including any agreement to give any of the foregoing), any
conditional sale or other title retention agreement, any lease
in
the nature thereof or the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any
jurisdiction, with respect to such an asset.
MATERIAL shall mean material to the condition (financial and
other), results of operations or business of a specified
Person
and its Subsidiaries, if any, taken as a whole.
MATERIAL CONTRACT shall mean, as between any Person (the
Disclosing Person ) or any of its Subsidiaries, on the one
hand,
and any other Person other than any other member of the group
consisting of the Disclosing Person and its Subsidiaries, on
the
other hand:
(1) Any collective bargaining agreement or other
agreement
with any labor union;
(2) Any employment or consulting agreement, contract
or
commitment between the Disclosing Person or any of its
Subsidiaries and any employee, officer or director thereof (i)
having more than one year to run from the date hereof, (ii)
providing for an obligation to pay or accrue compensation of
$250,000 or more per annum or (iii) providing for the payment
or
accrual of any additional compensation upon a change in
control of
the Disclosing Person or any of its subsidiaries or upon any
termination of such employment or consulting relationship
following a change in control of the Disclosing Person or any
of
its Subsidiaries;
(3) Any agency or representation agreement with any
Person
which is not terminable by the Disclosing Person or one of its
Subsidiaries without penalty upon not more than ninety (90)
days
notice providing for the payments to such person of $250,000
or
more;
(4) Any partnership, joint venture or profit sharing
l
PAGE
agreement between the Disclosing Person or its
Subsidiaries with
any Person involving aggregate payments in excess of $500,000;
(5) Any agreement, contract, commitment, indenture or
other instrument relating to the borrowing of money in a
principal
amount of $500,000 or more or any direct or indirect guarantee
of
any obligation of any other Person or Governmental Authority
for,
or agreement to service the repayment of, borrowed money in a
principal amount of $500,000 or more, including any agreement
or
arrangement (i) relating to the maintenance of compensating
money
balances, (ii) with respect to lines of credit or letters of
credit, (iii) relating to the purchase or repurchase
obligations
of any other Person or Governmental Authority, (iv) to advance
or
supply funds to or to invest in any other Person or
Governmental
Authority, (v) to pay for property, products or services of
any
other Person or Governmental Authority even if such property,
products or services are not conveyed, delivered or rendered
and
(vi) to guarantee any lease or other similar periodic payments
to
be made by any other Person or Governmental Authority;
(6) Any lease with annual rental payments aggregating
$500,000 or more that is not terminable without premium or
penalty
on ninety (90) days or less notice;
(7) Any agreement, contract or commitment for the
disposition or acquisition of any investment in any Person if
such
investment requires payment of $1 million or more;
(8) Any agreement, contract or commitment to which the
Disclosing Person or any of its Subsidiaries is a party or by
which any of them is bound (i) which relates to the receiving,
storing, compressing, dehydrating, processing, purchasing,
transporting, gathering, exchanging or sale of Hydrocarbons
(either for the account of the Disclosing Person or a
subsidiary
thereof) for a term in excess of one year (or that may not be
terminated by the Disclosing Person upon notice of one year or
less) and involving cash payment in excess of $1 million
within
any twelve-month period commencing after the date of the
Agreement, or (ii) by which the Disclosing Person or its
Subsidiaries has agreed to park, store, wheel, loan, exchange,
or
otherwise deal in energy, Hydrocarbons or other commodities,
or to
provide such services to others, or (iii) which is a swap,
exchange or futures contract; or
(9) Any other agreement, contract or commitment which
involves payment or potential payment, pursuant to the terms
of
such agreement, contract or commitment, by or to the
Disclosing
Person or any of its Subsidiaries of $1 million or more within
any
twelve month period commencing after the date of the
Agreement.
NGA shall mean the Natural Gas Act of 1938, as amended.
NGPA shall mean the Natural Gas Policy Act of 1978, as
amended.
ORDER shall mean any judgment, order or decree of any court,
arbitration tribunal or Governmental Authority, federal, state
or
local.
PBGC means the Pension Benefit Guaranty Corporation.
PERMIT shall mean any and all permits, licenses,
authorizations,
orders, certificates, registrations or other approvals granted
by
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PAGE
any federal, state, local or foreign Governmental
Authority.
PERMITTED ENCUMBRANCES shall mean the following:
(1) Liens for taxes, assessments and other
governmental
charges not delinquent or which are currently being contested
in
good faith by appropriate proceedings; provided that, in the
latter case, adequate reserves shall have been set aside with
respect thereto;
(2) all rights, if any, to consent by, required
notices
to, filings with, or other actions by any Governmental
Authority
in connection with the contribution or the operation of any
assets;
(3) mechanics , repairmen s, employees , contractors ,
materialmen s or other similar Liens not filed of record and
similar charges not delinquent or which are filed of record
but
are being contested in good faith by appropriate proceedings;
provided that, in the latter case, adequate reserves shall
have
been set aside with respect thereto;
(4) Liens in respect of judgments or awards currently
being prosecuted in good faith on an appeal or other
proceeding
for review and with respect to which a stay of execution
pending
such appeal or such proceeding for review shall have been
secured;
provided that adequate reserves shall have been set aside with
respect thereto;
(5) easements, leases, reservations or other rights of
others in, or minor defects and irregularities in title to,
property or assets; provided that such easements, leases,
reservations, rights, defects or irregularities do not
materially
impair the use of such property or assets for the purposes for
which they are held;
(6) any lien or privilege vested in any lessor,
licensor
or permittor for rent or other obligations, so long as the
payment
of such rent or the performance of such obligations is not
delinquent; and
(7) any lien imposed in favor of interest owners of
Hydrocarbon production.
PERSON shall mean an individual, partnership, limited
liability
company, corporation, joint stock company, trust, estate,
joint
venture, association or unincorporated organization, or any
other
entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
PIPELINE ASSETS shall mean the pipelines, equipment, other
tangible personal property, Easements and other similar assets
and
rights used in connection with natural gas pipeline,
gathering,
processing and storage operations.
REGULATION shall mean any rule or regulation of any
Governmental
Authority having the effect of law.
RIGHTS PLAN means the Rights Agreement dated as of November
11,
1994 among the Company and Harris Trust and Savings Bank, as
rights agent.
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PAGE
SECURITIES ACT shall mean the Securities Act of
1933, as
amended, and the rules and regulations promulgated thereunder.
SUBSIDIARY shall mean any corporation or other entity of
which
securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other
persons performing similar functions are directly or
indirectly
owned by a Person. Coral shall not be deemed to be a
Subsidiary
of either Shell or the Company or their respective
Subsidiaries.
TRC shall mean the Texas Railroad Commission and any
predecessors and successors thereto.
Each of the following terms is defined in the Section set
forth
opposite such term:
TERM SECTION
affiliate 3.13(b)
Closing Date 1.01(b)
Company Recitals
Company 5-1/4% Preferred 1.06
Company 9.96% Preferred 1.02(d)
Company Balance Sheet 3.08
Company Balance Sheet Date 3.08
Company Benefit Arrangements 3.13(d)
Company Common Shares Recitals
Company Disclosure Documents 3.09
Company Pension Plans 3.13(a)
Company Retirement Plans 3.13(b)
Company SEC Reports 3.07(a)
Company Securities 3.05(a)
Company Stockholder Meeting 6.05(b)
Company 10-K 3.06(a)
Company 10-Q 3.07(a)
Covered Employees 6.09
Delaware Law 1.01(a)
Dissenting Shares 1.04
Effective Time 1.01(c)
Holdings Recitals
Merger 1.01(a)
Merger Consideration Recitals
MergerSub Recitals
Merrill Lynch 1.01(f)
Proxy Statement 6.05
Representatives 5.03
SEC 3.07(a)
Shell Recitals
Shell Disclosure Documents 4.05
Sierra Acquisition Recitals
Shell Group Recitals
Shell Representatives 6.06
Special Committee Recitals
Stockholder Approval 8.01(i)
Surviving Corporation 1.01(a)
Tax Returns 3.12
Taxes 3.12
Terminating Breach 8.01(f)
Third-Party Intellectual Property Rights 3.23(b)
Transfer Taxes 1.07
Voting Agreements Recitals
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liv
Annex B
Merrill Lynch
Investment Banking
Corporate and Institutional
Client Group
One Houston Center
1221 McKinney
Suite 2700
Houston, Texas 77010
713 759 2500
FAX 713 759 2580
November 20, 1997
Board of Directors
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, Texas 77010
Attention: Robert G. Stone, Jr.
Chairman of the Special Committee of the Board of Directors
Tejas Gas Corporation (the "Company") and Shell Oil Company (the
"Acquiror") have entered into a merger agreement dated September 23, 1997 (the
"Agreement") pursuant to which the Acquiror, through a newly formed corporation,
will acquire (the "Acquisition") for cash at $61.50 per share (the "Cash
Consideration") all the issued and outstanding shares of common stock of the
Company. The Acquisition will be accomplished through a merger of a subsidiary
of the Acquiror with and into the Company. The Board of Directors of the
Company has established a special committee of independent, disinterested
directors (the "Special Committee") to act on behalf of the Company in
connection with the proposed Acquisition and has authorized the Special
Committee to retain financial advisors and legal counsel.
You have asked us whether, in our opinion, the Cash Consideration to be
received in the Acquisition by the holders of the Company's common stock is fair
to such stockholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1996 and the
Company's Forms 10-Q and the related unaudited financial information for the
quarterly periods ending March 31, 1997, June 30, 1997 and September 30, 1997;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and prospects
of the Company furnished to us by the Company;
(3) Conducted discussions with members of senior management of the
Company concerning the foregoing, including its business and prospects;
(4) Reviewed the market prices and valuation multiples for the Company's
common stock and compared them with those of certain publicly traded companies
which we deemed to be relevant;
(5) Compared the historical and projected results of operations of the
Company with those of certain companies which we deemed to be relevant;
(6) Compared the proposed financial terms of the Acquisition with the
financial terms of certain other mergers and acquisitions which we deemed to be
relevant;
(7) Participated in certain discussions among members of the Special
Committee, the Company and the Special Committee's legal advisors;
(8) Reviewed an executed copy of the Agreement; and
(9) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company, and we have not assumed any responsibility for independent
verification of such information or undertaken an independent evaluation or
appraisal of the assets or liabilities, whether contingent or otherwise, of the
Company. In addition, we have not assumed any obligation to conduct, nor have
we conducted, any inspection of the properties or facilities of the Company.
With respect to the financial forecasts furnished by the Company, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of the Company's management as to the expected
future financial performance of the Company.
In connection with the preparation of this opinion, we have not been
authorized by the Company, the Special Committee or the Board of Directors to
solicit, nor have we solicited, third-party indications of interest for the
acquisition of all or any part of the Company.
We have, in the past, provided financial advisory and financing services
to the Company and to affiliates of the Acquiror and may continue to do so and
have received and may continue to receive fees for the rendering of such
services.
In the ordinary course of our business, we may actively trade the
securities of the Company, or affiliates of the Acquiror for our own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
This opinion is for the use and benefit of the Special Committee and the
Board of Directors of the Company. Our opinion does not address the merits of
the underlying decision by the Company to engage in the Acquisition and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote on the Acquisition.
On the basis of and subject to the foregoing, we are of the opinion that
the Cash Consideration to be received by the holders of the Company's common
stock, pursuant to the Acquisition, is fair to such stockholders from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
ANNEX C
DELAWARE CODE ANNOTATED - SECTION 262. APPRAISAL RIGHTS
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
8 DEL. C. section 262
section 262. Appraisal rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (C) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to section 251 (other than a merger effected pursuant to
section 251(g) of this title), section 252, section 254, section 257, section
258, section 263 or section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(I) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sectionsection 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depositary receipts in
respect thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under section 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware corporation.
(C) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (C) hereof that appraisal rights are available for
any or all of the shares of the constituent corporations, and shall include in
such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to take
such action must do so by a separate written demand as herein provided. Within
10 days after the effective date of such merger or consolidation, the surviving
or resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in favor of
or consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to section
228 or section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (I) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(I) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
PROXY PROXY
TEJAS GAS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TEJAS GAS CORPORATION
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 9, 1998
The undersigned hereby constitutes and appoints Jay A. Precourt and P.
Anthony Lannie, or either of them, attorneys, agents and proxies, each with
power of substitution, to appear and vote all of the shares of Common Stock,
which the undersigned is entitled to vote at the Special Meeting of Stockholders
of Tejas Gas Corporation ("Tejas") to be held at the Chevron Tower Auditorium,
1301 McKinney, Houston, Texas 77010, at 9:00 a.m., Houston time, on Friday,
January 9, 1998, and at any postponements or adjournments thereof, and in their
discretion upon any other business that may properly come before the meeting.
Said proxies are directed to vote as designated herein upon matters described in
the Notice of Special Meeting and the proxy statement dated November 20, 1997.
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, WILL
BE VOTED FOR THE PROPOSAL TO ADOPT THE MERGER AGREEMENT AMONG TEJAS, SHELL OIL
COMPANY, TEJAS HOLDINGS CORPORATION AND TANGO ACQUISITION CORPORATION. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO ADOPT THE MERGER
AGREEMENT.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE AND
RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
(Continued and to be signed on reverse side)
TEJAS GAS CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. / X /
1. To adopt the Merger Agreement dated September 23, 1997 FOR AGAINST ABSTAIN
among Tejas Gas Corporation, Shell Oil Company, Tango / /
/ / / /
Acquisition Corporation and Tejas Holdings Corporation
*NOTE: In their
discretion, the persons named as
proxies in this Proxy are
authorized to vote upon
such other business as may
properly come before
the meeting or any
adjournment thereof.
Dated:_____________________________, 199_
Signature(s)
Please sign exactly as name appears hereon.
Joint owners should each sign.
Where applicable, indicate official
position or representative capacity.
