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STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of March 13, 1999 (this "Agreement"),
by and between SONAT INC., a Delaware corporation (the "Company"), and EL PASO
ENERGY CORPORATION, a Delaware corporation ("Parent").
RECITALS
A. The Company and Parent have entered into an Agreement and Plan of
Reorganization and Merger, dated as of the date hereof (the "Merger Agreement"),
providing for, among other things, a business combination between Parent and the
Company.
B. As a condition and inducement to Parent's willingness to enter
into the Merger Agreement, Parent has requested that the Company agree, and the
Company has agreed, to grant Parent the option contemplated hereby.
C. Capitalized terms not defined herein shall have the meanings set
forth in the Merger Agreement.
D. This Agreement and the Merger Agreement are being entered into
simultaneously.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
Company and Parent agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
herein, the Company hereby grants to Parent an irrevocable option (the "Option")
to purchase up to 21,899,515 (as adjusted as set forth herein) shares (the
"Option Shares") of the Company's Common Stock, par value $1.00 per share
("Company Stock"), at a purchase price of $27.238 (as adjusted as set forth
herein) per Option Share (the "Purchase Price").
2. Exercise of Option. (a) Parent may exercise the Option, in whole
or in part, at any time or from time to time after the occurrence of any event
as a result of which Parent is entitled to receive the Company Termination Fee
pursuant to Section 8.2 of the Merger Agreement and the Merger Agreement is
being or has been terminated (an "Exercise Event"); provided, however, that
except as provided in the last sentence of this Section 2(a), the Option shall
terminate and be of no further force and effect upon the earliest to occur of
(A) the Effective Time and (B) nine months after the first occurrence of an
Exercise Event. Notwithstanding the termination of the Option, Parent shall be
entitled to purchase the Option Shares if it has exercised the Option in
accordance with the terms hereof prior to the termination of the Option and the
termination of the Option
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shall not affect any rights hereunder which by their terms do not terminate or
expire prior to or as of such termination.
(b) Notice of Exercise. In the event that Parent wishes to
exercise the Option, it shall send to the Company a written notice (the date of
each such notice being herein referred to as a "Notice Date") to that effect,
which notice also specifies a date not earlier than three business days nor
later than 30 business days from the Notice Date for the closing of such
purchase (an "Option Closing Date"); provided, however, that (i) if the closing
of a purchase and sale pursuant to the Option (an "Option Closing") cannot be
consummated by reason of any applicable judgment, decree, order, law or
regulation, the period of time that otherwise would run pursuant to this
sentence shall run instead from the date on which such restriction on
consummation has expired or been terminated and (ii) without limiting the
foregoing, if prior notification to or approval of any regulatory authority is
required in connection with such purchase, Parent and the Company shall promptly
file the required notice or application for approval and shall cooperate in the
expeditious filing of such notice or application, and the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which, as the case may be, (A) any required notification period has expired or
been terminated or (B) any required approval has been obtained, and in either
event, any requisite waiting period has expired or been terminated. Each of
Parent and the Company agrees to use commercially reasonable efforts to
cooperate with and provide information to the other, for the purpose of any
required notice or application for approval. Any exercise of the Option shall be
deemed to occur on the Notice Date relating thereto. The place of any Option
Closing shall be at the offices of Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx, One
New York Plaza, New York, New York, and the time of the Option Closing shall be
10:00 a.m. (Eastern Time) on the applicable Option Closing Date.
3. Payment and Delivery of Certificates. (a) At any Option Closing,
Parent shall pay to the Company in immediately available funds by wire transfer
to a bank account designated in writing by the Company an amount equal to the
Purchase Price multiplied by the number of Option Shares for which the Option is
being exercised; provided, that failure or refusal of the Company to designate a
bank account shall not preclude Parent from exercising the Option, in whole or
in part.
(b) At any Option Closing, simultaneously with the delivery of
immediately available funds as provided in Section 3(a), the Company shall
deliver to Parent a certificate or certificates representing the Option Shares
to be purchased at such Option Closing, which Option Shares shall be free and
clear of all liens, claims, charges and encumbrances of any kind whatsoever. If
at the time of issuance of the Option Shares pursuant to the exercise of the
Option hereunder, the Company shall not have redeemed the rights issued pursuant
to the Company Rights Agreement (the "Company Rights"), or shall have issued any
similar securities, then each Option Share issued
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pursuant to such exercise shall be accompanied by a corresponding Company Right
or new rights with terms substantially the same as and at least as favorable to
Parent as are provided under the Company Rights Agreement or any similar
agreement then in effect.
(c) Restrictive Legend. Certificates for the Option Shares
delivered at any Option Closing shall have typed or printed thereon a
restrictive legend which shall read substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE."
It is understood and agreed that the foregoing legend shall be removed by
delivery of substitute certificate(s) without such legend upon the sale of the
Option Shares pursuant to a registered public offering or Rule 144 under the
Securities Act or any other sale as a result of which such legend is no longer
required.
4. Adjustment upon Changes in Capitalization, Etc. (a) In the event
of any change in Company Stock by reason of a stock dividend, split-up, merger,
recapitalization, combination, exchange of shares or similar transaction, the
type and number of shares or securities subject to the Option, and the Purchase
Price therefor, shall be adjusted appropriately, and proper provision shall be
made in the agreements governing such transaction, so that Parent shall receive
upon exercise of the Option the number and class of shares or other securities
or property that Parent would have received in respect of Company Stock if the
Option had been exercised immediately prior to such event or the record date
therefor, as applicable.
(b) Without limiting the parties' relative rights and
obligations under the Merger Agreement, in the event that the Company enters
into an agreement (i) to consolidate with or merge into any person, other than
Parent or one of its subsidiaries, and the Company shall not be the continuing
or surviving corporation in such consolidation or merger, (ii) to permit any
person, other than Parent or one of its subsidiaries, to merge into or
consolidate with the Company and the Company shall be the continuing or
surviving corporation, but in connection with such merger or consolidation, the
shares of Company Stock outstanding immediately prior to the consummation of
such merger or consolidation shall be changed into or exchanged for stock or
other securities of the Company or any other person or cash or any other
property, or the shares of Company Stock outstanding immediately prior to the
consummation of such merger or consolidation shall, after such merger or
consolidation,
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represent less than 50% of the outstanding voting securities of the merged or
consolidated company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Parent or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option with identical terms
appropriately adjusted to acquire the number and class of shares or other
securities, cash or property that Parent would have received in respect of
Company Stock if the Option had been exercised immediately prior to such
consolidation, merger, sale or transfer, or the record date therefor, as
applicable.
(c) If, prior to the termination of the Option in accordance
with Section 2, the Company enters into any agreement (x) pursuant to which all
outstanding shares of Company Stock are to be purchased for, or converted into
the right to receive in whole or in part (other than in respect of fractional
shares) cash or (y) with respect to any transaction described in clauses (i),
(ii) and (iii) of paragraph (b) (each of (x) and (y), a "Transaction"), the
Company covenants that proper provision shall be made in such agreement to
provide that, if the Option shall not theretofore have been exercised, then upon
the consummation of the Transaction (which in the case of a Transaction
involving a tender offer shall be when shares of Company Stock are accepted for
payment), Parent shall have the right, at its election, by not less than two
business days' prior written notice to the Company, to receive in exchange for
the cancellation of the Option an amount in cash equal to the Spread. For
purposes of this Agreement, the term "Spread" means the number of Option Shares
multiplied by the excess of (A) the higher of the closing sales price per share
of Company Stock on the principal securities exchange or quotation system on
which the Company Stock is then listed or traded, as reported by The Wall Street
Journal, on the day (i) the average of the closing prices of the shares of
Company Stock as reported by The Wall Street Journal over the ten-trading day
period beginning on the trading day immediately following the announcement of
such agreement or (ii) the average of the closing prices of the shares of
Company Stock as reported by The Wall Street Journal over the ten-trading day
period ending on the trading day immediately prior to the consummation of such
Transaction, over (B) the Purchase Price. Notwithstanding the foregoing, the
amount of the Spread, when added to any Company Termination Fee paid or payable
to Parent, shall not exceed $175 million.
(d) Following exercise of the Option by Parent, in the event
that Parent sells, pledges or otherwise disposes of (including, without
limitation, by merger or exchange) any of the Option Shares (a "Sale"), then:
(i) any Company Termination Fee due and payable by the
Company following such time shall be reduced by an amount, if any, equal to the
excess of (1) the total of (A) the Company Termination Fee and (B) the excess of
(w) the
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aggregate amounts received (whether in cash, securities or otherwise) by Parent
in all such Sales, over (x) the aggregate Purchase Price of the Option Shares
sold in such Sales (such excess in this sub-clause (B) being the "Offset
Amounts") over (2) $175 million; and
(ii) if the Company has paid to Parent the Company
Termination Fee prior to the Sale, then Parent shall immediately remit to the
Company, as additional Purchase Price for the Option Shares, the excess, if any,
of (y) the total of the Termination Fee and the Offset Amounts of all Sales over
(z) $175 million.
(e) Notwithstanding anything to the contrary in this Agreement
or the Merger Agreement, in no event shall the aggregate of any Company
Termination Fee, all Offset Amounts and the Spread exceed $175 million.
5. Covenants of the Company and Parent. (a) The Company covenants
(i) to maintain, free from preemptive rights, sufficient authorized but unissued
or treasury shares of Company Stock so that the Option may be fully exercised
without additional authorization of Company Stock after giving effect to all
other options, warrants, convertible securities and other rights of third
parties to purchase shares of Company Stock; (ii) not to seek to avoid the
observance or performance of any of the covenants, agreements or conditions to
be observed or performed hereunder by the Company and not to take any action
which would cause any of its representations or warranties not to be true; and
(iii) not to engage in any action or omit to take any action which would have
the effect of preventing or disabling the Company from delivering the Option
Shares to the Parent upon exercise of the Option or otherwise performing its
obligations under this Agreement.
(b) Parent covenants not to sell, assign, transfer or otherwise
dispose of the Option, any part thereof, or any of its other rights hereunder to
any third party without the prior written consent of the Company which consent
shall not be unreasonably withheld or delayed. Parent may offer or sell Option
Shares only pursuant to a registration under the Securities Act or an exemption
therefrom.
6. Listing. If Company Stock or any other securities to be acquired
upon exercise of the Option are then listed on the NYSE (or any other national
securities exchange or national securities quotation system), the Company, upon
the request of Parent, shall promptly file an application to list the shares of
Company Stock or other securities to be acquired upon exercise of the Option on
the NYSE (and any such other national securities exchange or national securities
quotation system) and shall use reasonable best efforts to obtain approval of
such listing as promptly as practicable.
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7. Loss or Mutilation. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, the Company shall execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not the Agreement so lost, stolen, destroyed, or mutilated shall at
any time be enforceable by anyone.
8. Registration Rights. The Company shall, if requested by Parent at
any time and from time to time within two years after the date of first exercise
of the Option, as expeditiously as possible prepare and file up to two
registration statements under the Securities Act if such registration is
necessary in order to permit the sale or other disposition of any or all
securities that have been acquired by exercise by Parent of the Option, in
accordance with the intended method of sale or other disposition stated by
Parent, including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision; and the Company shall use
commercially reasonable efforts to qualify such securities under any applicable
state securities laws. Parent agrees to use reasonable best efforts to cause,
and to cause any underwriters of any sale or other disposition to cause, any
sale or other disposition pursuant to such registration statement to be effected
on a widely distributed basis. The Company shall use reasonable best efforts to
cause each such registration statement to become effective, to obtain all
consents or waivers of other parties which are required therefor, and to keep
such registration statement effective for such period not in excess of 90
calendar days from the day such registration statement first becomes effective
as may be reasonably necessary to effect such sale or other disposition. The
obligations of the Company to file a registration statement and to maintain its
effectiveness may be suspended for one or more periods of time not exceeding 90
calendar days in the aggregate with respect to any registration statement if the
Board of Directors of the Company shall have determined that the filing of such
registration statement or the maintenance of its effectiveness would require
disclosure of nonpublic information that would materially and adversely affect
the Company or would interfere with a planned merger, sale of material assets,
recapitalization or other significant corporate action (other than the issuance
of equity securities). Any registration statement prepared and filed under this
Section, and any sale covered thereby, shall be at the Company's expense except
for underwriting discounts or commissions and brokers' fees, which shall be
borne solely by Parent. Parent shall provide in writing all information
reasonably requested by the Company for inclusion in any registration statement
to be filed hereunder. If, during the time periods referred to in the first
sentence of this Section, the Company effects a registration under the
Securities Act of the Company's equity securities for its own account or for any
other of its stockholders (other than on Form S-4 or Form S-8, or any successor
form), it shall allow
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Parent the right to participate in such registration; provided that, if the
managing underwriters of such offering advise the Company that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can be sold in such offering on a commercially reasonable
basis, priority shall be given to the securities intended to be included therein
by the Company for its own account and, thereafter, the Company shall include
the securities requested to be included therein by Parent pro rata with the
securities intended to be included therein by other stockholders of the Company.
In connection with any registration pursuant to this Section, Parent and the
Company shall provide each other and any underwriter of the offering with
customary representations, warranties, covenants, indemnification, and
contribution in connection with such registration.
9. Miscellaneous.
(a) Fees and Expenses. Except as otherwise provided in the
Merger Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the party
incurring such expenses.
(b) Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO ITS CONFLICT OF LAWS RULES OR PRINCIPLES.
(d) Notices. All notices or other communications under this
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
Sonat Inc.
Amsouth-Sonat Tower
Xxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Telecopy No.: (000) 000-0000
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With a copy to:
Wachtell, Lipton, Xxxxx & Xxxx
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx, Esq.
Telecopy No.: (000) 000-0000
If to Parent:
El Paso Energy Corporation
0000 Xxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxx, Xx., Esq.
Telecopy No.: (000) 000-0000
With a copy to:
Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxxxxx, Esq.
Xxxxxx xx Xxxx, Esq.
Telecopy No.: (000) 000-0000
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
(e) Assignment; Binding Effect; No Third Party Beneficiaries.
Neither this Agreement nor any of the rights, interests or obligations hereunder
shall be sold, assigned, disposed of or otherwise transferred by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
(f) Further Assurances. In the event of any exercise of the
Option by Parent, the Company and Parent shall execute and deliver all such
documents and instruments and take all such further action that may be
reasonably necessary in order to consummate the transactions provided for by
such exercise.
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(g) Survival. All the Company's representations, warranties and
covenants contained herein shall survive each Option Closing.
(h) ENFORCEMENT. THE PARTIES HERETO AGREE THAT IRREPARABLE
DAMAGE WOULD OCCUR IN THE EVENT THAT ANY OF THE PROVISIONS OF THIS AGREEMENT
WERE NOT PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE
BREACHED. IT IS ACCORDINGLY AGREED THAT SUBJECT TO THE NEXT SENTENCE, THE
PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OF
THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS HEREOF IN
ANY COURT OF THE UNITED STATES OR ANY STATE HAVING JURISDICTION, THIS BEING IN
ADDITION TO ANY OTHER REMEDY TO WHICH THEY ARE ENTITLED AT LAW OR IN EQUITY.
EACH OF THE PARTIES HERETO (I) CONSENTS TO SUBMIT ITSELF TO THE PERSONAL
JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE STATE OF DELAWARE OR ANY
DELAWARE STATE COURT IN THE EVENT ANY DISPUTE ARISES OUT OF THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (II) AGREES THAT IT
SHALL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR
OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, AND (III) AGREES THAT IT SHALL NOT
BRING ANY ACTION RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT IN ANY COURT OTHER THAN A FEDERAL COURT SITTING
IN THE STATE OF DELAWARE OR A DELAWARE STATE COURT.
(i) Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
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IN WITNESS WHEREOF, the Company and Parent have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
day and year first written above.
SONAT INC.
By: /s/ XXXXXX X. XXXXX, XX.
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Name: Xxxxxx X. Xxxxx, Xx.
Title: Chairman of the Board, President
and Chief Executive Officer
EL PASO ENERGY CORPORATION
By: /s/ XXXXXXX XXXXX XX.
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Name: Xxxxxxx Xxxxx Xx.
Title: Executive Vice President
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