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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 the Company's willingness to
enter into the Merger Agreement, the Company has requested that Parent agree,
and Parent has agreed, to grant the Company 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, Parent hereby grants to the Company an irrevocable option (the "Option")
to purchase up to 24,349,638 (as adjusted as set forth herein) shares (the
"Option Shares") of Parent's Common Stock, par value $3.00 per share ("Parent
Stock"), at a purchase price of $37.725 (as adjusted as set forth herein) per
Option Share (the "Purchase Price").
2. Exercise of Option. (a) The Company 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 the Company is entitled to receive the Parent
Termination Fee pursuant to Section 8.2 of the Merger Agreement if 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,
the Company 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
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termination of the Option 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 the Company wishes to
exercise the Option, it shall send to Parent 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,
the Company shall pay to Parent in immediately available funds by wire transfer
to a bank account designated in writing by Parent 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 Parent to designate a bank
account shall not preclude the Company 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), Parent shall deliver to
the Company 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 Parent shall not have redeemed the rights issued pursuant to the
Parent Rights Agreement (the "Parent Rights"), or shall have issued any similar
securities, then each Option Share issued pursuant to such
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exercise shall be accompanied by a corresponding Parent Right or new rights with
terms substantially the same as and at least as favorable to the Company as are
provided under the Parent 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 Parent 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 the Company shall
receive upon exercise of the Option the number and class of shares or other
securities or property that the Company would have received in respect of Parent
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 Parent enters into an
agreement (i) to consolidate with or merge into any person, other than the
Company or one of its subsidiaries, and Parent shall not be the continuing or
surviving corporation in such consolidation or merger, (ii) to permit any
person, other than the Company or one of its subsidiaries, to merge into or
consolidate with Parent and Parent shall be the continuing or surviving
corporation, but in connection with such merger or consolidation, the shares of
Parent Stock outstanding immediately prior to the consummation of such merger or
consolidation shall be changed into or exchanged for stock or other securities
of Parent or any other person or cash or any other property, or the shares of
Parent Stock outstanding immediately prior to the consummation of such merger or
consolidation shall, after such merger or consolidation, represent less than 50%
of the outstanding voting securities of
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the merged or consolidated company, or (iii) to sell or otherwise transfer all
or substantially all of its assets to any person, other than the Company 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 the Company would have received in respect of
Parent 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, Parent enters into any agreement (x) pursuant to which all
outstanding shares of Parent 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"), Parent
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 Parent Stock are accepted for payment), the
Company shall have the right, at its election, by not less than two business
days' prior written notice to Parent, 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 Parent Stock on the principal securities exchange or quotation system on
which the Parent 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
Parent 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 Parent
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 Parent Termination Fee paid or payable
to the Company, shall not exceed $175 million.
(d) Following exercise of the Option by the Company, in the
event that the Company sells, pledges or otherwise disposes of (including,
without limitation, by merger or exchange) any of the Option Shares (a "Sale"),
then:
(i) any Parent Termination Fee due and payable by
Parent following such time shall be reduced by an amount, if any, equal to the
excess of (1) the total of (A) the Parent Termination Fee and (B) the excess of
(w) the aggregate amounts
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received (whether in cash, securities or otherwise) by the Company 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 Parent has paid to the Company the Parent
Termination Fee prior to the Sale, then the Company shall immediately remit to
Parent, as additional Purchase Price for the Option Shares, the excess, if any,
of (y) the total of the Parent 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 Parent
Termination Fee, all Offset Amounts and the Spread exceed $175 million.
5. Covenants of the Company and Parent. (a) Parent covenants (i) to
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Parent Stock so that the Option may be fully exercised
without additional authorization of Parent Stock after giving effect to all
other options, warrants, convertible securities and other rights of third
parties to purchase shares of Parent 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 Parent 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 Parent from delivering the Option Shares to
the Company upon exercise of the Option or otherwise performing its obligations
under this Agreement.
(b) The Company 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 Parent which
consent shall not be unreasonably withheld or delayed. The Company may offer or
sell Option Shares only pursuant to an registration under the Securities Act or
an exemption therefrom.
6. Listing. If Parent 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), Parent, upon the
request of the Company, shall promptly file an application to list the shares of
Parent 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.
7. Loss or Mutilation. Upon receipt by Parent 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
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surrender and cancellation of this Agreement, if mutilated, Parent 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 Parent, whether or not the Agreement so lost, stolen, destroyed, or
mutilated shall at any time be enforceable by anyone.
8. Registration Rights. Parent shall, if requested by the Company 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 the Company of the Option, in
accordance with the intended method of sale or other disposition stated by the
Company, including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision; and Parent shall use reasonable best
efforts to qualify such securities under any applicable state securities laws.
The Company 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. Parent 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
Parent 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 Parent 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 Parent 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 Parent's expense except for underwriting discounts
or commissions and brokers' fees, which shall be borne solely by the Company.
The Company shall provide in writing all information reasonably requested by
Parent for inclusion in any registration statement to be filed hereunder. If,
during the time periods referred to in the first sentence of this Section,
Parent effects a registration under the Securities Act of Parent'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 the Company the
right to participate in such registration; provided that, if the managing
underwriters of such offering advise Parent 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
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reasonable basis, priority shall be given to the securities intended to be
included therein by Parent for its own account and, thereafter, Parent shall
include the securities requested to be included therein by the Company pro rata
with the securities intended to be included therein by other stockholders of
Parent. 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
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
the Company, 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 Parent'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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