-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HalTXSKmWQEl8jORYp9mWHEpoTNS25lDvSSW66Q424QkRowNhSqPaUMzWknBMEsQ IX1HxMLsPWK4OiDu8i/0Cw== 0000950134-96-001561.txt : 19960429 0000950134-96-001561.hdr.sgml : 19960429 ACCESSION NUMBER: 0000950134-96-001561 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960426 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNERSTONE NATURAL GAS INC CENTRAL INDEX KEY: 0000725625 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 741952257 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09103 FILM NUMBER: 96551903 BUSINESS ADDRESS: STREET 1: 8080 N CENTRAL EXPWY STE 1200 STREET 2: 12TH FLR LOCK BOX 47 CITY: DALLAS STATE: TX ZIP: 75206 BUSINESS PHONE: 2146915536 FORMER COMPANY: FORMER CONFORMED NAME: ENDEVCO INC DATE OF NAME CHANGE: 19920703 10-K/A 1 AMENDMENT NO. 1 TO FORM 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 0-11994 CORNERSTONE NATURAL GAS, INC. (Exact name of registrant as specified in its charter) DELAWARE 74-1952257 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 8080 N. CENTRAL EXPRESSWAY SUITE 1200 DALLAS, TEXAS 75206 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 691-5536 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on Title of Each Class which registered ------------------- ---------------- Common Stock, $0.10 par value per share American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None ================================================================================ 2 PART I ITEM I. BUSINESS RECENT EVENTS MERGER AGREEMENT. On April 20, 1996, Cornerstone Natural Gas, Inc., a Delaware corporation ("Cornerstone" or the "Company"), El Paso Natural Gas Company, a Delaware corporation (the "Parent") and The El Paso Company, a Delaware corporation, and an indirect wholly owned subsidiary of the Parent (the "Offeror"), entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which the Parent has agreed to acquire Cornerstone. Pursuant to the Merger Agreement, the Offeror April 26, 1996 commenced a tender offer for all outstanding shares of the common stock, par value $0.10 per share (the "Shares"), of the Company at $6.00 cash per share net to the stockholders in cash without interest thereon (the "Offer Price"). The Shares not acquired in the tender offer will be converted into the right to receive $6.00 per Share in cash without interest pursuant to a merger of the Offeror with and into the Company. The tender offer is conditioned upon, among other things, on there being validly tendered by the expiration date thereof and not withdrawn that number of Shares which, when added to the number of Shares issuable upon the exercise of presently exercisable warrants delivered to the Offeror in accordance with the terms of the Option Agreement (as described below), would represent at least a majority of the outstanding Shares on a fully diluted basis. The Parent, the Offeror and certain holders (the "Holders") of Shares, Shares issuable upon the exercise of stock options ("Stock Options") or warrants to purchase Shares ("Warrants") have entered into an Option Agreement, dated as of April 20, 1996 (the "Option Agreement"), pursuant to which the Holders have granted the Offeror an irrevocable option, upon the terms and subject to the conditions set forth in the Option Agreement, to purchase at the Offer Price or, in the case of the Warrants, at the excess of the Offer Price over the exercise price of such Warrants, an aggregate of 8,215,117 Shares, or approximately 50.3%, of the outstanding Shares on a fully diluted basis. The Option Agreement further provides, among other things, that the Holders are required to tender all of the Shares held by them in the Offer. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS Richard D. Brannon, age 37, has served as President of Brannon Oil and Gas, Inc. (oil and gas exploration and investments) since 1983. Mr. Brannon has been a director of the Company since 1993, and is a member of the Compensation and Audit Committees. 3 James W. Bryant, age 62, is President of Cardinal Resources, Inc., and has served as consultant to the Company since November 1993. Mr. Bryant founded the Company in 1977 and was Chairman of the Board and Chief Executive Officer from 1977 to 1993. From 1980 to 1990, Mr. Bryant served as President of the Company. Mr. Bryant has been a director since 1977 and is currently a member of the Executive and Audit Committees. Ted Collins, Jr., age 57, has served as President of Collins and Ware, Inc. (oil and gas exploration, production and investments) since 1988. Mr. Collins has been a director since 1993. Ben H. Cook, age 70, is a private investor. Mr. Cook retired from Colt Industries, Inc., in 1991, where he had served as the Executive Vice President of Operations. Mr. Cook has been a director since 1993, and is currently Chairman of the Executive and Compensation Committees. Ray C. Davis, age 54, has served as Chairman of the Board and Chief Executive Officer of the Company since June 1993. Mr. Davis served as Director and General Partner of Hydro Environmental Services, Inc., from 1989 to 1992, and as Chief Executive Officer of Healthco International, Inc., from June 1991 to August 1992. He was also Chairman of the Board of HPSC, Inc., from 1991 to 1992. On June 9, 1993, Healthco International, Inc., filed for protection under Chapter 11 in the U.S. Bankruptcy Court in the Western District of Massachusetts, Western Division, Case No. 93-41604- JFQ. Scott G. Heape, age 46, has served as President of H & S Production, Inc., (oil and gas exploration) since 1978. Mr. Heape has been a director since 1994, and is a member of the Audit Committee. David S. Hunt, age 33, has served as Managing Director of Dabney/Resnick Incorporated (securities) since November 1995, and was Administrative Assistant of Petro-Hunt Corporation (oil and gas and investments) from 1989 to 1995. Mr. Hunt has been a director since 1994, and is currently a member of the Audit Committee. William J. Murray, Jr., age 81, is a petroleum engineer and energy consultant, as well as a director of Kelley Oil Corporation and New Paraho Corporation. Mr. Murray has been a director since 1994. Kelcy L. Warren, age 40, is President and Chief Operating Officer of the Company. Mr. Warren has been a director of the Company since 1985. He served as President and Chief Operating Officer from August 1990 to December 1992, and from 1989 to 1990 was Executive Vice President. Mr. Warren resumed his duties as President and Chief Operating Officer in June 1993. DIRECTOR COMPENSATION Directors who are not employees of the Company receive a fee of $500.00 for each Board and Board Committee meeting attended, except committee chairmen, receive a fee of $750.00 for each committee meeting attended. Directors are also reimbursed for costs incurred by them in attending meetings of the Board. SECTION 16(A) COMPLIANCE The Company believes that, during the fiscal year which ended December 31, 1995, all reports were timely filed. 4 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the compensation paid or to be paid to those persons who were, at December 31, 1995, (i) Chief Executive Officer and (ii) the other four most highly compensated named executive officers of the Company for services rendered in all capacities to the Company for the last three fiscal years to whom the salary and bonus exceeded $100,000. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS PAYOUTS ------------------------------------------------------------------------------------- OTHER SECURITIES ALL ANNUAL RESTRICTED UNDER- OTHER COMPEN- STOCK LYING LTIP COMPEN- NAME AND SATION AWARD(S) OPTIONS/ PAYOUTS SATION PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) ($) SARS(#) ($) ($) (2) - ----------------------------------------------------------------------------------------------------------------------- Ray C. Davis 1995 225,000 138,294 0 0 0 0 2,250 Chairman and Chief 1994 210,000 106,029 0 0 0 0 1,848 Executive Officer(3) 1993 117,923 0 0 0 150,000 0 0 Kelcy L. Warren 1995 213,000 117,826 0 0 0 0 2,130 President and Chief 1994 205,000 93,250 0 0 0 0 1,848 Operating Officer(3) 1993 188,063 0 4,500 0 150,000 0 3,265 Robert L. Cavnar 1995 147,000 72,281 0 0 47,500 0 1,459 Executive Vice 1994 135,000 54,529 0 0 0 0 1,350 President, 1993 70,654 0 27,949 0 150,000 0 0 Chief Financial Officer and Treasurer(4) Jim S. Holotik 1995 114,500 43,844 0 0 47,500 0 1,134 Executive Vice President(5)
Notes to Summary Compensation Table (1) The amount of "Other Annual Compensation" includes compensation for fiscal year 1994 only, and perquisites and other personal benefits, only if the aggregate amount of such compensation exceeds the lesser of $50,000 or 10% of the total annual salary and bonus reported for the named officer for the fiscal year 1995. (2) Represents matching contributions made by the Company pursuant to the Company's 401(k) Plan. (3) Employed by the Company on June 4, 1993. (4) Employed by the Company on June 21, 1993. (5) Became an executive officer in 1996. 5 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of Common Stock of the Company as of March 31, 1996, by (i) all persons known to the Company to be the beneficial owners of more than 5% of the Company's outstanding Common Stock, and (ii) by the Company's Directors, Named Executive Officers and all the Company's Directors and Executive Officers as a group:
BENEFICIALLY RIGHT TO PERCENT OF OWNED ACQUIRE CLASS Certain Beneficial Owners Endevco Investors Joint Venture (1) 2,576,659 -- 21 8080 N. Central Expressway, Suite 1200 Dallas, TX 75206 Directors and Executive Officers Richard D. Brannon (2) 55,000 -- * James W. Bryant (3) 509,062 -- 4 Robert L. Cavnar 5,000 69,500 * Ted Collins, Jr. (4) 228,832 -- 2 Ben H. Cook (5) 1,618,612 512,821 16 Ray C. Davis (5) 381,388 829,231 9 Scott G. Heape (6) 74,942 -- * David S. Hunt (7) -- -- * Jim S. Holotik 10,866 39,500 * W.J. (Bill) Murray, Jr. (2) 54,000 * Kelcy L. Warren (5) 384,048 829,231 9 All Directors and Executive Officers as a group (11 persons) 3,321,750 2,280,283 40
*Less than one percent. (1) Pursuant to the Endevco Investors Joint Venture (the "Joint Venture"), each partner of the Joint Venture has the right to vote his pro rata share of the shares of Common Stock held by the Joint Venture. (2) Includes 50,000 shares of Common Stock held by a partner in the Joint Venture over which this Stockholder has the right to vote. (3) Does not include 544 shares beneficially owned by Mr. Bryant's wife as to which Mr. Bryant disclaims beneficial ownership. (4) Includes 228,832 shares of Common Stock held by a partner in the Joint Venture over which this Stockholder has the right to vote. (5) Excludes shares of Common Stock held by the Joint Venture. Such stockholder has disclaimed beneficial ownership of such securities. (6) Includes 74,942 of shares held by H & S Production, Inc., Pension Trust, as a partner in the Joint Venture of which Mr. Heape is a beneficiary. (7) Mr. Hunt is a beneficiary of the Lyda Hunt-Herbert Trust for David S. Hunt. Excludes 76,277 shares of Common Stock held by the Joint Venture indirectly owned by such trust. Mr. Hunt has disclaimed beneficial ownership of such securities. (8) The address for all directors and executive officers is c/o The Secretary, Cornerstone Natural Gas, Inc., 8080 N. Central Expressway, Suite 1200, Dallas, Texas, 75206-1815. 6 OPTION/SAR GRANTS IN FISCAL YEAR 1995 The following table sets forth information concerning the grant of stock options for the year ended December 31, 1995, to the named executive officers.
INDIVIDUAL GRANT (1) ------------------------------------------------------------ % OF TOTAL POTENTIAL REALIAZABLE VALUE AT OPTIONS ASSUMED ANNUAL RATES OF STOCK GRANTED TO APPRECIATION FOR OPTION TERM NUMBER OF EMPLOYEES IN EXERCISE OR ---------------------------- OPTIONS FISCAL YEAR BASE PRICE EXPIRATION NAME GRANTED (%) ($/SHARE) DATE 5%($) 10%($) ---- ----------------------------------------------------------------------------------------------- Ray C. Davis 0 0 -- -- -- -- Kelcy L. Warren 0 0 -- -- -- -- Robert L. Cavnar 47,500 17 1.75 2/15/05 52,277 132,480 Jim S. Holotik 47,500 17 1.75 2/15/05 52,277 132,480
(1) No Stock Appreciation Rights (SAR) were awarded in 1995. (2) Grants were made on February 15, 1995, with the exercise price equal to the fair market value ($1.75) on that date. Options vest 20% annually beginning February 15, 1996. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES The following table sets forth information concerning stock options and SARs exercised during the year ended December 31, 1995, and the fiscal year-end value of unexercised options and SARs for the named executive officers at December 31, 1995. The value of the unexercised stock options is based on the closing price per share of Common Stock of $2.25 on December 29, 1995, the last trading day of fiscal year 1995, minus the exercise price. As of that date, no SARs were outstanding.
VALUE OF SHARES VALUE NUMBER OF SECURITIES UNEXERCISED ACQUIRED ON REALIZED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS EXERCISE (#) ($) OPTIONS/SARS AT FY-END (#) AT FY-END ($) ------------------------------------------------------------------------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- ------------- Ray C. Davis 0 0 60,000 90,000 67,500 101,250 Kelcy L. Warren 0 0 60,000 90,000 67,500 101,250 Robert L. Cavnar 0 0 60,000 137,500 67,500 125,000 Jim S. Holotik 0 0 30,000 92,500 33,750 74,375
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On May 28, 1993, the Company entered into that First Amended Stock Purchase Agreement (the "Stock Purchase Agreement") with Ray Davis, Trustee. Under the Stock Purchase Agreement, Ray Davis, Trustee, agreed to purchase 4,576,659 shares of Common Stock and Warrants to acquire 2,564,103 shares of Common Stock at $.78 per share for $3,000,000. In connection with the Company's emergence from bankruptcy on November 2, 1993, under the Stock Purchase Agreement, Endevco Investors Joint Venture (the "Joint Venture") purchased 2,576,659 shares of Common Stock; and Warrants to purchase 769,231, 512,821 and 769,231 shares of Common Stock at $.78 per share were issued to Mr. Davis, Mr. 7 Cook and Mr. Warren, respectively. In addition, Mr. Davis is the managing partner and Mr. Cook and Mr. Warren each have an interest in the Joint Venture. The Company believes that the following described related transactions are in the ordinary course of its business and are competitive and comparable to those with unrelated persons and has taken measures to ensure they were conducted on an arm's-length basis. The Company is a party to a consulting agreement with Cardinal Resources, Inc., owned by Mr. James W. Bryant, a Director of the Company, under which the Company pays $250,000 a year through November 2, 1997, for engineering and project management services. The Company entered into the consulting agreement as part of the Company's restructuring in 1993. The consulting agreement was assigned to Cardinal Resources, Inc., in 1994 from Mr. Bryant, and Mr. Bryant personally guarantees the performance. The original consulting agreement has been amended and modified to include one additional consultant which increased the fee to the current amount. On April 10, 1996, the Board agreed to modify the consulting agreement to eliminate Cardinal's and Mr. Bryant's obligations to bring business opportunities and projects to the Company. The Company, through it's subsidiary, Cornerstone Pipeline Company, is a party to the Cornerstone/Merit Joint Venture, a joint venture with Mr. Ted Collins, Jr., a Director of the Company. The joint venture was formed in 1993 to develop certain targeted natural gas projects. Under the joint venture agreement, each party bears a portion of the development costs and has a right of first refusal on such projects. The Company's subsidiary, Cornerstone Pipeline Company ("CPC") purchased all of the stock of Energy Transfer Corporation ("ETC") effective April 2, 1995, and all of the limited partnership interests of two limited partnerships, Energy Transfer I, LTD. ("ETI") effective as of April 2, 1995, and Energy Transfer II, LTD. ("ETII") effective July 1, 1995. ETC is the general partner of both ETI and ETII. The only asset of ETI and ETII is the Oletha pipeline gas gathering system. The Company had previously provided marketing and management services to ETC since 1994 for $5,000 a month. Mr. Kelcy L. Warren, the Company President, Chief Operating Officer and Director, received $57,600 as the sole owner of the stock of ETC; $1,411,200 as 50% owner of the limited partnership interest of ETI; and $262,000 as the owner of 50% limited partnership interest of ETII. Mr. Ray Davis, Chief Executive Officer and Chairman of the Board, and Mr. Ben H. Cook, a Director of the Company, each received $705,000 from the sale of limited partnership interest in ETI. Mr. Davis, in addition, received $129,000 from the sale of limited partnership interest in ETII. Mr. Warren was a director of the Company, but neither Mr. Cook nor Mr. Davis were officers or directors of the Company when ETI were formed to own and operate the Oletha system. Mr. Warren and Mr. Davis formed ETII in 1994 and had an investment of approximately $200,000. The Board of the Company formed a Special Committee to negotiate and determine the value of the acquisition. CHANGE OF CONTROL AGREEMENTS Effective as of January 1, 1996, the Company entered into employment agreements (the "Employment Agreements") with Robert L. Cavnar, Jim S. Holotik, William 8 P. Williams, Richard W. Piacenti, and Kelly J. Jameson. Each of the Employment Agreements (other than Mr. Jameson) are for a two-year term and renew annually on the anniversary date thereof unless the Company gives the Executive ninety (90) days written notice of the Company's intent to terminate such agreement. Mr. Jameson's Employment Agreement has an initial one-year term and is cancellable upon twelve months written notice by the Company. Each Employment Agreement provides that the Executive can terminate such Employment Agreement during a thirty (30) day period following a "change of control" as defined in the Employment Agreement. If the Executive terminates his Employment Agreement following a change of control, then (i) the Executive shall continue to be covered by the Company's group health and dental plans for a period of eighteen months following such termination and (ii) the Executive (other than Mr. Jameson) shall receive a severance benefit equal to two times the amount of his highest annual base salary during the term of the Agreement; provided however, that such benefits shall be limited to an amount that is $1 less than the amount that would trigger such severance payments from being considered to be a "parachute payment" under Section 280G of the Internal Revenue Code of 1986, as amended. Mr. Jameson will be entitled to receive a severance benefit equal to his highest annual base salary under his Employment Agreement. The term "change of control" is defined in the Employment Agreements as (i) a merger or consolidation transaction in which the holders of an aggregate of more than 50% of the issued and outstanding shares of voting capital stock of the Company immediately prior to giving effect a merger or consolidation do not hold at least 50% of the issued and outstanding voting stock of the surviving corporation, (ii) at any time more than 50% of the voting capital stock of the Company shall not be beneficially owned by the persons that beneficially own such voting capital stock on the execution date of the Employment Agreement or (iii) the Company sells all or substantially all of its assets to a person other than an affiliate of the Company. OTHER AGREEMENTS Noncompetition Agreements. Ben H. Cook, Ray C. Davis and Kelcy L. Warren (the "Individuals") have each entered into Noncompetition Agreements dated as of April 20, 1996, with the Company, which will become effective at the Effective Time (as defined in the Merger Agreement). Consulting Agreement. Kelcy L. Warren has agreed that, if requested by the Parent prior to the Effective Time, he will enter into a one-year agreement to provide certain consulting services to the Company, for which he will receive a fee of $213,500, payable in 12 monthly installments. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) (1) Consolidated Financial Statements. Not amended. (2) Consolidated Financial Statement Schedules. Not amended. (3) Exhibits. 9
Exhibit No. Description ---------- ----------- +10.(a) Employment Agreement dated January 1, 1996, between Cornerstone Natural Gas, Inc. and Robert L. Cavnar +10.(b) Employment Agreement dated January 1, 1996, between Cornerstone Natural Gas, Inc. and Jim S. Holotik +10.(c) Employment Agreement dated January 1, 1996, between Cornerstone Natural Gas and William P. Williams +10.(d) Employment Agreement dated January 1, 1996, between Cornertone Natural Gas and Richard W. Piacenti +10.(e) Employment Agreement dated January 1, 1996, between Cornerstone Natural Gas and Kelly J. Jameson 10.(f) Agreement and Plan of Merger, dated as of April 20, 1996, among El Paso Natural Gas Company and the El Paso Company 10.(g) Option Agreement, dated as of April 20, 1996, among the Parent, the Offeror and certain Holders of shares of Common Stock, Options and Warrants +10.(h) None-Competition Agreement, dated as of April 20, 1996, between the Cornerstone Natural Gas, Inc. and Ben H. Cook +10.(i) None-Competition Agreement, dated as of April 20, 1996, between the Cornerstone Natural Gas, Inc. Company and Ray C. Davis +10.(j) None-Competition Agreement, dated as of April 20, 1996, between the Cornerstone Natural Gas, Inc. and Kelcy L. Warren +10.(k) Form of Consulting Agreement with Kelcy L. Warren +Management agreement
10 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CORNERSTONE NATURAL GAS, INC. By: /s/ RAY C. DAVIS --------------------------------- Ray C. Davis Chairman of the Board and Chief Executive Officer Date: April 26, 1996 11 EXHIBIT LIST
Exhibit No. Description ---------- ----------- +10.(a) Employment Agreement dated January 1, 1996, between Cornerstone Natural Gas, Inc. and Robert L. Cavnar +10.(b) Employment Agreement dated January 1, 1996, between Cornerstone Natural Gas, Inc. and Jim S. Holotik +10.(c) Employment Agreement dated January 1, 1996, between Cornerstone Natural Gas, Inc. and William P. Williams +10.(d) Employment Agreement dated January 1, 1996, between Cornerstone Natural Gas, Inc. and Richard W. Piacenti +10.(e) Employment Agreement dated January 1, 1996, between Cornerstone Natural Gas, Inc. and Kelly J. Jameson 10.(f) Agreement and Plan of Merger, dated as of April 20, 1996, among El Paso Natural Gas Company and the El Paso Company. 10.(g) Option Agreement, dated as of April 20, 1996, among the Parent, the Offeror and the certain Holders of shares of Common Stock, Options and Warrants +10.(h) Non-Competition Agreement, dated as of April 20, 1996, between the Cornerstone Natural Gas, Inc. and Ben H. Cook +10.(i) Non-Competition Agreement, dated as of April 20, 1996, between the Cornerstone Natural Gas, Inc. and Ray C. Davis +10.(j) Non-Competition Agreement, dated as of April 20, 1996, between the Cornerstone Natural Gas, Inc. and Kelcy L. Warren +10.(k) Form of Consulting Agreement with Kelcy L. Warren
+Management agreement EX-10.(A) 2 ROBERT L. CAVNAR EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of January 1, 1996 ("Effective Date") by and between CORNERSTONE NATURAL GAS, INC., a Delaware corporation ("Company"), and ROBERT L. CAVNAR ("Employee"). R E C I T A L : WHEREAS, the Employee is already a senior executive officer of the Company; and WHEREAS, the parties desire to enter into this agreement to set forth the terms and conditions of Employee's employment by the Company; NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, Company and Employee agree as follows: ARTICLE 1 EMPLOYMENT AND DUTIES 1.1 EMPLOYMENT. Subject to the terms and conditions of this Agreement, Company hereby agrees to employ Employee and Employee agrees to be employed by Company, beginning as of the Effective Date and continuing for the period of time set forth in Article 2 of this Agreement. 1.2 POSITIONS AND DUTIES. Company engages Employee to serve as the Executive Vice President and Chief Financial Officer of Company, or in such other positions as the parties hereto may mutually agree. Employee agrees: (a) to serve in the positions referred to in the preceding sentence as well as in such additional positions of Company or any of its affiliates to which Employee is elected or appointed from time to time by the Board of Directors of the Company ("Board of Directors"); and (b) to perform diligently and to the best of his abilities the duties and services appertaining to such offices as set forth in the bylaws of Company or such affiliate, as the case may be, as the same may be amended from time to time, as well as such additional duties and services which the parties hereto may mutually agree upon from time to time or, subject to paragraph 2.3(b)(ii) hereof, which the Board of Directors or such officers as may be designated by the Board of Directors ("Designated Employees") or of such affiliate may prescribe. Employee shall at all times comply with and be subject to such policies and procedures as Company may establish from time to time that are applicable to officers and other employees. 1.3 OTHER ACTIVITIES. During the period of his employment by Company, Employee shall devote his primary business time, energy and best efforts to the business and affairs of Company and its affiliates and shall not engage, directly or indirectly, in any other business or businesses, whether or not similar to that of Company or its affiliates, except with the consent of the Board of Directors or except to the extent that the Board of Directors or such affiliate may prescribe, or induce any employee of Company or any affiliate to terminate his or 2 her employment with Company or such affiliate except on behalf of Company or such affiliate. The Employee represents and warrants that he is not a party to any agreement that would restrict his ability to provide services to the Company as set forth herein. ARTICLE 2 TERM AND TERMINATION OF EMPLOYMENT 2.1 TERM. Unless sooner terminated pursuant to other provisions hereof, Company shall employ Employee for a primary term beginning on the Effective Date and ending on the second anniversary of the Effective Date. This Agreement will automatically be renewed and extended for successive one-year periods commencing on the anniversary of the Effective Date unless Company, acting upon the direction of the Board of Directors, gives Employee written notice of its decision not to renew this Agreement for the following term, provided that such notice is delivered to Employee at least ninety (90) days before the then current term expires. Notwithstanding the preceding provisions of this paragraph, the term of Employee's employment hereunder shall terminate upon his death or as otherwise set forth in this Agreement. 2.2 TERMINATION BY COMPANY. Company shall have the right to terminate Employee's employment under this Agreement at any time prior to the termination of this Agreement pursuant to paragraph 2.1 hereof for any of the following reasons and only for the following reasons: (a) Employee's continuing disability, which for purposes of this Agreement shall mean Employee's becoming incapacitated by accident, sickness or other circumstance which renders him mentally or physically incapable of performing the essential functions of the duties and services required of him hereunder and which continues for 180 consecutive days or more, or for any aggregate of 180 days in any period of twelve months. Evidence of such disability shall be certified by a physician acceptable to both Company and Employee and Employee agrees to be examined by such physician. Nothing in this paragraph is meant to alter the Company's duty to reasonably accommodate the employee under the Americans With Disabilities Act (the "ADA") or any other duties that the Company may have that are mandated by the ADA or the Family and Medical Leave Act. (b) For cause, which for purposes of this Agreement shall mean any of the following, in each case as determined in good faith by the Board of Directors in its sole discretion: (i) Employee's gross negligence or willful misconduct in performance of the duties and services required of him pursuant to this Agreement; (ii) the willful and continued failure by Employee to follow the reasonable instructions of the Board of Directors or any Designated Employee after written notice of such failure has been given to Employee by the Board of Directors; (iii) the willful commission by Employee of acts that are dishonest and demonstrably and materially injurious to Company, monetarily or otherwise; (iv) any misdemeanor of fraud or dishonesty with respect to the Company; or (v) Employee's final conviction of a felony or of a misdemeanor involving moral turpitude; or 2 3 (c) Employee's material breach of any material provision of this Agreement which, if correctable, remains uncorrected for 30 days following written notice to Employee by Company of such breach. 2.3 TERMINATION BY EMPLOYEE. Employee shall have the right to terminate his employment under this Agreement at any time prior to the termination of this Agreement pursuant to paragraph 2.1 hereof for any of the following reasons and only for the following reasons: (a) If a change of control of the Company occurs, Employee shall have the right for a period of 30 days following the change of control to terminate his employment under this Agreement. A "change of control" for the purposes hereof shall be deemed to have occurred if: (i) a merger or consolidation transaction takes place and the holders of an aggregate of more than 50% of the issued and outstanding voting capital stock of the Company immediately prior to giving effect to the merger or consolidation do not hold an aggregate or more than 50% of the issued and outstanding voting capital stock of the surviving corporation; (ii) at any time more than an aggregate of 50% of the voting capital stock of the Company issued and outstanding shall not be beneficially owned by persons that beneficially own such voting capital stock on the date of the execution of this Agreement; (iii) the Company sells all or substantially all of its assets to a person other than an affiliate of the Company. For the purposes of this subsection, the term "persons" shall mean individuals, groups, corporations, partnerships, or other entities. (b) the occurrence, without Employee's express written consent, of any one or more of the following events which, if correctable, remains uncorrected for 30 days following written notice of such occurrence by Employee to Company: (i) the reduction of Employee's base salary, as the same may hereafter be increased from time to time; (ii) the assignment to Employee by the Board of Directors of duties materially inconsistent with the duties associated with the positions described in paragraph 1.2 hereof as such duties are constituted as of the Effective Date; (iii) any action by Company which results in a material diminution in the position, duties or status of Employee with Company as contemplated by this Agreement; or (iv) Company requiring Employee to be permanently based anywhere other than within 50 miles of Dallas, Texas (Employee shall not be deemed to be permanently based at any other location by reason of temporary assignments for reasonable periods of times at such other location if Company or any of its subsidiaries or other affiliates have a special need for Employee's services at such other location); or (c) a material breach by Company of any material provision of this Agreement which, if correctable, remains uncorrected for 30 days following written notice by Employee to Company of such breach. 2.4 NOTICE OF TERMINATION. If Company or Employee desires to terminate Employee's employment hereunder pursuant to paragraph 2.2 or 2.3 hereof, as the case may be, it or he shall do so by giving written notice to the other party that it or he has elected to terminate Employee's employment hereunder and stating the effective date and reason for such termination, and upon the specified effective date Employee's employment hereunder shall be so terminated; 3 4 provided that no such action shall alter or amend any provision hereof or rights arising hereunder. ARTICLE 3 COMPENSATION AND BENEFITS 3.1 BASE SALARY. During the term of his employment hereunder, Employee shall receive a minimum annual base salary determined by the Board of Directors consistent with its practices for officers of Company, but not less than $160,000 per year, payable in accordance with the customary payroll practices of Company with respect to its officers. If Employee's base annual salary is increased at any time during the term of this Agreement, it shall not thereafter be decreased during the term of this Agreement. 3.2 BONUSES. During the term of his employment hereunder, Employee shall be eligible to participate in Company's bonus plan that the Board of Directors may have in place from time to time, but nothing in this Agreement guarantees any bonuses will be awarded to Employee. 3.3 VACATION AND SICK LEAVE, CLUB MEMBERSHIPS, ETC. During each year of his employment hereunder: (a) Employee shall be entitled to three weeks of vacation at full pay and sick leave at full pay equal to the maximum sick leave available to any officer of Company, in each case without regard to the period of service that might otherwise be necessary to entitle Employee to such vacation or sick leave under standard Company policy applicable to its officers. (b) Company shall pay or reimburse Employee for the payment of all fees and dues required to be paid by Employee with respect to Employee's membership in any one business, luncheon, athletic or country club of which Employee is currently a member as of the Effective Date of this Agreement. (c) Company shall pay, or reimburse Employee for the payment of, the cost of an annual physical examination to be conducted by a doctor of Employee's choosing, to the extent that such cost is not payable or reimbursable to Employee under any health insurance plan maintained by Company. 3.4 OTHER COMPANY BENEFITS. During his employment hereunder, Employee and, to the extent applicable, Employee's family, dependents and beneficiaries, shall be allowed to participate in all employee benefit plans and programs (including, without limitation, profit sharing, thrift, medical, health and dental care, life insurance, and disability insurance, but excluding any bonus plans and programs other than those referred to in paragraph 3.2 hereof), including improvements or modifications of the same, available to similarly-situated Company employees on or after the Effective Date, except for such benefit plans and programs 4 5 which the Board of Directors, in its sole discretion, shall adopt for select employees to compensate them for special or extenuating circumstances. 3.5 OBLIGATIONS OF COMPANY REGARDING BENEFIT PLANS. Company shall not by reason of this Article 3 be obligated to institute, maintain or refrain from changing, amending or discontinuing any incentive compensation or employee benefit plan or program, so long as such actions are applicable to covered officers of Company generally. Except to the extent specifically set forth in this Article 3 or in Article 4 hereof, nothing in this Agreement is to be construed or interpreted to provide Employee greater rights, participation, coverage or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors, none of the benefits or arrangements described in this Article 3 or in Article 4 hereof shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Company. ARTICLE 4 EFFECT OF TERMINATION ON COMPENSATION 4.1 BY EXPIRATION. Upon the termination of Employee's employment hereunder pursuant to paragraph 2.1 hereof, all compensation and all benefits to Employee hereunder shall cease and terminate as of the date of such termination. In the event of such termination, Employee shall be entitled to receive his base salary through the date of such termination. 4.2 PRIOR TO EXPIRATION. (a) If Employee's employment hereunder shall be terminated by Company pursuant to paragraph 2.2 hereof or by Employee in breach of this Agreement, all compensation and all benefits to Employee hereunder shall cease and terminate contemporaneously with such termination of employment. Employee shall be entitled to receive his base salary through the date of such termination. (b) If this Agreement is terminated by the Employee as allowed under 2.3 of the Agreement or by the Company for any reason not set forth in Paragraph 2.1 or 2.2, then (i) all compensation and all benefits to Employee hereunder shall cease and terminate contemporaneously with such termination of employment, except that all health and dental benefits available to Employee under Company's group health and dental plans as of the date of such termination shall continue to be made available to Employee at Company's expense for a period of eighteen months following such termination, excluding any Exec-U-CareTM benefits and UNUM Disability Income Policy, (ii) Employee shall be entitled to receive his base salary through the date of such termination and (iii) Employee shall be entitled to be paid a severance payment equal to two times the amount of his highest annual base salary during the term of this Agreement. 5 6 (c) As a condition to the receipt of any payment under paragraph 4.2(b) hereof, Employee shall first execute a release in the form established by Company, releasing and forever discharging Company and its affiliates and the officers, directors, employees and agents of Company and its affiliates from any and all claims and obligations and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of Employee's employment with Company (or any of its affiliates), or the termination of such employment or otherwise arising out of this Agreement. Such release shall be in form and substance satisfactory to the Company. If Employee is entitled to and receives the payments provided under paragraph 4.2(b) hereof, performance of the obligations of Company thereunder will constitute full settlement of all claims that Employee might otherwise assert against Company or its affiliates on account of the termination of the employment relationship. 4.3 DATE OF PAYMENTS. Except as otherwise agreed to by the parties hereto, any payment payable to Employee under paragraph 4.2(a) or 4.2(b) hereof (other than with respect to any health or dental benefits referred to in such paragraphs) shall be paid within 30 days after the date of termination of Employee's employment hereunder. 4.4 EFFECT OF TERMINATION ON COMPANY PLANS AND PROGRAMS. Except to the extent specifically provided in this Article 4, the provisions of this Article 4 shall not affect any rights or obligations of Company or Employee under any employee benefit plan or program. Notwithstanding the foregoing, Employee shall not be entitled to any payment that would otherwise be payable to him under any Company severance plan or policy in connection with the termination of his employment hereunder. 4.5 LIMITATION ON CHANGE OF CONTROL ACTIONS. Notwithstanding anything contrary in this Agreement, any and all payments (including any benefit or transfer of property) in the nature of compensation to or for the benefit of Employee under any arrangement which is deemed to be contingent on a change of control for purposes of section 280G of the Internal Revenue Code ("change in control actions") shall be collectively subject to an overall maximum limit. Such maximum limit shall be $1.00 less than the largest amount under which no portion of the "change of control actions" is considered a "parachute payment," within the meaning of section 280G of the Internal Revenue Code (taking into account all of the limitations, exceptions and exemptions contained therein). Accordingly, to the extent that the change of control actions would be considered a parachute payment, then the portions of such change of control actions shall be reduced or eliminated until the remaining change of control actions with respect to Employee is $1.00 less than the maximum allowable which would not be considered a parachute payment under the Internal Revenue Code. As used in this paragraph 4.5, the term "arrangement" includes any agreement between Employee and Company or any affiliate of Company and any and all of Company's and any affiliate's salary, bonus, incentive, compensation or benefit plans, programs or arrangements, and shall include this Agreement. 4.6 NO DUTY TO MITIGATE LOSSES. Employee shall have no duty to find new employment following the termination of his employment by Employee pursuant to paragraph 2.3 hereof or by Company in breach of this Agreement. Any salary, remuneration or other 6 7 amounts received by Employee from a third party for the providing of personal services (whether by employment or by functioning as an independent contractor) or which might have been received by Employee had he sought to provide such services to a third party shall not reduce Company's obligation to make any payments to Employee pursuant to paragraph 4.2(b) hereof or the amount of such payments. ARTICLE 5 CONFIDENTIAL INFORMATION 5.1 COMPANY INFORMATION. Employee acknowledges that Company's business is highly competitive and that Company's books, records and documents, Company's technical information concerning its products, equipment, services and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning Company's customers and business associates and other proprietary information, including, but not limited to, systems, procedures, manuals and data as well as financial information concerning Company's products and services (including the revenues, costs or profits associated with any such products and services), information with respect to the nature and type of Company's products and services, the equipment and methods used and preferred by Company's customers and the fees paid by such customers, all comprise confidential business information and trade secrets of Company which are valuable, special and unique assets of Company, which Company uses in its business to obtain a competitive advantage over Company's competitors which do not know or use this information. Employee further acknowledges that protection of Company's confidential business information and trade secrets against unauthorized disclosure and use is of critical importance to Company in maintaining its competitive position. Accordingly, Employee hereby agrees that he will not, at any time during or after expiration of his employment hereunder make or permit any unauthorized disclosure of any confidential business information or trade secrets of Company, or make or permit any use thereof, except for the benefit of, and on behalf of, Company. For the purposes of this Article 5, the term "Company" shall also include affiliates of Company. For purposes of this Agreement, Confidential Information shall not include (i) any information which is commonly known to the public; (ii) any information disclosed by a third party who is not subject to or in breach of any confidential obligation to the Company or (iii) any information otherwise voluntarily disclosed by the Company. 5.2 THIRD-PARTY INFORMATION. Employee acknowledges that, as a result of his employment by Company, he may from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers and the like, of Company. Employee agrees to preserve and protect the confidentiality of such third-party confidential information and trade secrets to the same extent, and on the same basis, as confidential business information and trade secrets of Company. 5.3 RETURN OF DOCUMENTS. All written or magnetic materials, records and other documents made by, or coming into the possession of, Employee during the period of his employment by Company which contain or disclose Company confidential business information or trade secrets shall be and remain the property of Company. Upon termination of Employee's 7 8 employment hereunder for any reason or upon the request of Company at any time, Employee promptly shall deliver the same, and all copies thereof, to Company. 5.4 INJUNCTIVE RELIEF. Without intending to limit the remedies available to Company and notwithstanding the provisions of paragraph 6.1 hereof, Employee acknowledges that a breach of any of the provisions of this Article 5 would likely result in material irreparable injury to Company which would not, in whole or in part, be compensable in money damages and for which Company would have no adequate remedy at law. Accordingly, Employee agrees that, in the event of such a breach or threat thereof, Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining Employee from engaging in activities prohibited by this Article 5 or such other relief as may be available to specifically enforce any of the provisions of this Article 5. ARTICLE 6 MISCELLANEOUS 6.1 ARBITRATION. Subject to the provisions of paragraph 5.4 hereof, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Dallas County, Texas in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Each party hereto shall bear his or its own costs of arbitration, but if Employee is the prevailing party in such arbitration, he shall be entitled to recover from Company as part of any award entered his reasonable expenses for attorneys' fees and disbursements. 6.2 WITHHOLDING. Company may withhold from any compensation, benefits or amounts payable under this Agreement all federal, state, city or other taxes as may be required pursuant to any law or governmental regulation or ruling. 6.3 NOTICES. For purposes of this Agreement, all notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Company, to: Cornerstone Natural Gas, Inc. 8080 North Central Expressway, Suite 1200 Dallas, Texas 75206-1815 Attention: President If to Employee, to: Robert L. Cavnar 8080 North Central Expressway, Suite 1200 Dallas, Texas 75206-1815 8 9 or to such other address as either such party may furnish to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 6.4 APPLICABLE LAW. This Agreement is entered into under, and shall be governed by, and construed and interpreted in accordance with, the laws of the State of Texas. 6.5 NO WAIVER. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.6 SEVERABILITY. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. 6.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. 6.8 HEADINGS. The paragraph headings in this Agreement have been inserted for purposes of convenience and shall not be used for interpretive purposes. 6.9 AFFILIATE. As used in this Agreement, "affiliate" shall mean any entity which, directly or indirectly, owns or controls, is owned or controlled by, or is under common ownership or control with, Company. 6.10 ASSIGNMENT. The rights and obligations of Employee hereunder are personal and no right, benefit or obligation of Employee hereunder shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or otherwise, without the prior written consent of Company. Subject to the provisions of the preceding sentence, this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, administrators, executors, successors and assigns. 6.11 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of Company, its successors and assigns, and Employee, his heirs, executors, administrators and legal representatives. As used in this Agreement, the term "successor" shall include any person, firm or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the assets or business of Company. 6.12 TERM. This Agreement has a term co-extensive with the term of employment specified in paragraph 2.1 hereof, provided that (a) except as otherwise provided herein, termination shall not affect any right or obligation of any party which is accrued or vested prior to or upon such termination and (b) the provisions of Article 5 hereof shall survive the termination of this Agreement. 9 10 6.13 ENTIRE AGREEMENT. Except as provided in (a) written policies and procedures promulgated by Company that are applicable to officers of Company, (b) the written benefit plans and programs referenced in Article 3 hereof or (c) any signed written agreements hereafter executed by Company and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Company and Employee. Any modification or waiver of any provision of this Agreement will be effective only if it is in writing and signed by both of the parties hereto. IN WITNESS WHEREOF, Company and Employee have executed this Agreement effective as of the Effective Date. COMPANY CORNERSTONE NATURAL GAS, INC. By: /s/ Ray C. Davis ----------------------------------- Chairman of the Board and Chief Executive Officer EMPLOYEE By: /s/ Robert L. Cavnar ----------------------------------- Robert L. Cavnar 10 EX-10.(B) 3 JIM S. HOLOTIK EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of January 1, 1996 ("Effective Date") by and between CORNERSTONE NATURAL GAS, INC., a Delaware corporation ("Company"), and JIM S. HOLOTIK ("Employee"). R E C I T A L : WHEREAS, the Employee is already an executive officer of the Company; and WHEREAS, the parties desire to enter into this agreement to set forth the terms and conditions of Employee's employment by the Company; NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, Company and Employee agree as follows: ARTICLE 1 EMPLOYMENT AND DUTIES 1.1 EMPLOYMENT. Subject to the terms and conditions of this Agreement, Company hereby agrees to employ Employee and Employee agrees to be employed by Company, beginning as of the Effective Date and continuing for the period of time set forth in Article 2 of this Agreement. 1.2 POSITIONS AND DUTIES. Company engages Employee to serve as the Vice President of Marketing of Company, or in such other positions as the parties hereto may mutually agree. Employee agrees: (a) to serve in the positions referred to in the preceding sentence as well as in such additional positions of Company or any of its affiliates to which Employee is elected or appointed from time to time by the Board of Directors of the Company ("Board of Directors"); and (b) to perform diligently and to the best of his abilities the duties and services appertaining to such offices as set forth in the bylaws of Company or such affiliate, as the case may be, as the same may be amended from time to time, as well as such additional duties and services which the parties hereto may mutually agree upon from time to time or, subject to paragraph 2.3(b)(ii) hereof, which the Board of Directors or such officers as may be designated by the Board of Directors ("Designated Employees") or of such affiliate may prescribe. Employee shall at all times comply with and be subject to such policies and procedures as Company may establish from time to time that are applicable to officers and other employees. 1.3 OTHER ACTIVITIES. During the period of his employment by Company, Employee shall devote his primary business time, energy and best efforts to the business and affairs of Company and its affiliates and shall not engage, directly or indirectly, in any other business or businesses, whether or not similar to that of Company or its affiliates, except with the consent of the Board of Directors or except to the extent that the Board of Directors or such affiliate may prescribe, or induce any employee of Company or any affiliate to terminate his or 2 her employment with Company or such affiliate except on behalf of Company or such affiliate. The Employee represents and warrants that he is not a party to any agreement that would restrict his ability to provide services to the Company as set forth herein. ARTICLE 2 TERM AND TERMINATION OF EMPLOYMENT 2.1 TERM. Unless sooner terminated pursuant to other provisions hereof, Company shall employ Employee for a primary term beginning on the Effective Date and ending on the second anniversary of the Effective Date. This Agreement will automatically be renewed and extended for successive one-year periods commencing on the anniversary of the Effective Date unless Company, acting upon the direction of the Board of Directors, gives Employee written notice of its decision not to renew this Agreement for the following term, provided that such notice is delivered to Employee at least ninety (90) days before the then current term expires. Notwithstanding the preceding provisions of this paragraph, the term of Employee's employment hereunder shall terminate upon his death or as otherwise set forth in this Agreement. 2.2 TERMINATION BY COMPANY. Company shall have the right to terminate Employee's employment under this Agreement at any time prior to the termination of this Agreement pursuant to paragraph 2.1 hereof for any of the following reasons and only for the following reasons: (a) Employee's continuing disability, which for purposes of this Agreement shall mean Employee's becoming incapacitated by accident, sickness or other circumstance which renders him mentally or physically incapable of performing the essential functions of the duties and services required of him hereunder and which continues for 180 consecutive days or more, or for any aggregate of 180 days in any period of twelve months. Evidence of such disability shall be certified by a physician acceptable to both Company and Employee and Employee agrees to be examined by such physician. Nothing in this paragraph is meant to alter the Company's duty to reasonably accommodate the employee under the Americans With Disabilities Act (the "ADA") or any other duties that the Company may have that are mandated by the ADA or the Family and Medical Leave Act. (b) For cause, which for purposes of this Agreement shall mean any of the following, in each case as determined in good faith by the Board of Directors in its sole discretion: (i) Employee's gross negligence or willful misconduct in performance of the duties and services required of him pursuant to this Agreement; (ii) the willful and continued failure by Employee to follow the reasonable instructions of the Board of Directors or any Designated Employee after written notice of such failure has been given to Employee by the Board of Directors; (iii) the willful commission by Employee of acts that are dishonest and demonstrably and materially injurious to Company, monetarily or otherwise; (iv) any misdemeanor of fraud or dishonesty with respect to the Company; or (v) Employee's final conviction of a felony or of a misdemeanor involving moral turpitude; or 2 3 (c) Employee's material breach of any material provision of this Agreement which, if correctable, remains uncorrected for 30 days following written notice to Employee by Company of such breach. 2.3 TERMINATION BY EMPLOYEE. Employee shall have the right to terminate his employment under this Agreement at any time prior to the termination of this Agreement pursuant to paragraph 2.1 hereof for any of the following reasons and only for the following reasons: (a) If a change of control of the Company occurs, Employee shall have the right for a period of 30 days following the change of control to terminate his employment under this Agreement. A "change of control" for the purposes hereof shall be deemed to have occurred if: (i) a merger or consolidation transaction takes place and the holders of an aggregate of more than 50% of the issued and outstanding voting capital stock of the Company immediately prior to giving effect to the merger or consolidation do not hold an aggregate or more than 50% of the issued and outstanding voting capital stock of the surviving corporation; (ii) at any time more than an aggregate of 50% of the voting capital stock of the Company issued and outstanding shall not be beneficially owned by persons that beneficially own such voting capital stock on the date of the execution of this Agreement; (iii) the Company sells all or substantially all of its assets to a person other than an affiliate of the Company. For the purposes of this subsection, the term "persons" shall mean individuals, groups, corporations, partnerships, or other entities. (b) the occurrence, without Employee's express written consent, of any one or more of the following events which, if correctable, remains uncorrected for 30 days following written notice of such occurrence by Employee to Company: (i) the reduction of Employee's base salary, as the same may hereafter be increased from time to time; (ii) the assignment to Employee by the Board of Directors of duties materially inconsistent with the duties associated with the positions described in paragraph 1.2 hereof as such duties are constituted as of the Effective Date; (iii) any action by Company which results in a material diminution in the position, duties or status of Employee with Company as contemplated by this Agreement; or (iv) Company requiring Employee to be permanently based anywhere other than within 50 miles of Dallas, Texas (Employee shall not be deemed to be permanently based at any other location by reason of temporary assignments for reasonable periods of times at such other location if Company or any of its subsidiaries or other affiliates have a special need for Employee's services at such other location); or (c) a material breach by Company of any material provision of this Agreement which, if correctable, remains uncorrected for 30 days following written notice by Employee to Company of such breach. 2.4 NOTICE OF TERMINATION. If Company or Employee desires to terminate Employee's employment hereunder pursuant to paragraph 2.2 or 2.3 hereof, as the case may be, it or he shall do so by giving written notice to the other party that it or he has elected to terminate Employee's employment hereunder and stating the effective date and reason for such termination, and upon the specified effective date Employee's employment hereunder shall be so terminated; 3 4 provided that no such action shall alter or amend any provision hereof or rights arising hereunder. ARTICLE 3 COMPENSATION AND BENEFITS 3.1 BASE SALARY. During the term of his employment hereunder, Employee shall receive a minimum annual base salary determined by the Board of Directors consistent with its practices for officers of Company, but not less than $124,500 per year, payable in accordance with the customary payroll practices of Company with respect to its officers. If Employee's base annual salary is increased at any time during the term of this Agreement, it shall not thereafter be decreased during the term of this Agreement. 3.2 BONUSES. During the term of his employment hereunder, Employee shall be eligible to participate in Company's bonus plan that the Board of Directors may have in place from time to time, but nothing in this Agreement guarantees any bonuses will be awarded to Employee. 3.3 VACATION AND SICK LEAVE, CLUB MEMBERSHIPS, ETC. During each year of his employment hereunder: (a) Employee shall be entitled to three weeks of vacation at full pay and sick leave at full pay equal to the maximum sick leave available to any officer of Company, in each case without regard to the period of service that might otherwise be necessary to entitle Employee to such vacation or sick leave under standard Company policy applicable to its officers. (b) Company shall pay or reimburse Employee for the payment of all fees and dues required to be paid by Employee with respect to Employee's membership in any one business, luncheon, athletic or country club of which Employee is currently a member as of the Effective Date of this Agreement. (c) Company shall pay, or reimburse Employee for the payment of, the cost of an annual physical examination to be conducted by a doctor of Employee's choosing, to the extent that such cost is not payable or reimbursable to Employee under any health insurance plan maintained by Company. 3.4 OTHER COMPANY BENEFITS. During his employment hereunder, Employee and, to the extent applicable, Employee's family, dependents and beneficiaries, shall be allowed to participate in all employee benefit plans and programs (including, without limitation, profit sharing, thrift, medical, health and dental care, life insurance, and disability insurance, but excluding any bonus plans and programs other than those referred to in paragraph 3.2 hereof), including improvements or modifications of the same, available to similarly-situated Company employees on or after the Effective Date, except for such benefit plans and programs 4 5 which the Board of Directors, in its sole discretion, shall adopt for select employees to compensate them for special or extenuating circumstances. 3.5 OBLIGATIONS OF COMPANY REGARDING BENEFIT PLANS. Company shall not by reason of this Article 3 be obligated to institute, maintain or refrain from changing, amending or discontinuing any incentive compensation or employee benefit plan or program, so long as such actions are applicable to covered officers of Company generally. Except to the extent specifically set forth in this Article 3 or in Article 4 hereof, nothing in this Agreement is to be construed or interpreted to provide Employee greater rights, participation, coverage or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors, none of the benefits or arrangements described in this Article 3 or in Article 4 hereof shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Company. ARTICLE 4 EFFECT OF TERMINATION ON COMPENSATION 4.1 BY EXPIRATION. Upon the termination of Employee's employment hereunder pursuant to paragraph 2.1 hereof, all compensation and all benefits to Employee hereunder shall cease and terminate as of the date of such termination. In the event of such termination, Employee shall be entitled to receive his base salary through the date of such termination. 4.2 PRIOR TO EXPIRATION. (a) If Employee's employment hereunder shall be terminated by Company pursuant to paragraph 2.2 hereof or by Employee in breach of this Agreement, all compensation and all benefits to Employee hereunder shall cease and terminate contemporaneously with such termination of employment. Employee shall be entitled to receive his base salary through the date of such termination. (b) If this Agreement is terminated by the Employee as allowed under 2.3 of the Agreement or by the Company for any reason not set forth in Paragraph 2.1 or 2.2, then (i) all compensation and all benefits to Employee hereunder shall cease and terminate contemporaneously with such termination of employment, except that all health and dental benefits available to Employee under Company's group health and dental plans as of the date of such termination shall continue to be made available to Employee at Company's expense for a period of eighteen months following such termination, excluding any Exec-U-CareTM benefits and UNUM Disability Income Policy, (ii) Employee shall be entitled to receive his base salary through the date of such termination and (iii) Employee shall be entitled to be paid a severance payment equal to two times the amount of his highest annual base salary during the term of this Agreement. 5 6 (c) As a condition to the receipt of any payment under paragraph 4.2(b) hereof, Employee shall first execute a release in the form established by Company, releasing and forever discharging Company and its affiliates and the officers, directors, employees and agents of Company and its affiliates from any and all claims and obligations and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of Employee's employment with Company (or any of its affiliates), or the termination of such employment or otherwise arising out of this Agreement. Such release shall be in form and substance satisfactory to the Company. If Employee is entitled to and receives the payments provided under paragraph 4.2(b) hereof, performance of the obligations of Company thereunder will constitute full settlement of all claims that Employee might otherwise assert against Company or its affiliates on account of the termination of the employment relationship. 4.3 DATE OF PAYMENTS. Except as otherwise agreed to by the parties hereto, any payment payable to Employee under paragraph 4.2(a) or 4.2(b) hereof (other than with respect to any health or dental benefits referred to in such paragraphs) shall be paid within 30 days after the date of termination of Employee's employment hereunder. 4.4 EFFECT OF TERMINATION ON COMPANY PLANS AND PROGRAMS. Except to the extent specifically provided in this Article 4, the provisions of this Article 4 shall not affect any rights or obligations of Company or Employee under any employee benefit plan or program. Notwithstanding the foregoing, Employee shall not be entitled to any payment that would otherwise be payable to him under any Company severance plan or policy in connection with the termination of his employment hereunder. 4.5 LIMITATION ON CHANGE OF CONTROL ACTIONS. Notwithstanding anything contrary in this Agreement, any and all payments (including any benefit or transfer of property) in the nature of compensation to or for the benefit of Employee under any arrangement which is deemed to be contingent on a change of control for purposes of section 280G of the Internal Revenue Code ("change in control actions") shall be collectively subject to an overall maximum limit. Such maximum limit shall be $1.00 less than the largest amount under which no portion of the "change of control actions" is considered a "parachute payment," within the meaning of section 280G of the Internal Revenue Code (taking into account all of the limitations, exceptions and exemptions contained therein). Accordingly, to the extent that the change of control actions would be considered a parachute payment, then the portions of such change of control actions shall be reduced or eliminated until the remaining change of control actions with respect to Employee is $1.00 less than the maximum allowable which would not be considered a parachute payment under the Internal Revenue Code. As used in this paragraph 4.5, the term "arrangement" includes any agreement between Employee and Company or any affiliate of Company and any and all of Company's and any affiliate's salary, bonus, incentive, compensation or benefit plans, programs or arrangements, and shall include this Agreement. 4.6 NO DUTY TO MITIGATE LOSSES. Employee shall have no duty to find new employment following the termination of his employment by Employee pursuant to paragraph 2.3 hereof or by Company in breach of this Agreement. Any salary, remuneration or other 6 7 amounts received by Employee from a third party for the providing of personal services (whether by employment or by functioning as an independent contractor) or which might have been received by Employee had he sought to provide such services to a third party shall not reduce Company's obligation to make any payments to Employee pursuant to paragraph 4.2(b) hereof or the amount of such payments. ARTICLE 5 CONFIDENTIAL INFORMATION 5.1 COMPANY INFORMATION. Employee acknowledges that Company's business is highly competitive and that Company's books, records and documents, Company's technical information concerning its products, equipment, services and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning Company's customers and business associates and other proprietary information, including, but not limited to, systems, procedures, manuals and data as well as financial information concerning Company's products and services (including the revenues, costs or profits associated with any such products and services), information with respect to the nature and type of Company's products and services, the equipment and methods used and preferred by Company's customers and the fees paid by such customers, all comprise confidential business information and trade secrets of Company which are valuable, special and unique assets of Company, which Company uses in its business to obtain a competitive advantage over Company's competitors which do not know or use this information. Employee further acknowledges that protection of Company's confidential business information and trade secrets against unauthorized disclosure and use is of critical importance to Company in maintaining its competitive position. Accordingly, Employee hereby agrees that he will not, at any time during or after expiration of his employment hereunder make or permit any unauthorized disclosure of any confidential business information or trade secrets of Company, or make or permit any use thereof, except for the benefit of, and on behalf of, Company. For the purposes of this Article 5, the term "Company" shall also include affiliates of Company. For purposes of this Agreement, Confidential Information shall not include (i) any information which is commonly known to the public; (ii) any information disclosed by a third party who is not subject to or in breach of any confidential obligation to the Company or (iii) any information otherwise voluntarily disclosed by the Company. 5.2 THIRD-PARTY INFORMATION. Employee acknowledges that, as a result of his employment by Company, he may from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers and the like, of Company. Employee agrees to preserve and protect the confidentiality of such third-party confidential information and trade secrets to the same extent, and on the same basis, as confidential business information and trade secrets of Company. 5.3 RETURN OF DOCUMENTS. All written or magnetic materials, records and other documents made by, or coming into the possession of, Employee during the period of his employment by Company which contain or disclose Company confidential business information or trade secrets shall be and remain the property of Company. Upon termination of Employee's 7 8 employment hereunder for any reason or upon the request of Company at any time, Employee promptly shall deliver the same, and all copies thereof, to Company. 5.4 INJUNCTIVE RELIEF. Without intending to limit the remedies available to Company and notwithstanding the provisions of paragraph 6.1 hereof, Employee acknowledges that a breach of any of the provisions of this Article 5 would likely result in material irreparable injury to Company which would not, in whole or in part, be compensable in money damages and for which Company would have no adequate remedy at law. Accordingly, Employee agrees that, in the event of such a breach or threat thereof, Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining Employee from engaging in activities prohibited by this Article 5 or such other relief as may be available to specifically enforce any of the provisions of this Article 5. ARTICLE 6 MISCELLANEOUS 6.1 ARBITRATION. Subject to the provisions of paragraph 5.4 hereof, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Dallas County, Texas in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Each party hereto shall bear his or its own costs of arbitration, but if Employee is the prevailing party in such arbitration, he shall be entitled to recover from Company as part of any award entered his reasonable expenses for attorneys' fees and disbursements. 6.2 WITHHOLDING. Company may withhold from any compensation, benefits or amounts payable under this Agreement all federal, state, city or other taxes as may be required pursuant to any law or governmental regulation or ruling. 6.3 NOTICES. For purposes of this Agreement, all notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Company, to: Cornerstone Natural Gas, Inc. 8080 North Central Expressway, Suite 1200 Dallas, Texas 75206-1815 Attention: President If to Employee, to: Jim S. Holotik 8080 North Central Expressway, Suite 1200 Dallas, Texas 75206-1815 8 9 or to such other address as either such party may furnish to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 6.4 APPLICABLE LAW. This Agreement is entered into under, and shall be governed by, and construed and interpreted in accordance with, the laws of the State of Texas. 6.5 NO WAIVER. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.6 SEVERABILITY. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. 6.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. 6.8 HEADINGS. The paragraph headings in this Agreement have been inserted for purposes of convenience and shall not be used for interpretive purposes. 6.9 AFFILIATE. As used in this Agreement, "affiliate" shall mean any entity which, directly or indirectly, owns or controls, is owned or controlled by, or is under common ownership or control with, Company. 6.10 ASSIGNMENT. The rights and obligations of Employee hereunder are personal and no right, benefit or obligation of Employee hereunder shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or otherwise, without the prior written consent of Company. Subject to the provisions of the preceding sentence, this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, administrators, executors, successors and assigns. 6.11 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of Company, its successors and assigns, and Employee, his heirs, executors, administrators and legal representatives. As used in this Agreement, the term "successor" shall include any person, firm or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the assets or business of Company. 6.12 TERM. This Agreement has a term co-extensive with the term of employment specified in paragraph 2.1 hereof, provided that (a) except as otherwise provided herein, termination shall not affect any right or obligation of any party which is accrued or vested prior to or upon such termination and (b) the provisions of Article 5 hereof shall survive the termination of this Agreement. 9 10 6.13 ENTIRE AGREEMENT. Except as provided in (a) written policies and procedures promulgated by Company that are applicable to officers of Company, (b) the written benefit plans and programs referenced in Article 3 hereof or (c) any signed written agreements hereafter executed by Company and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Company and Employee. Any modification or waiver of any provision of this Agreement will be effective only if it is in writing and signed by both of the parties hereto. IN WITNESS WHEREOF, Company and Employee have executed this Agreement effective as of the Effective Date. COMPANY CORNERSTONE NATURAL GAS, INC. By: /s/ Ray C. Davis ----------------------------------- Chairman of the Board and Chief Executive Officer EMPLOYEE By: /s/ Jim S. Holotik ----------------------------------- Jim S. Holotik 10 EX-10.(C) 4 WILLIAM P. WILLIAMS EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of January 1, 1996 ("Effective Date") by and between CORNERSTONE NATURAL GAS, INC., a Delaware corporation ("Company"), and WILLIAM P. WILLIAMS ("Employee"). R E C I T A L : WHEREAS, the Employee is already an officer and employee of the Company; and WHEREAS, the parties desire to enter into this agreement to set forth the terms and conditions of Employee's employment by the Company; NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, Company and Employee agree as follows: ARTICLE 1 EMPLOYMENT AND DUTIES 1.1 EMPLOYMENT. Subject to the terms and conditions of this Agreement, Company hereby agrees to employ Employee and Employee agrees to be employed by Company, beginning as of the Effective Date and continuing for the period of time set forth in Article 2 of this Agreement. 1.2 POSITIONS AND DUTIES. Company engages Employee to serve as the Vice President of Company, or in such other positions as the parties hereto may mutually agree. Employee agrees: (a) to serve in the positions referred to in the preceding sentence as well as in such additional positions of Company or any of its affiliates to which Employee is elected or appointed from time to time by the Board of Directors of the Company ("Board of Directors"); and (b) to perform diligently and to the best of his abilities the duties and services appertaining to such offices as set forth in the bylaws of Company or such affiliate, as the case may be, as the same may be amended from time to time, as well as such additional duties and services which the parties hereto may mutually agree upon from time to time or, subject to paragraph 2.3(b)(ii) hereof, which the Board of Directors or such officers as may be designated by the Board of Directors ("Designated Employees") or of such affiliate may prescribe. Employee shall at all times comply with and be subject to such policies and procedures as Company may establish from time to time that are applicable to officers and other employees. 1.3 OTHER ACTIVITIES. During the period of his employment by Company, Employee shall devote his primary business time, energy and best efforts to the business and affairs of Company and its affiliates and shall not engage, directly or indirectly, in any other business or businesses, whether or not similar to that of Company or its affiliates, except with the consent of the Board of Directors or except to the extent that the Board of Directors or such affiliate may prescribe, or induce any employee of Company or any affiliate to terminate his or her employment with Company or such affiliate except on behalf of Company or such affiliate. 2 The Employee represents and warrants that he is not a party to any agreement that would restrict his ability to provide services to the Company as set forth herein. ARTICLE 2 TERM AND TERMINATION OF EMPLOYMENT 2.1 TERM. Unless sooner terminated pursuant to other provisions hereof, Company shall employ Employee for a primary term beginning on the Effective Date and ending on the second anniversary of the Effective Date. This Agreement will automatically be renewed and extended for successive one-year periods commencing on the anniversary of the Effective Date unless Company, acting upon the direction of the Board of Directors, gives Employee written notice of its decision not to renew this Agreement for the following term, provided that such notice is delivered to Employee at least ninety (90) days before the then current term expires. Notwithstanding the preceding provisions of this paragraph, the term of Employee's employment hereunder shall terminate upon his death or as otherwise set forth in this Agreement. 2.2 TERMINATION BY COMPANY. Company shall have the right to terminate Employee's employment under this Agreement at any time prior to the termination of this Agreement pursuant to paragraph 2.1 hereof for any of the following reasons and only for the following reasons: (a) Employee's continuing disability, which for purposes of this Agreement shall mean Employee's becoming incapacitated by accident, sickness or other circumstance which renders him mentally or physically incapable of performing the essential functions of the duties and services required of him hereunder and which continues for 180 consecutive days or more, or for any aggregate of 180 days in any period of twelve months. Evidence of such disability shall be certified by a physician acceptable to both Company and Employee and Employee agrees to be examined by such physician. Nothing in this paragraph is meant to alter the Company's duty to reasonably accommodate the employee under the Americans With Disabilities Act (the "ADA") or any other duties that the Company may have that are mandated by the ADA or the Family and Medical Leave Act. (b) For cause, which for purposes of this Agreement shall mean any of the following, in each case as determined in good faith by the Board of Directors in its sole discretion: (i) Employee's gross negligence or willful misconduct in performance of the duties and services required of him pursuant to this Agreement; (ii) the willful and continued failure by Employee to follow the reasonable instructions of the Board of Directors or any Designated Employee after written notice of such failure has been given to Employee by the Board of Directors; (iii) the willful commission by Employee of acts that are dishonest and demonstrably and materially injurious to Company, monetarily or otherwise; (iv) any misdemeanor of fraud or dishonesty with respect to the Company; or (v) Employee's final conviction of a felony or of a misdemeanor involving moral turpitude; or 2 3 (c) Employee's material breach of any material provision of this Agreement which, if correctable, remains uncorrected for 30 days following written notice to Employee by Company of such breach. 2.3 TERMINATION BY EMPLOYEE. Employee shall have the right to terminate his employment under this Agreement at any time prior to the termination of this Agreement pursuant to paragraph 2.1 hereof for any of the following reasons and only for the following reasons: (a) If a change of control of the Company occurs, Employee shall have the right for a period of 30 days following the change of control to terminate his employment under this Agreement. A "change of control" for the purposes hereof shall be deemed to have occurred if: (i) a merger or consolidation transaction takes place and the holders of an aggregate of more than 50% of the issued and outstanding voting capital stock of the Company immediately prior to giving effect to the merger or consolidation do not hold an aggregate or more than 50% of the issued and outstanding voting capital stock of the surviving corporation; (ii) at any time more than an aggregate of 50% of the voting capital stock of the Company issued and outstanding shall not be beneficially owned by persons that beneficially own such voting capital stock on the date of the execution of this Agreement; (iii) the Company sells all or substantially all of its assets to a person other than an affiliate of the Company. For the purposes of this subsection, the term "persons" shall mean individuals, groups, corporations, partnerships, or other entities. (b) the occurrence, without Employee's express written consent, of any one or more of the following events which, if correctable, remains uncorrected for 30 days following written notice of such occurrence by Employee to Company: (i) the reduction of Employee's base salary, as the same may hereafter be increased from time to time; (ii) the assignment to Employee by the Board of Directors of duties materially inconsistent with the duties associated with the positions described in paragraph 1.2 hereof as such duties are constituted as of the Effective Date; (iii) any action by Company which results in a material diminution in the position, duties or status of Employee with Company as contemplated by this Agreement; or (iv) Company requiring Employee to be permanently based anywhere other than within 50 miles of Dallas, Texas (Employee shall not be deemed to be permanently based at any other location by reason of temporary assignments for reasonable periods of times at such other location if Company or any of its subsidiaries or other affiliates have a special need for Employee's services at such other location); or (c) a material breach by Company of any material provision of this Agreement which, if correctable, remains uncorrected for 30 days following written notice by Employee to Company of such breach. 2.4 NOTICE OF TERMINATION. If Company or Employee desires to terminate Employee's employment hereunder pursuant to paragraph 2.2 or 2.3 hereof, as the case may be, it or he shall do so by giving written notice to the other party that it or he has elected to terminate Employee's employment hereunder and stating the effective date and reason for such termination, and upon the specified effective date Employee's employment hereunder shall be so terminated; 3 4 provided that no such action shall alter or amend any provision hereof or rights arising hereunder. ARTICLE 3 COMPENSATION AND BENEFITS 3.1 BASE SALARY. During the term of his employment hereunder, Employee shall receive a minimum annual base salary determined by the Board of Directors consistent with its practices for officers of Company, but not less than $97,500 per year, payable in accordance with the customary payroll practices of Company with respect to its officers. If Employee's base annual salary is increased at any time during the term of this Agreement, it shall not thereafter be decreased during the term of this Agreement. 3.2 BONUSES. During the term of his employment hereunder, Employee shall be eligible to participate in Company's bonus plan that the Board of Directors may have in place from time to time, but nothing in this Agreement guarantees any bonuses will be awarded to Employee. 3.3 VACATION AND SICK LEAVE, CLUB MEMBERSHIPS, ETC. During each year of his employment hereunder: (a) Employee shall be entitled to three weeks of vacation at full pay and sick leave at full pay equal to the maximum sick leave available to any officer of Company, in each case without regard to the period of service that might otherwise be necessary to entitle Employee to such vacation or sick leave under standard Company policy applicable to its officers. (b) Company shall pay or reimburse Employee for the payment of all fees and dues required to be paid by Employee with respect to Employee's membership in any one business, luncheon, athletic or country club of which Employee is currently a member as of the Effective Date of this Agreement. (c) Company shall pay, or reimburse Employee for the payment of, the cost of an annual physical examination to be conducted by a doctor of Employee's choosing, to the extent that such cost is not payable or reimbursable to Employee under any health insurance plan maintained by Company. 3.4 OTHER COMPANY BENEFITS. During his employment hereunder, Employee and, to the extent applicable, Employee's family, dependents and beneficiaries, shall be allowed to participate in all employee benefit plans and programs (including, without limitation, profit sharing, thrift, medical, health and dental care, life insurance, and disability insurance, but excluding any bonus plans and programs other than those referred to in paragraph 3.2 hereof), including improvements or modifications of the same, available to similarly-situated Company employees on or after the Effective Date, except for such benefit plans and programs 4 5 which the Board of Directors, in its sole discretion, shall adopt for select employees to compensate them for special or extenuating circumstances. 3.5 OBLIGATIONS OF COMPANY REGARDING BENEFIT PLANS. Company shall not by reason of this Article 3 be obligated to institute, maintain or refrain from changing, amending or discontinuing any incentive compensation or employee benefit plan or program, so long as such actions are applicable to covered officers of Company generally. Except to the extent specifically set forth in this Article 3 or in Article 4 hereof, nothing in this Agreement is to be construed or interpreted to provide Employee greater rights, participation, coverage or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors, none of the benefits or arrangements described in this Article 3 or in Article 4 hereof shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Company. ARTICLE 4 EFFECT OF TERMINATION ON COMPENSATION 4.1 BY EXPIRATION. Upon the termination of Employee's employment hereunder pursuant to paragraph 2.1 hereof, all compensation and all benefits to Employee hereunder shall cease and terminate as of the date of such termination. In the event of such termination, Employee shall be entitled to receive his base salary through the date of such termination. 4.2 PRIOR TO EXPIRATION. (a) If Employee's employment hereunder shall be terminated by Company pursuant to paragraph 2.2 hereof or by Employee in breach of this Agreement, all compensation and all benefits to Employee hereunder shall cease and terminate contemporaneously with such termination of employment. Employee shall be entitled to receive his base salary through the date of such termination. (b) If this Agreement is terminated by the Employee as allowed under 2.3 of the Agreement or by the Company for any reason not set forth in Paragraph 2.1 or 2.2, then (i) all compensation and all benefits to Employee hereunder shall cease and terminate contemporaneously with such termination of employment, except that all health and dental benefits available to Employee under Company's group health and dental plans as of the date of such termination shall continue to be made available to Employee at Company's expense for a period of eighteen months following such termination, excluding any Exec-U-CareTM benefits and UNUM Disability Income Policy, (ii) Employee shall be entitled to receive his base salary through the date of such termination and (iii) Employee shall be entitled to be paid a severance payment equal to two times the amount of his highest annual base salary during the term of this Agreement. 5 6 (c) As a condition to the receipt of any payment under paragraph 4.2(b) hereof, Employee shall first execute a release in the form established by Company, releasing and forever discharging Company and its affiliates and the officers, directors, employees and agents of Company and its affiliates from any and all claims and obligations and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of Employee's employment with Company (or any of its affiliates), or the termination of such employment or otherwise arising out of this Agreement. Such release shall be in form and substance satisfactory to the Company. If Employee is entitled to and receives the payments provided under paragraph 4.2(b) hereof, performance of the obligations of Company thereunder will constitute full settlement of all claims that Employee might otherwise assert against Company or its affiliates on account of the termination of the employment relationship. 4.3 DATE OF PAYMENTS. Except as otherwise agreed to by the parties hereto, any payment payable to Employee under paragraph 4.2(a) or 4.2(b) hereof (other than with respect to any health or dental benefits referred to in such paragraphs) shall be paid within 30 days after the date of termination of Employee's employment hereunder. 4.4 EFFECT OF TERMINATION ON COMPANY PLANS AND PROGRAMS. Except to the extent specifically provided in this Article 4, the provisions of this Article 4 shall not affect any rights or obligations of Company or Employee under any employee benefit plan or program. Notwithstanding the foregoing, Employee shall not be entitled to any payment that would otherwise be payable to him under any Company severance plan or policy in connection with the termination of his employment hereunder. 4.5 LIMITATION ON CHANGE OF CONTROL ACTIONS. Notwithstanding anything contrary in this Agreement, any and all payments (including any benefit or transfer of property) in the nature of compensation to or for the benefit of Employee under any arrangement which is deemed to be contingent on a change of control for purposes of section 280G of the Internal Revenue Code ("change in control actions") shall be collectively subject to an overall maximum limit. Such maximum limit shall be $1.00 less than the largest amount under which no portion of the "change of control actions" is considered a "parachute payment," within the meaning of section 280G of the Internal Revenue Code (taking into account all of the limitations, exceptions and exemptions contained therein). Accordingly, to the extent that the change of control actions would be considered a parachute payment, then the portions of such change of control actions shall be reduced or eliminated until the remaining change of control actions with respect to Employee is $1.00 less than the maximum allowable which would not be considered a parachute payment under the Internal Revenue Code. As used in this paragraph 4.5, the term "arrangement" includes any agreement between Employee and Company or any affiliate of Company and any and all of Company's and any affiliate's salary, bonus, incentive, compensation or benefit plans, programs or arrangements, and shall include this Agreement. 4.6 NO DUTY TO MITIGATE LOSSES. Employee shall have no duty to find new employment following the termination of his employment by Employee pursuant to paragraph 2.3 hereof or by Company in breach of this Agreement. Any salary, remuneration or other 6 7 amounts received by Employee from a third party for the providing of personal services (whether by employment or by functioning as an independent contractor) or which might have been received by Employee had he sought to provide such services to a third party shall not reduce Company's obligation to make any payments to Employee pursuant to paragraph 4.2(b) hereof or the amount of such payments. ARTICLE 5 CONFIDENTIAL INFORMATION 5.1 COMPANY INFORMATION. Employee acknowledges that Company's business is highly competitive and that Company's books, records and documents, Company's technical information concerning its products, equipment, services and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning Company's customers and business associates and other proprietary information, including, but not limited to, systems, procedures, manuals and data as well as financial information concerning Company's products and services (including the revenues, costs or profits associated with any such products and services), information with respect to the nature and type of Company's products and services, the equipment and methods used and preferred by Company's customers and the fees paid by such customers, all comprise confidential business information and trade secrets of Company which are valuable, special and unique assets of Company, which Company uses in its business to obtain a competitive advantage over Company's competitors which do not know or use this information. Employee further acknowledges that protection of Company's confidential business information and trade secrets against unauthorized disclosure and use is of critical importance to Company in maintaining its competitive position. Accordingly, Employee hereby agrees that he will not, at any time during or after expiration of his employment hereunder make or permit any unauthorized disclosure of any confidential business information or trade secrets of Company, or make or permit any use thereof, except for the benefit of, and on behalf of, Company. For the purposes of this Article 5, the term "Company" shall also include affiliates of Company. For purposes of this Agreement, Confidential Information shall not include (i) any information which is commonly known to the public; (ii) any information disclosed by a third party who is not subject to or in breach of any confidential obligation to the Company or (iii) any information otherwise voluntarily disclosed by the Company. 5.2 THIRD-PARTY INFORMATION. Employee acknowledges that, as a result of his employment by Company, he may from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers and the like, of Company. Employee agrees to preserve and protect the confidentiality of such third-party confidential information and trade secrets to the same extent, and on the same basis, as confidential business information and trade secrets of Company. 5.3 RETURN OF DOCUMENTS. All written or magnetic materials, records and other documents made by, or coming into the possession of, Employee during the period of his employment by Company which contain or disclose Company confidential business information or trade secrets shall be and remain the property of Company. Upon termination of Employee's 7 8 employment hereunder for any reason or upon the request of Company at any time, Employee promptly shall deliver the same, and all copies thereof, to Company. 5.4 INJUNCTIVE RELIEF. Without intending to limit the remedies available to Company and notwithstanding the provisions of paragraph 6.1 hereof, Employee acknowledges that a breach of any of the provisions of this Article 5 would likely result in material irreparable injury to Company which would not, in whole or in part, be compensable in money damages and for which Company would have no adequate remedy at law. Accordingly, Employee agrees that, in the event of such a breach or threat thereof, Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining Employee from engaging in activities prohibited by this Article 5 or such other relief as may be available to specifically enforce any of the provisions of this Article 5. ARTICLE 6 MISCELLANEOUS 6.1 ARBITRATION. Subject to the provisions of paragraph 5.4 hereof, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Dallas County, Texas in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Each party hereto shall bear his or its own costs of arbitration, but if Employee is the prevailing party in such arbitration, he shall be entitled to recover from Company as part of any award entered his reasonable expenses for attorneys' fees and disbursements. 6.2 WITHHOLDING. Company may withhold from any compensation, benefits or amounts payable under this Agreement all federal, state, city or other taxes as may be required pursuant to any law or governmental regulation or ruling. 6.3 NOTICES. For purposes of this Agreement, all notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Company, to: Cornerstone Natural Gas, Inc. 8080 North Central Expressway, Suite 1200 Dallas, Texas 75206-1815 Attention: President If to Employee, to: William P. Williams 8080 North Central Expressway, Suite 1200 Dallas, Texas 75206-1815 8 9 or to such other address as either such party may furnish to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 6.4 APPLICABLE LAW. This Agreement is entered into under, and shall be governed by, and construed and interpreted in accordance with, the laws of the State of Texas. 6.5 NO WAIVER. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.6 SEVERABILITY. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. 6.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. 6.8 HEADINGS. The paragraph headings in this Agreement have been inserted for purposes of convenience and shall not be used for interpretive purposes. 6.9 AFFILIATE. As used in this Agreement, "affiliate" shall mean any entity which, directly or indirectly, owns or controls, is owned or controlled by, or is under common ownership or control with, Company. 6.10 ASSIGNMENT. The rights and obligations of Employee hereunder are personal and no right, benefit or obligation of Employee hereunder shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or otherwise, without the prior written consent of Company. Subject to the provisions of the preceding sentence, this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, administrators, executors, successors and assigns. 6.11 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of Company, its successors and assigns, and Employee, his heirs, executors, administrators and legal representatives. As used in this Agreement, the term "successor" shall include any person, firm or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the assets or business of Company. 6.12 TERM. This Agreement has a term co-extensive with the term of employment specified in paragraph 2.1 hereof, provided that (a) except as otherwise provided herein, termination shall not affect any right or obligation of any party which is accrued or vested prior to or upon such termination and (b) the provisions of Article 5 hereof shall survive the termination of this Agreement. 9 10 6.13 ENTIRE AGREEMENT. Except as provided in (a) written policies and procedures promulgated by Company that are applicable to officers of Company, (b) the written benefit plans and programs referenced in Article 3 hereof or (c) any signed written agreements hereafter executed by Company and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Company and Employee. Any modification or waiver of any provision of this Agreement will be effective only if it is in writing and signed by both of the parties hereto. IN WITNESS WHEREOF, Company and Employee have executed this Agreement effective as of the Effective Date. COMPANY CORNERSTONE NATURAL GAS, INC. By: /s/ Ray C. Davis ----------------------------------- Chairman of the Board and Chief Executive Officer EMPLOYEE By: /s/ William P. Williams ----------------------------------- William P. Williams 10 EX-10.(D) 5 RICHARD W. PIACENTI EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of January 1, 1996 ("Effective Date") by and between CORNERSTONE NATURAL GAS, INC., a Delaware corporation ("Company"), and RICHARD W. PIACENTI ("Employee"). R E C I T A L : WHEREAS, the Employee is already an officer and employee of the Company; and WHEREAS, the parties desire to enter into this agreement to set forth the terms and conditions of Employee's employment by the Company; NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, Company and Employee agree as follows: ARTICLE 1 EMPLOYMENT AND DUTIES 1.1 EMPLOYMENT. Subject to the terms and conditions of this Agreement, Company hereby agrees to employ Employee and Employee agrees to be employed by Company, beginning as of the Effective Date and continuing for the period of time set forth in Article 2 of this Agreement. 1.2 POSITIONS AND DUTIES. Company engages Employee to serve as the Vice President and Controller of Company, or in such other positions as the parties hereto may mutually agree. Employee agrees: (a) to serve in the positions referred to in the preceding sentence as well as in such additional positions of Company or any of its affiliates to which Employee is elected or appointed from time to time by the Board of Directors of the Company ("Board of Directors"); and (b) to perform diligently and to the best of his abilities the duties and services appertaining to such offices as set forth in the bylaws of Company or such affiliate, as the case may be, as the same may be amended from time to time, as well as such additional duties and services which the parties hereto may mutually agree upon from time to time or, subject to paragraph 2.3(b)(ii) hereof, which the Board of Directors or such officers as may be designated by the Board of Directors ("Designated Employees") or of such affiliate may prescribe. Employee shall at all times comply with and be subject to such policies and procedures as Company may establish from time to time that are applicable to officers and other employees. 1.3 OTHER ACTIVITIES. During the period of his employment by Company, Employee shall devote his primary business time, energy and best efforts to the business and affairs of Company and its affiliates and shall not engage, directly or indirectly, in any other business or businesses, whether or not similar to that of Company or its affiliates, except with the consent of the Board of Directors or except to the extent that the Board of Directors or such affiliate may prescribe, or induce any employee of Company or any affiliate to terminate his or 2 her employment with Company or such affiliate except on behalf of Company or such affiliate. The Employee represents and warrants that he is not a party to any agreement that would restrict his ability to provide services to the Company as set forth herein. ARTICLE 2 TERM AND TERMINATION OF EMPLOYMENT 2.1 TERM. Unless sooner terminated pursuant to other provisions hereof, Company shall employ Employee for a primary term beginning on the Effective Date and ending on the second anniversary of the Effective Date. This Agreement will automatically be renewed and extended for successive one-year periods commencing on the anniversary of the Effective Date unless Company, acting upon the direction of the Board of Directors, gives Employee written notice of its decision not to renew this Agreement for the following term, provided that such notice is delivered to Employee at least ninety (90) days before the then current term expires. Notwithstanding the preceding provisions of this paragraph, the term of Employee's employment hereunder shall terminate upon his death or as otherwise set forth in this Agreement. 2.2 TERMINATION BY COMPANY. Company shall have the right to terminate Employee's employment under this Agreement at any time prior to the termination of this Agreement pursuant to paragraph 2.1 hereof for any of the following reasons and only for the following reasons: (a) Employee's continuing disability, which for purposes of this Agreement shall mean Employee's becoming incapacitated by accident, sickness or other circumstance which renders him mentally or physically incapable of performing the essential functions of the duties and services required of him hereunder and which continues for 180 consecutive days or more, or for any aggregate of 180 days in any period of twelve months. Evidence of such disability shall be certified by a physician acceptable to both Company and Employee and Employee agrees to be examined by such physician. Nothing in this paragraph is meant to alter the Company's duty to reasonably accommodate the employee under the Americans With Disabilities Act (the "ADA") or any other duties that the Company may have that are mandated by the ADA or the Family and Medical Leave Act. (b) For cause, which for purposes of this Agreement shall mean any of the following, in each case as determined in good faith by the Board of Directors in its sole discretion: (i) Employee's gross negligence or willful misconduct in performance of the duties and services required of him pursuant to this Agreement; (ii) the willful and continued failure by Employee to follow the reasonable instructions of the Board of Directors or any Designated Employee after written notice of such failure has been given to Employee by the Board of Directors; (iii) the willful commission by Employee of acts that are dishonest and demonstrably and materially injurious to Company, monetarily or otherwise; (iv) any misdemeanor of fraud or dishonesty with respect to the Company; or (v) Employee's final conviction of a felony or of a misdemeanor involving moral turpitude; or 2 3 (c) Employee's material breach of any material provision of this Agreement which, if correctable, remains uncorrected for 30 days following written notice to Employee by Company of such breach. 2.3 TERMINATION BY EMPLOYEE. Employee shall have the right to terminate his employment under this Agreement at any time prior to the termination of this Agreement pursuant to paragraph 2.1 hereof for any of the following reasons and only for the following reasons: (a) If a change of control of the Company occurs, Employee shall have the right for a period of 30 days following the change of control to terminate his employment under this Agreement. A "change of control" for the purposes hereof shall be deemed to have occurred if: (i) a merger or consolidation transaction takes place and the holders of an aggregate of more than 50% of the issued and outstanding voting capital stock of the Company immediately prior to giving effect to the merger or consolidation do not hold an aggregate or more than 50% of the issued and outstanding voting capital stock of the surviving corporation; (ii) at any time more than an aggregate of 50% of the voting capital stock of the Company issued and outstanding shall not be beneficially owned by persons that beneficially own such voting capital stock on the date of the execution of this Agreement; (iii) the Company sells all or substantially all of its assets to a person other than an affiliate of the Company. For the purposes of this subsection, the term "persons" shall mean individuals, groups, corporations, partnerships, or other entities. (b) the occurrence, without Employee's express written consent, of any one or more of the following events which, if correctable, remains uncorrected for 30 days following written notice of such occurrence by Employee to Company: (i) the reduction of Employee's base salary, as the same may hereafter be increased from time to time; (ii) the assignment to Employee by the Board of Directors of duties materially inconsistent with the duties associated with the positions described in paragraph 1.2 hereof as such duties are constituted as of the Effective Date; (iii) any action by Company which results in a material diminution in the position, duties or status of Employee with Company as contemplated by this Agreement; or (iv) Company requiring Employee to be permanently based anywhere other than within 50 miles of Dallas, Texas (Employee shall not be deemed to be permanently based at any other location by reason of temporary assignments for reasonable periods of times at such other location if Company or any of its subsidiaries or other affiliates have a special need for Employee's services at such other location); or (c) a material breach by Company of any material provision of this Agreement which, if correctable, remains uncorrected for 30 days following written notice by Employee to Company of such breach. 2.4 NOTICE OF TERMINATION. If Company or Employee desires to terminate Employee's employment hereunder pursuant to paragraph 2.2 or 2.3 hereof, as the case may be, it or he shall do so by giving written notice to the other party that it or he has elected to terminate Employee's employment hereunder and stating the effective date and reason for such termination, and upon the specified effective date Employee's employment hereunder shall be so terminated; 3 4 provided that no such action shall alter or amend any provision hereof or rights arising hereunder. ARTICLE 3 COMPENSATION AND BENEFITS 3.1 BASE SALARY. During the term of his employment hereunder, Employee shall receive a minimum annual base salary determined by the Board of Directors consistent with its practices for officers of Company, but not less than $95,000 per year, payable in accordance with the customary payroll practices of Company with respect to its officers. If Employee's base annual salary is increased at any time during the term of this Agreement, it shall not thereafter be decreased during the term of this Agreement. 3.2 BONUSES. During the term of his employment hereunder, Employee shall be eligible to participate in Company's bonus plan that the Board of Directors may have in place from time to time, but nothing in this Agreement guarantees any bonuses will be awarded to Employee. 3.3 VACATION AND SICK LEAVE, CLUB MEMBERSHIPS, ETC. During each year of his employment hereunder: (a) Employee shall be entitled to three weeks of vacation at full pay and sick leave at full pay equal to the maximum sick leave available to any officer of Company, in each case without regard to the period of service that might otherwise be necessary to entitle Employee to such vacation or sick leave under standard Company policy applicable to its officers. (b) Company shall pay or reimburse Employee for the payment of all fees and dues required to be paid by Employee with respect to Employee's membership in any one business, luncheon, athletic or country club of which Employee is currently a member as of the Effective Date of this Agreement. (c) Company shall pay, or reimburse Employee for the payment of, the cost of an annual physical examination to be conducted by a doctor of Employee's choosing, to the extent that such cost is not payable or reimbursable to Employee under any health insurance plan maintained by Company. 3.4 OTHER COMPANY BENEFITS. During his employment hereunder, Employee and, to the extent applicable, Employee's family, dependents and beneficiaries, shall be allowed to participate in all employee benefit plans and programs (including, without limitation, profit sharing, thrift, medical, health and dental care, life insurance, and disability insurance, but excluding any bonus plans and programs other than those referred to in paragraph 3.2 hereof), including improvements or modifications of the same, available to similarly-situated Company employees on or after the Effective Date, except for such benefit plans and programs 4 5 which the Board of Directors, in its sole discretion, shall adopt for select employees to compensate them for special or extenuating circumstances. 3.5 OBLIGATIONS OF COMPANY REGARDING BENEFIT PLANS. Company shall not by reason of this Article 3 be obligated to institute, maintain or refrain from changing, amending or discontinuing any incentive compensation or employee benefit plan or program, so long as such actions are applicable to covered officers of Company generally. Except to the extent specifically set forth in this Article 3 or in Article 4 hereof, nothing in this Agreement is to be construed or interpreted to provide Employee greater rights, participation, coverage or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors, none of the benefits or arrangements described in this Article 3 or in Article 4 hereof shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Company. ARTICLE 4 EFFECT OF TERMINATION ON COMPENSATION 4.1 BY EXPIRATION. Upon the termination of Employee's employment hereunder pursuant to paragraph 2.1 hereof, all compensation and all benefits to Employee hereunder shall cease and terminate as of the date of such termination. In the event of such termination, Employee shall be entitled to receive his base salary through the date of such termination. 4.2 PRIOR TO EXPIRATION. (a) If Employee's employment hereunder shall be terminated by Company pursuant to paragraph 2.2 hereof or by Employee in breach of this Agreement, all compensation and all benefits to Employee hereunder shall cease and terminate contemporaneously with such termination of employment. Employee shall be entitled to receive his base salary through the date of such termination. (b) If this Agreement is terminated by the Employee as allowed under 2.3 of the Agreement or by the Company for any reason not set forth in Paragraph 2.1 or 2.2, then (i) all compensation and all benefits to Employee hereunder shall cease and terminate contemporaneously with such termination of employment, except that all health and dental benefits available to Employee under Company's group health and dental plans as of the date of such termination shall continue to be made available to Employee at Company's expense for a period of eighteen months following such termination, excluding any Exec-U-CareTM benefits and UNUM Disability Income Policy, (ii) Employee shall be entitled to receive his base salary through the date of such termination and (iii) Employee shall be entitled to be paid a severance payment equal to two times the amount of his highest annual base salary during the term of this Agreement. 5 6 (c) As a condition to the receipt of any payment under paragraph 4.2(b) hereof, Employee shall first execute a release in the form established by Company, releasing and forever discharging Company and its affiliates and the officers, directors, employees and agents of Company and its affiliates from any and all claims and obligations and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of Employee's employment with Company (or any of its affiliates), or the termination of such employment or otherwise arising out of this Agreement. Such release shall be in form and substance satisfactory to the Company. If Employee is entitled to and receives the payments provided under paragraph 4.2(b) hereof, performance of the obligations of Company thereunder will constitute full settlement of all claims that Employee might otherwise assert against Company or its affiliates on account of the termination of the employment relationship. 4.3 DATE OF PAYMENTS. Except as otherwise agreed to by the parties hereto, any payment payable to Employee under paragraph 4.2(a) or 4.2(b) hereof (other than with respect to any health or dental benefits referred to in such paragraphs) shall be paid within 30 days after the date of termination of Employee's employment hereunder. 4.4 EFFECT OF TERMINATION ON COMPANY PLANS AND PROGRAMS. Except to the extent specifically provided in this Article 4, the provisions of this Article 4 shall not affect any rights or obligations of Company or Employee under any employee benefit plan or program. Notwithstanding the foregoing, Employee shall not be entitled to any payment that would otherwise be payable to him under any Company severance plan or policy in connection with the termination of his employment hereunder. 4.5 LIMITATION ON CHANGE OF CONTROL ACTIONS. Notwithstanding anything contrary in this Agreement, any and all payments (including any benefit or transfer of property) in the nature of compensation to or for the benefit of Employee under any arrangement which is deemed to be contingent on a change of control for purposes of section 280G of the Internal Revenue Code ("change in control actions") shall be collectively subject to an overall maximum limit. Such maximum limit shall be $1.00 less than the largest amount under which no portion of the "change of control actions" is considered a "parachute payment," within the meaning of section 280G of the Internal Revenue Code (taking into account all of the limitations, exceptions and exemptions contained therein). Accordingly, to the extent that the change of control actions would be considered a parachute payment, then the portions of such change of control actions shall be reduced or eliminated until the remaining change of control actions with respect to Employee is $1.00 less than the maximum allowable which would not be considered a parachute payment under the Internal Revenue Code. As used in this paragraph 4.5, the term "arrangement" includes any agreement between Employee and Company or any affiliate of Company and any and all of Company's and any affiliate's salary, bonus, incentive, compensation or benefit plans, programs or arrangements, and shall include this Agreement. 4.6 NO DUTY TO MITIGATE LOSSES. Employee shall have no duty to find new employment following the termination of his employment by Employee pursuant to paragraph 2.3 hereof or by Company in breach of this Agreement. Any salary, remuneration or other 6 7 amounts received by Employee from a third party for the providing of personal services (whether by employment or by functioning as an independent contractor) or which might have been received by Employee had he sought to provide such services to a third party shall not reduce Company's obligation to make any payments to Employee pursuant to paragraph 4.2(b) hereof or the amount of such payments. ARTICLE 5 CONFIDENTIAL INFORMATION 5.1 COMPANY INFORMATION. Employee acknowledges that Company's business is highly competitive and that Company's books, records and documents, Company's technical information concerning its products, equipment, services and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning Company's customers and business associates and other proprietary information, including, but not limited to, systems, procedures, manuals and data as well as financial information concerning Company's products and services (including the revenues, costs or profits associated with any such products and services), information with respect to the nature and type of Company's products and services, the equipment and methods used and preferred by Company's customers and the fees paid by such customers, all comprise confidential business information and trade secrets of Company which are valuable, special and unique assets of Company, which Company uses in its business to obtain a competitive advantage over Company's competitors which do not know or use this information. Employee further acknowledges that protection of Company's confidential business information and trade secrets against unauthorized disclosure and use is of critical importance to Company in maintaining its competitive position. Accordingly, Employee hereby agrees that he will not, at any time during or after expiration of his employment hereunder make or permit any unauthorized disclosure of any confidential business information or trade secrets of Company, or make or permit any use thereof, except for the benefit of, and on behalf of, Company. For the purposes of this Article 5, the term "Company" shall also include affiliates of Company. For purposes of this Agreement, Confidential Information shall not include (i) any information which is commonly known to the public; (ii) any information disclosed by a third party who is not subject to or in breach of any confidential obligation to the Company or (iii) any information otherwise voluntarily disclosed by the Company. 5.2 THIRD-PARTY INFORMATION. Employee acknowledges that, as a result of his employment by Company, he may from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers and the like, of Company. Employee agrees to preserve and protect the confidentiality of such third-party confidential information and trade secrets to the same extent, and on the same basis, as confidential business information and trade secrets of Company. 5.3 RETURN OF DOCUMENTS. All written or magnetic materials, records and other documents made by, or coming into the possession of, Employee during the period of his employment by Company which contain or disclose Company confidential business information or trade secrets shall be and remain the property of Company. Upon termination of Employee's 7 8 employment hereunder for any reason or upon the request of Company at any time, Employee promptly shall deliver the same, and all copies thereof, to Company. 5.4 INJUNCTIVE RELIEF. Without intending to limit the remedies available to Company and notwithstanding the provisions of paragraph 6.1 hereof, Employee acknowledges that a breach of any of the provisions of this Article 5 would likely result in material irreparable injury to Company which would not, in whole or in part, be compensable in money damages and for which Company would have no adequate remedy at law. Accordingly, Employee agrees that, in the event of such a breach or threat thereof, Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining Employee from engaging in activities prohibited by this Article 5 or such other relief as may be available to specifically enforce any of the provisions of this Article 5. ARTICLE 6 MISCELLANEOUS 6.1 ARBITRATION. Subject to the provisions of paragraph 5.4 hereof, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Dallas County, Texas in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Each party hereto shall bear his or its own costs of arbitration, but if Employee is the prevailing party in such arbitration, he shall be entitled to recover from Company as part of any award entered his reasonable expenses for attorneys' fees and disbursements. 6.2 WITHHOLDING. Company may withhold from any compensation, benefits or amounts payable under this Agreement all federal, state, city or other taxes as may be required pursuant to any law or governmental regulation or ruling. 6.3 NOTICES. For purposes of this Agreement, all notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Company, to: Cornerstone Natural Gas, Inc. 8080 North Central Expressway, Suite 1200 Dallas, Texas 75206-1815 Attention: President If to Employee, to: Richard W. Piacenti 8080 North Central Expressway, Suite 1200 Dallas, Texas 75206-1815 8 9 or to such other address as either such party may furnish to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 6.4 APPLICABLE LAW. This Agreement is entered into under, and shall be governed by, and construed and interpreted in accordance with, the laws of the State of Texas. 6.5 NO WAIVER. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.6 SEVERABILITY. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. 6.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. 6.8 HEADINGS. The paragraph headings in this Agreement have been inserted for purposes of convenience and shall not be used for interpretive purposes. 6.9 AFFILIATE. As used in this Agreement, "affiliate" shall mean any entity which, directly or indirectly, owns or controls, is owned or controlled by, or is under common ownership or control with, Company. 6.10 ASSIGNMENT. The rights and obligations of Employee hereunder are personal and no right, benefit or obligation of Employee hereunder shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or otherwise, without the prior written consent of Company. Subject to the provisions of the preceding sentence, this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, administrators, executors, successors and assigns. 6.11 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of Company, its successors and assigns, and Employee, his heirs, executors, administrators and legal representatives. As used in this Agreement, the term "successor" shall include any person, firm or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the assets or business of Company. 6.12 TERM. This Agreement has a term co-extensive with the term of employment specified in paragraph 2.1 hereof, provided that (a) except as otherwise provided herein, termination shall not affect any right or obligation of any party which is accrued or vested prior to or upon such termination and (b) the provisions of Article 5 hereof shall survive the termination of this Agreement. 9 10 6.13 ENTIRE AGREEMENT. Except as provided in (a) written policies and procedures promulgated by Company that are applicable to officers of Company, (b) the written benefit plans and programs referenced in Article 3 hereof or (c) any signed written agreements hereafter executed by Company and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Company and Employee. Any modification or waiver of any provision of this Agreement will be effective only if it is in writing and signed by both of the parties hereto. IN WITNESS WHEREOF, Company and Employee have executed this Agreement effective as of the Effective Date. COMPANY CORNERSTONE NATURAL GAS, INC. By: /s/ Ray C. Davis ----------------------------------- Chairman of the Board and Chief Executive Officer EMPLOYEE By: /s/ Richard W. Piacenti ----------------------------------- Richard W. Piacenti 10 EX-10.(E) 6 KELLY J. JAMESON EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of January 1, 1996 ("Effective Date") by and between CORNERSTONE NATURAL GAS, INC., a Delaware corporation ("Company"), and KELLY J. JAMESON ("Employee"). R E C I T A L : WHEREAS, the Employee is already an officer and employee of the Company; and WHEREAS, the parties desire to enter into this agreement to set forth the terms and conditions of Employee's employment by the Company; NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, Company and Employee agree as follows: ARTICLE 1 EMPLOYMENT AND DUTIES 1.1 EMPLOYMENT. Subject to the terms and conditions of this Agreement, Company hereby agrees to employ Employee and Employee agrees to be employed by Company, beginning as of the Effective Date and continuing for the period of time set forth in Article 2 of this Agreement. 1.2 POSITIONS AND DUTIES. Company engages Employee to serve as the Vice President, General Counsel and Corporate Secretary of Company, or in such other positions as the parties hereto may mutually agree. Employee agrees: (a) to serve in the positions referred to in the preceding sentence as well as in such additional positions of Company or any of its affiliates to which Employee is elected or appointed from time to time by the Board of Directors of the Company ("Board of Directors"); and (b) to perform diligently and to the best of his abilities the duties and services appertaining to such offices as set forth in the bylaws of Company or such affiliate, as the case may be, as the same may be amended from time to time, as well as such additional duties and services which the parties hereto may mutually agree upon from time to time or, subject to paragraph 2.3(b)(ii) hereof, which the Board of Directors or such officers as may be designated by the Board of Directors ("Designated Employees") or of such affiliate may prescribe. Employee shall at all times comply with and be subject to such policies and procedures as Company may establish from time to time that are applicable to officers and other employees. 1.3 OTHER ACTIVITIES. During the period of his employment by Company, Employee shall devote his primary business time, energy and best efforts to the business and affairs of Company and its affiliates and shall not engage, directly or indirectly, in any other business or businesses, whether or not similar to that of Company or its affiliates, except with the consent of the Board of Directors or except to the extent that the Board of Directors or such affiliate may prescribe, or induce any employee of Company or any affiliate to terminate his or 2 her employment with Company or such affiliate except on behalf of Company or such affiliate. The Employee represents and warrants that he is not a party to any agreement that would restrict his ability to provide services to the Company as set forth herein. ARTICLE 2 TERM AND TERMINATION OF EMPLOYMENT 2.1 TERM. Unless sooner terminated pursuant to other provisions hereof, Company shall employ Employee for a primary term beginning on the Effective Date and ending on the anniversary of the Effective Date. This Agreement will automatically be renewed and extended for successive one-year periods commencing on the anniversary of the Effective Date. Company, acting upon the direction of the Board of Directors, may cancel this Agreement at any time, provided Company gives Employee twelve months written notice to terminate this Agreement. Notwithstanding the preceding provisions of this paragraph, the term of Employee's employment hereunder shall terminate upon his death or as otherwise set forth in this Agreement. 2.2 TERMINATION BY COMPANY. Company shall have the right to terminate Employee's employment under this Agreement at any time prior to the termination of this Agreement pursuant to paragraph 2.1 hereof for any of the following reasons and only for the following reasons: (a) Employee's continuing disability, which for purposes of this Agreement shall mean Employee's becoming incapacitated by accident, sickness or other circumstance which renders him mentally or physically incapable of performing the essential functions of the duties and services required of him hereunder and which continues for 180 consecutive days or more, or for any aggregate of 180 days in any period of twelve months. Evidence of such disability shall be certified by a physician acceptable to both Company and Employee and Employee agrees to be examined by such physician. Nothing in this paragraph is meant to alter the Company's duty to reasonably accommodate the employee under the Americans With Disabilities Act (the "ADA") or any other duties that the Company may have that are mandated by the ADA or the Family and Medical Leave Act. (b) For cause, which for purposes of this Agreement shall mean any of the following, in each case as determined in good faith by the Board of Directors in its sole discretion: (i) Employee's gross negligence or willful misconduct in performance of the duties and services required of him pursuant to this Agreement; (ii) the willful and continued failure by Employee to follow the reasonable instructions of the Board of Directors or any Designated Employee after written notice of such failure has been given to Employee by the Board of Directors; (iii) the willful commission by Employee of acts that are dishonest and demonstrably and materially injurious to Company, monetarily or otherwise; (iv) any misdemeanor of fraud or dishonesty with respect to the Company; or (v) Employee's final conviction of a felony or of a misdemeanor involving moral turpitude; or 2 3 (c) Employee's material breach of any material provision of this Agreement which, if correctable, remains uncorrected for 30 days following written notice to Employee by Company of such breach. 2.3 TERMINATION BY EMPLOYEE. Employee shall have the right to terminate his employment under this Agreement at any time prior to the termination of this Agreement pursuant to paragraph 2.1 hereof for any of the following reasons and only for the following reasons: (a) If a change of control of the Company occurs, Employee shall have the right for a period of 30 days following the change of control to terminate his employment under this Agreement. A "change of control" for the purposes hereof shall be deemed to have occurred if: (i) a merger or consolidation transaction takes place and the holders of an aggregate of more than 50% of the issued and outstanding voting capital stock of the Company immediately prior to giving effect to the merger or consolidation do not hold an aggregate or more than 50% of the issued and outstanding voting capital stock of the surviving corporation; (ii) at any time more than an aggregate of 50% of the voting capital stock of the Company issued and outstanding shall not be beneficially owned by persons that beneficially own such voting capital stock on the date of the execution of this Agreement; (iii) the Company sells all or substantially all of its assets to a person other than an affiliate of the Company. For the purposes of this subsection, the term "persons" shall mean individuals, groups, corporations, partnerships, or other entities. (b) the occurrence, without Employee's express written consent, of any one or more of the following events which, if correctable, remains uncorrected for 30 days following written notice of such occurrence by Employee to Company: (i) the reduction of Employee's base salary, as the same may hereafter be increased from time to time; (ii) the assignment to Employee by the Board of Directors of duties materially inconsistent with the duties associated with the positions described in paragraph 1.2 hereof as such duties are constituted as of the Effective Date; (iii) any action by Company which results in a material diminution in the position, duties or status of Employee with Company as contemplated by this Agreement; or (iv) Company requiring Employee to be permanently based anywhere other than within 50 miles of Dallas, Texas (Employee shall not be deemed to be permanently based at any other location by reason of temporary assignments for reasonable periods of times at such other location if Company or any of its subsidiaries or other affiliates have a special need for Employee's services at such other location); or (c) a material breach by Company of any material provision of this Agreement which, if correctable, remains uncorrected for 30 days following written notice by Employee to Company of such breach. 2.4 NOTICE OF TERMINATION. If Company or Employee desires to terminate Employee's employment hereunder pursuant to paragraph 2.2 or 2.3 hereof, as the case may be, it or he shall do so by giving written notice to the other party that it or he has elected to terminate Employee's employment hereunder and stating the effective date and reason for such termination, and upon the specified effective date Employee's employment hereunder shall be so terminated; 3 4 provided that no such action shall alter or amend any provision hereof or rights arising hereunder. ARTICLE 3 COMPENSATION AND BENEFITS 3.1 BASE SALARY. During the term of his employment hereunder, Employee shall receive a minimum annual base salary determined by the Board of Directors consistent with its practices for officers of Company, but not less than $87,500 per year, payable in accordance with the customary payroll practices of Company with respect to its officers. If Employee's base annual salary is increased at any time during the term of this Agreement, it shall not thereafter be decreased during the term of this Agreement. 3.2 BONUSES. During the term of his employment hereunder, Employee shall be eligible to participate in Company's bonus plan that the Board of Directors may have in place from time to time, but nothing in this Agreement guarantees any bonuses will be awarded to Employee. 3.3 VACATION AND SICK LEAVE, CLUB MEMBERSHIPS, ETC. During each year of his employment hereunder: (a) Employee shall be entitled to three weeks of vacation at full pay and sick leave at full pay equal to the maximum sick leave available to any officer of Company, in each case without regard to the period of service that might otherwise be necessary to entitle Employee to such vacation or sick leave under standard Company policy applicable to its officers. (b) Company shall pay or reimburse Employee for the payment of all fees and dues required to be paid by Employee with respect to Employee's membership in any one business, luncheon, athletic or country club of which Employee is currently a member as of the Effective Date of this Agreement. (c) Company shall pay, or reimburse Employee for the payment of, the cost of an annual physical examination to be conducted by a doctor of Employee's choosing, to the extent that such cost is not payable or reimbursable to Employee under any health insurance plan maintained by Company. 3.4 OTHER COMPANY BENEFITS. During his employment hereunder, Employee and, to the extent applicable, Employee's family, dependents and beneficiaries, shall be allowed to participate in all employee benefit plans and programs (including, without limitation, profit sharing, thrift, medical, health and dental care, life insurance, and disability insurance, but excluding any bonus plans and programs other than those referred to in paragraph 3.2 hereof), including improvements or modifications of the same, available to similarly-situated Company employees on or after the Effective Date, except for such benefit plans and programs 4 5 which the Board of Directors, in its sole discretion, shall adopt for select employees to compensate them for special or extenuating circumstances. 3.5 OBLIGATIONS OF COMPANY REGARDING BENEFIT PLANS. Company shall not by reason of this Article 3 be obligated to institute, maintain or refrain from changing, amending or discontinuing any incentive compensation or employee benefit plan or program, so long as such actions are applicable to covered officers of Company generally. Except to the extent specifically set forth in this Article 3 or in Article 4 hereof, nothing in this Agreement is to be construed or interpreted to provide Employee greater rights, participation, coverage or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors, none of the benefits or arrangements described in this Article 3 or in Article 4 hereof shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Company. ARTICLE 4 EFFECT OF TERMINATION ON COMPENSATION 4.1 BY EXPIRATION. Upon the termination of Employee's employment hereunder pursuant to paragraph 2.1 hereof, all compensation and all benefits to Employee hereunder shall cease and terminate as of the date of such termination. In the event of such termination, Employee shall be entitled to receive his base salary through the date of such termination. 4.2 PRIOR TO EXPIRATION. (a) If Employee's employment hereunder shall be terminated by Company pursuant to paragraph 2.2 hereof or by Employee in breach of this Agreement, all compensation and all benefits to Employee hereunder shall cease and terminate contemporaneously with such termination of employment. Employee shall be entitled to receive his base salary through the date of such termination. (b) If this Agreement is terminated by the Employee as allowed under 2.3 of the Agreement or by the Company for any reason not set forth in Paragraph 2.1 or 2.2, then (i) all compensation and all benefits to Employee hereunder shall cease and terminate contemporaneously with such termination of employment, except that all health and dental benefits available to Employee under Company's group health and dental plans as of the date of such termination shall continue to be made available to Employee at Company's expense for a period of eighteen months following such termination, excluding any Exec-U-CareTM benefits and UNUM Disability Income Policy, (ii) Employee shall be entitled to receive his base salary through the date of such termination and (iii) Employee shall be entitled to be paid a severance payment equal to one times the amount of his highest annual base salary during the term of this Agreement. 5 6 (c) As a condition to the receipt of any payment under paragraph 4.2(b) hereof, Employee shall first execute a release in the form established by Company, releasing and forever discharging Company and its affiliates and the officers, directors, employees and agents of Company and its affiliates from any and all claims and obligations and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of Employee's employment with Company (or any of its affiliates), or the termination of such employment or otherwise arising out of this Agreement. Such release shall be in form and substance satisfactory to the Company. If Employee is entitled to and receives the payments provided under paragraph 4.2(b) hereof, performance of the obligations of Company thereunder will constitute full settlement of all claims that Employee might otherwise assert against Company or its affiliates on account of the termination of the employment relationship. 4.3 DATE OF PAYMENTS. Except as otherwise agreed to by the parties hereto, any payment payable to Employee under paragraph 4.2(a) or 4.2(b) hereof (other than with respect to any health or dental benefits referred to in such paragraphs) shall be paid within 30 days after the date of termination of Employee's employment hereunder. 4.4 EFFECT OF TERMINATION ON COMPANY PLANS AND PROGRAMS. Except to the extent specifically provided in this Article 4, the provisions of this Article 4 shall not affect any rights or obligations of Company or Employee under any employee benefit plan or program. Notwithstanding the foregoing, Employee shall not be entitled to any payment that would otherwise be payable to him under any Company severance plan or policy in connection with the termination of his employment hereunder. 4.5 LIMITATION ON CHANGE OF CONTROL ACTIONS. Notwithstanding anything contrary in this Agreement, any and all payments (including any benefit or transfer of property) in the nature of compensation to or for the benefit of Employee under any arrangement which is deemed to be contingent on a change of control for purposes of section 280G of the Internal Revenue Code ("change in control actions") shall be collectively subject to an overall maximum limit. Such maximum limit shall be $1.00 less than the largest amount under which no portion of the "change of control actions" is considered a "parachute payment," within the meaning of section 280G of the Internal Revenue Code (taking into account all of the limitations, exceptions and exemptions contained therein). Accordingly, to the extent that the change of control actions would be considered a parachute payment, then the portions of such change of control actions shall be reduced or eliminated until the remaining change of control actions with respect to Employee is $1.00 less than the maximum allowable which would not be considered a parachute payment under the Internal Revenue Code. As used in this paragraph 4.5, the term "arrangement" includes any agreement between Employee and Company or any affiliate of Company and any and all of Company's and any affiliate's salary, bonus, incentive, compensation or benefit plans, programs or arrangements, and shall include this Agreement. 4.6 NO DUTY TO MITIGATE LOSSES. Employee shall have no duty to find new employment following the termination of his employment by Employee pursuant to paragraph 2.3 hereof or by Company in breach of this Agreement. Any salary, remuneration or other 6 7 amounts received by Employee from a third party for the providing of personal services (whether by employment or by functioning as an independent contractor) or which might have been received by Employee had he sought to provide such services to a third party shall not reduce Company's obligation to make any payments to Employee pursuant to paragraph 4.2(b) hereof or the amount of such payments. ARTICLE 5 CONFIDENTIAL INFORMATION 5.1 COMPANY INFORMATION. Employee acknowledges that Company's business is highly competitive and that Company's books, records and documents, Company's technical information concerning its products, equipment, services and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning Company's customers and business associates and other proprietary information, including, but not limited to, systems, procedures, manuals and data as well as financial information concerning Company's products and services (including the revenues, costs or profits associated with any such products and services), information with respect to the nature and type of Company's products and services, the equipment and methods used and preferred by Company's customers and the fees paid by such customers, all comprise confidential business information and trade secrets of Company which are valuable, special and unique assets of Company, which Company uses in its business to obtain a competitive advantage over Company's competitors which do not know or use this information. Employee further acknowledges that protection of Company's confidential business information and trade secrets against unauthorized disclosure and use is of critical importance to Company in maintaining its competitive position. Accordingly, Employee hereby agrees that he will not, at any time during or after expiration of his employment hereunder make or permit any unauthorized disclosure of any confidential business information or trade secrets of Company, or make or permit any use thereof, except for the benefit of, and on behalf of, Company. For the purposes of this Article 5, the term "Company" shall also include affiliates of Company. For purposes of this Agreement, Confidential Information shall not include (i) any information which is commonly known to the public; (ii) any information disclosed by a third party who is not subject to or in breach of any confidential obligation to the Company or (iii) any information otherwise voluntarily disclosed by the Company. 5.2 THIRD-PARTY INFORMATION. Employee acknowledges that, as a result of his employment by Company, he may from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers and the like, of Company. Employee agrees to preserve and protect the confidentiality of such third-party confidential information and trade secrets to the same extent, and on the same basis, as confidential business information and trade secrets of Company. 5.3 RETURN OF DOCUMENTS. All written or magnetic materials, records and other documents made by, or coming into the possession of, Employee during the period of his employment by Company which contain or disclose Company confidential business information or trade secrets shall be and remain the property of Company. Upon termination of Employee's 7 8 employment hereunder for any reason or upon the request of Company at any time, Employee promptly shall deliver the same, and all copies thereof, to Company. 5.4 INJUNCTIVE RELIEF. Without intending to limit the remedies available to Company and notwithstanding the provisions of paragraph 6.1 hereof, Employee acknowledges that a breach of any of the provisions of this Article 5 would likely result in material irreparable injury to Company which would not, in whole or in part, be compensable in money damages and for which Company would have no adequate remedy at law. Accordingly, Employee agrees that, in the event of such a breach or threat thereof, Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining Employee from engaging in activities prohibited by this Article 5 or such other relief as may be available to specifically enforce any of the provisions of this Article 5. ARTICLE 6 MISCELLANEOUS 6.1 ARBITRATION. Subject to the provisions of paragraph 5.4 hereof, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Dallas County, Texas in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Each party hereto shall bear his or its own costs of arbitration, but if Employee is the prevailing party in such arbitration, he shall be entitled to recover from Company as part of any award entered his reasonable expenses for attorneys' fees and disbursements. 6.2 WITHHOLDING. Company may withhold from any compensation, benefits or amounts payable under this Agreement all federal, state, city or other taxes as may be required pursuant to any law or governmental regulation or ruling. 6.3 NOTICES. For purposes of this Agreement, all notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Company, to: Cornerstone Natural Gas, Inc. 8080 North Central Expressway, Suite 1200 Dallas, Texas 75206-1815 Attention: President If to Employee, to: Kelly J. Jameson 8080 North Central Expressway, Suite 1200 Dallas, Texas 75206-1815 8 9 or to such other address as either such party may furnish to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 6.4 APPLICABLE LAW. This Agreement is entered into under, and shall be governed by, and construed and interpreted in accordance with, the laws of the State of Texas. 6.5 NO WAIVER. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.6 SEVERABILITY. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. 6.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. 6.8 HEADINGS. The paragraph headings in this Agreement have been inserted for purposes of convenience and shall not be used for interpretive purposes. 6.9 AFFILIATE. As used in this Agreement, "affiliate" shall mean any entity which, directly or indirectly, owns or controls, is owned or controlled by, or is under common ownership or control with, Company. 6.10 ASSIGNMENT. The rights and obligations of Employee hereunder are personal and no right, benefit or obligation of Employee hereunder shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or otherwise, without the prior written consent of Company. Subject to the provisions of the preceding sentence, this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, administrators, executors, successors and assigns. 6.11 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of Company, its successors and assigns, and Employee, his heirs, executors, administrators and legal representatives. As used in this Agreement, the term "successor" shall include any person, firm or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the assets or business of Company. 6.12 TERM. This Agreement has a term co-extensive with the term of employment specified in paragraph 2.1 hereof, provided that (a) except as otherwise provided herein, termination shall not affect any right or obligation of any party which is accrued or vested prior to or upon such termination and (b) the provisions of Article 5 hereof shall survive the termination of this Agreement. 9 10 6.13 ENTIRE AGREEMENT. Except as provided in (a) written policies and procedures promulgated by Company that are applicable to officers of Company, (b) the written benefit plans and programs referenced in Article 3 hereof or (c) any signed written agreements hereafter executed by Company and Employee, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the employment relationship between Company and Employee. Any modification or waiver of any provision of this Agreement will be effective only if it is in writing and signed by both of the parties hereto. IN WITNESS WHEREOF, Company and Employee have executed this Agreement effective as of the Effective Date. COMPANY CORNERSTONE NATURAL GAS, INC. By: /s/ Ray C. Davis ----------------------------------- Chairman of the Board and Chief Executive Officer EMPLOYEE By: /s/ Kelly J. Jameson ----------------------------------- Kelly J. Jameson 10 EX-10.(F) 7 AGREEMENT & PLAN OF MERGER 1 ================================================================================ AGREEMENT AND PLAN OF MERGER among EL PASO NATURAL GAS COMPANY, THE EL PASO COMPANY and CORNERSTONE NATURAL GAS, INC. Dated as of April 20, 1996 ================================================================================ 2 TABLE OF CONTENTS
Page ---- 1. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Company Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.2. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.3. Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3. Certificate of Incorporation and By-laws of the Surviving Corporation . . . . . . . . . 5 3.1. Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.2. By-laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4. Directors and Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . . 6 4.1. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.2. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5. Conversion of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5.1. Conversion of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6. Dissenting Shares; Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 7 6.1. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 6.2. Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 7. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . 10 7.1. Existence; Good Standing; Corporate Authority; Compliance With Law . . . . . . . 10 7.2. Authorization, Validity and Effect of Agreements . . . . . . . . . . . . . . . . 11 7.3. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 7.4. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 7.5. Other Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 7.6. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 7.7. Proxy Statement; Offer Documents; Schedule 14D-1; Schedule 14D-9 . . . . . . . . 13 7.8. SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.9. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.10. Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.12. Certain Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.13. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 7.14. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.15. Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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Page ---- 7.16. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.17. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8. Representations and Warranties of Parent and Merger Sub . . . . . . . . . . . . . . . . 19 8.1. Existence; Good Standing; Corporate Authority; Compliance with Law . . . . . . . 19 8.2. Authorization, Validity and Effect of Agreements . . . . . . . . . . . . . . . . 19 8.3. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8.4. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 8.5. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 8.6. Proxy Statement; Offer Documents; Schedule 14D-1; Schedule 14D-9 . . . . . . . . 20 9. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 9.1. No Solicitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . 21 9.2. Conduct of Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9.3. Board Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 9.4. Meeting of the Company's Stockholders . . . . . . . . . . . . . . . . . . . . . 25 9.5. Filings; Other Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 9.6. Inspection of Records; Access . . . . . . . . . . . . . . . . . . . . . . . . . 27 9.7. Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 9.8. Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 9.9. Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.10. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.11. Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.12. Certain Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 9.13. Headquarters of the Surviving Corporation . . . . . . . . . . . . . . . . . . . 29 10. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.1. Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . 29 10.2. Conditions to Obligation of the Company to Effect the Merger . . . . . . . . . . 30 10.3. Conditions to Obligation of Parent and Merger Sub to Effect the Merger . . . . . 30 11. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 11.1. Termination by Mutual Consent . . . . . . . . . . . . . . . . . . . . . . . . . 30 11.2. Termination by Either Parent or the Company . . . . . . . . . . . . . . . . . . 30 11.3. Termination by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 11.4. Termination by Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 11.5. Effect of Termination and Abandonment . . . . . . . . . . . . . . . . . . . . . 32 11.6. Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 12. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 12.1. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . 33
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Page ---- 12.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 12.3. Assignment; Binding Effect; Benefit . . . . . . . . . . . . . . . . . . . . . . 34 12.4. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 12.5. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 12.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 12.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 12.8. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 12.9. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 12.10. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 12.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 12.12. Enforcement of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(iii) 5 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of April 20, 1996, among El Paso Natural Gas Company, a Delaware corporation ("Parent"), The El Paso Company, a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and Cornerstone Natural Gas, Inc., a Delaware corporation (the "Company"). RECITALS A. The respective Boards of Directors of Parent, Merger Sub and the Company have each approved the acquisition of the Company on the terms and subject to the conditions set forth herein. B. In furtherance of such acquisition, Parent agrees to cause Merger Sub to make a tender offer to purchase all the issued and outstanding shares of Common Stock, par value $.10 per share, of the Company (the "Common Stock"), at a price of $6.00 per share net to the seller in cash, without interest, upon the terms and subject to the conditions set forth herein (such tender offer, as it may be amended or supplemented from time to time as permitted under this Agreement, the "Offer"); and the Board of Directors of the Company has adopted resolutions approving the Offer and recommending that the Company's stockholders accept the Offer. C. The respective Boards of Directors of Parent, Merger Sub and the Company have each approved, upon the terms and subject to the conditions set forth in this Agreement, the merger of Merger Sub with and into the Company (the "Merger"), whereby each issued and outstanding share of Common Stock not owned directly or indirectly by Parent or the Company, except shares of Common Stock held by persons who object to the Merger and comply with all provisions of Delaware law concerning the right of stockholders to dissent from the Merger and require appraisal of their shares of Common Stock, will be converted into the right to receive the per share consideration paid pursuant to the Offer. D. The Company has received a fairness opinion relating to the transactions contemplated hereby as more fully described herein. E. Parent and Merger Sub have required, as a condition to entering into this Agreement, that, simultaneously with the execution and delivery of this Agreement, certain holders of shares of Common Stock, stock options or warrants of the Company enter into an agreement (the "Option Agreement") with Parent and Merger Sub. Pursuant 6 to the Option Agreement, such holders have agreed to tender their shares of Common Stock in the Offer and have granted to Merger Sub an option to purchase their shares of Common Stock, stock options and warrants upon the terms and subject to the conditions set forth therein. F. Parent, Merger Sub and the Company desire to make certain representations, warranties and agreements in connection with the Offer and the Merger. NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE 1 1. The Offer. 1.1. The Offer. (a) Subject to the provisions of this Agreement, as promptly as practicable (but in no event later than five business days after the date of this Agreement), Merger Sub shall, and Parent shall cause Merger Sub to, commence, within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Offer at a cash price of $6.00 per share, net to the seller in cash, without interest. The obligation of Merger Sub to, and of Parent to cause Merger Sub to, consummate the Offer and accept for payment and pay for any shares of Common Stock tendered shall be subject to the satisfaction of the conditions set forth in Annex I and to the terms and conditions of this Agreement. (b) On the date of commencement of the Offer, Parent and Merger Sub shall file with the Securities and Exchange Commission (the "SEC") with respect to the Offer a Tender Offer Statement on Schedule l4D-l (as amended and supplemented from time to time, the "Schedule 14D-1"), which shall comply in all material respects with the provisions of applicable federal securities laws, and shall contain the offer to purchase relating to the Offer and the form of the related letter of transmittal (which documents, as amended or supplemented from time to time, are referred to collectively as the "Offer Documents"). Parent shall deliver copies of the proposed forms of the Schedule 14D-1 and the Offer Documents to the Company within a reasonable time prior to the commencement of the Offer for review and comment by the Company and its counsel (who shall provide any comments thereon as soon as practicable). Parent agrees to provide in writing to the Company and its counsel, promptly after receipt thereof, any comments that either Parent, Merger Sub or their counsel may receive from the SEC or its staff with respect to the Schedule 14D-1 or the Offer Documents. Parent and Merger Sub shall promptly correct any information in the Schedule l4D-l or the Offer Documents that shall become false or misleading in any material respect, and shall take all steps necessary 2 7 to cause the Schedule 14D-1 or the Offer Documents as so corrected to be filed with the SEC and disseminated to the stockholders of the Company as and to the extent required by applicable laws. (c) The Offer shall initially expire 20 business days after the date of its commencement, unless this Agreement is terminated in accordance with Article 11, in which case the Offer (whether or not previously extended in accordance with the terms hereof) shall expire on such date of termination. Neither Parent nor Merger Sub shall, without the prior written consent of the Company, decrease the price per share of Common Stock payable in the Offer, change the form of consideration payable in the Offer, decrease the number of shares of Common Stock sought pursuant to the Offer, change or impose additional conditions to the Offer or otherwise amend the Offer in any manner adverse to the Company's stockholders. Notwithstanding the foregoing, Merger Sub may, without the consent of the Company, extend the Offer (i) if at the then scheduled expiration date of the Offer any of the conditions to Merger Sub's obligation to accept for payment and pay for shares of Common Stock shall not be satisfied or waived, until such time as such conditions are satisfied or waived; (ii) for an aggregate period of not more than ten business days beyond the initial expiration date of the Offer if all conditions have been satisfied but less than 90% of the outstanding shares of Common Stock have been validly tendered and not withdrawn (not including shares covered by notices of guaranteed delivery); and (iii) for any period required by any rule, regulation, interpretation or position of the SEC or the staff applicable to the Offer. Assuming the prior satisfaction or waiver of the conditions of the Offer and subject to clauses (ii) and (iii) of the preceding sentence, Merger Sub shall, and Parent shall cause Merger Sub to, accept for payment and pay for shares of Common Stock validly tendered and not withdrawn pursuant to the Offer as soon as legally permitted after the commencement thereof. (d) Parent shall provide or cause to be provided to Merger Sub on a timely basis the funds necessary to purchase any shares of Common Stock that Merger Sub becomes obligated to purchase pursuant to the Offer and shall be liable on a direct and primary basis for the performance by Merger Sub of its obligations under this Agreement. 1.2 Company Actions. (a) The Company hereby approves of and consents to the Offer and represents that (i) the Board of Directors of the Company, at a meeting duly called and held, has adopted resolutions (A) determining that this Agreement and the terms of each of the Offer and the Merger are fair to and in the best interests of the Company and its stockholders, (B) approving the Offer, the Merger, this Agreement and the transactions contemplated by the Option Agreement and acknowledging that such approval is effective for purposes of Section 203 of the Delaware General Corporation Law (the "DGCL") and Article Eleventh of the Company's 3 8 Restated Certificate of Incorporation and (C) recommending acceptance of the Offer and approval of the Merger and this Agreement by the Company's stockholders and (ii) Salomon Brothers, Inc. has delivered to the Board of Directors of the Company its opinion that the proposed consideration to be received by the Company's stockholders pursuant to the Offer and the Merger is fair to such stockholders from a financial point of view. The Company hereby consents to the inclusion in the Offer Documents of the recommendation of the Board of Directors of the Company described in the first sentence of this Section 1.2(a) and Salomon Brothers, Inc. has consented to inclusion of its opinion in the Offer Documents. (b) The Company shall file with the SEC on the date of commencement of the Offer a Solicitation/Recommendation Statement on Schedule 14D-9 (as amended and supplemented from time to time, the "Schedule 14D-9") containing such recommendations of the Board of Directors of the Company with respect to the Offer and the Merger and shall disseminate the Schedule 14D-9 to stockholders of the Company as required by Rule 14d-9 promulgated under the Exchange Act. The Schedule 14D-9 shall comply in all material respects with the provisions of applicable federal securities laws. The Company shall deliver copies of the proposed form of the Schedule 14D-9 to Parent within a reasonable time prior to the filing thereof with the SEC for review and comment by Parent and its counsel (who shall provide any comments thereon as soon as practicable). The Company agrees to provide in writing to Parent and its counsel, promptly after receipt thereof, any comments that the Company or its counsel may receive from the SEC or its staff with respect to the Schedule l4D-9. The Company shall promptly correct any information in the Schedule l4D-9 that shall become false or misleading in any material respect, and shall take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to the stockholders of the Company as and to the extent required by applicable laws. (c) In connection with the Offer, the Company shall promptly furnish Parent with (or cause Parent to be furnished with) mailing labels, security position listings and any available listing or computer file containing the names and addresses of the record holders of the shares of Common Stock as of a recent date, and of those persons becoming record holders after such date, and shall furnish Parent with such information and assistance as Parent or its agents may reasonably request in communicating the Offer to the stockholders of the Company. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Parent and Merger Sub shall, and shall cause each of their affiliates to, hold in confidence the information contained in any of such labels, listings and files, use such information only in connection with the Offer and the Merger, and, if this Agreement is terminated, deliver to the Company all copies of such information or extracts therefrom then in their possession or under their control. 4 9 ARTICLE 2 2. The Merger. 2.1. The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 2.3), Merger Sub shall be merged with and into the Company in accordance with this Agreement and the separate corporate existence of Merger Sub shall thereupon cease. The Company shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the "Surviving Corporation"). The Merger shall have the effects specified in the DGCL. 2.2. The Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the "Closing") shall take place at the offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York, at 9:00 a.m., local time, on the first business day immediately following the day on which the last to be fulfilled or waived of the conditions set forth in Article 10 shall be fulfilled or waived in accordance herewith, or at such other time, date or place as Parent and the Company may agree. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." 2.3. Effective Time. If all the conditions to the Merger set forth in Article 10 shall have been fulfilled or waived in accordance herewith and this Agreement shall not have been terminated as provided in Article 11, the parties hereto shall cause a Certificate of Merger meeting the requirements of Sections 103 and 251 of the DGCL to be properly executed and filed in accordance with such Sections on the Closing Date. The Merger shall become effective at the time of filing of the Certificate of Merger with the Secretary of State of the State of Delaware in accordance with the DGCL or at such later time which the parties hereto shall have agreed upon and designated in such filing as the effective time of the Merger (the "Effective Time"). ARTICLE 3 3. Certificate of Incorporation and By-laws of the Surviving Corporation. 3.1. Certificate of Incorporation. The Certificate of Incorporation of the Surviving Corporation shall be identical to the Certificate of Incorporation of Merger Sub, except that the name of the Surviving Corporation shall be "Cornerstone Natural Gas, Inc." and except as provided in Section 9.11. At the Effective Time, the parties hereto shall take all necessary action to cause the Certificate of Incorporation of the Surviving Corporation to be amended to read as provided in the preceding sentence. 5 10 3.2. By-laws. The By-laws of Merger Sub in effect immediately prior to the Effective Time shall be the By-laws of the Surviving Corporation, until duly amended in accordance with applicable law. ARTICLE 4 4. Directors and Officers of the Surviving Corporation. 4.1. Directors. The directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation as of the Effective Time. 4.2. Officers. The officers of the Company immediately prior to the Effective Time (other than those who have elected not to continue their employment) shall be the officers of the Surviving Corporation as of the Effective Time. ARTICLE 5 5. Conversion of Company Stock. 5.1. Conversion of Company Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any of the following securities: (a) each share of Common Stock held by the Company or any subsidiary of the Company as treasury stock and each issued and outstanding share of Common Stock owned by Parent, Merger Sub or any other subsidiary of Parent shall be cancelled and retired and shall cease to exist, and no payment or consideration shall be made with respect thereto; (b) each issued and outstanding share of Common Stock, other than (i) shares of Common Stock referred to in paragraph (a) above and (ii) Dissenting Shares (as defined in Section 6.1) shall be converted into the right to receive from the Surviving Corporation an amount in cash, without interest, equal to the price per share of Common Stock paid pursuant to the Offer (the "Merger Consideration"). At the Effective Time, all such shares of Common Stock shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Common Stock shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest; (c) each issued and outstanding share of capital stock of Merger Sub shall be converted into one fully paid and nonassessable share of common stock, par value $.10, of the Surviving Corporation; and 6 11 (d) Immediately prior to the Effective Time, except as described in the second succeeding sentence, all options (individually, an "Option" and collectively, the "Options") then outstanding under the Company's 1993 Long Term Incentive Compensation Plan or any other incentive compensation or stock option plan of the Company (the "Option Plans") and all warrants listed on Schedule 5.1(d) attached hereto (the "Warrants"), whether or not then exercisable, shall be canceled and each holder of an Option or Warrant will be entitled to receive from the Company, for each share of Common Stock subject to an Option or Warrant, an amount in cash equal to the excess, if any, of the Merger Consideration over the per share exercise price of such Option or Warrant. The Company will use its reasonable best efforts to obtain any necessary consents from holders of Options or Warrants to the cancellation and payment provided for in this Section 5.1(d). At the Effective Time, the Company's obligations with respect to each outstanding Option set forth on Schedule 5.1(d) shall be assumed by Parent. The Options assumed by Parent shall continue to have, and be subject to, the same terms and conditions set forth in the Option Plans and agreements pursuant to which such Options were issued as in effect immediately prior to the Effective Time, except that (a) such Options shall be exercisable for that number of whole shares of common stock, $.10 par value, of Parent ("Parent Shares"), equal to the product of the number of shares of Common Stock covered by the Option immediately prior to the Effective Time multiplied by the quotient (the "Exchange Ratio") determined by dividing the purchase price paid pursuant to the Offer by the average closing price of Parent Shares for the ten trading days preceding the Effective Time, rounded up to the nearest whole number of Parent Shares, (b) the per share exercise price for the Parent Shares issuable upon the exercise of such assumed Option shall be equal to the quotient determined by dividing the exercise price per share specified for such Option under the applicable Option Plan immediately prior to the Effective Time by the Exchange Ratio, rounding the resulting exercise price down to the nearest whole cent and (c) all of the Options listed in Schedule 5.1(d) shall be deemed vested automatically.. The date of grant shall be the date on which the Option was originally granted. Parent shall (i) reserve for issuance the number of Parent Shares that will become issuable upon the exercise of such Options pursuant to this Section 5.1(d) and (ii) at the Effective Time, execute a document evidencing the assumption by Parent of the Company's obligations with respect thereto under this Section 5.1(d). As soon as practicable after the Effective Time, Parent shall file a registration statement on Form S-8 (or any successor form), or another appropriate form with respect to the Parent Shares subject to such options and shall use its best efforts to maintain the effectiveness of such registration statement (and maintain the current status of the prospectus contained therein) for so long as such options remain outstanding. From and after the date of this Agreement, no additional Options shall be granted by the Company or its Subsidiaries (as defined in Section 12.9 hereof) under the Option Plans or otherwise. 7 12 ARTICLE 6 6. Dissenting Shares; Exchange of Shares 6.1. Dissenting Shares. (a) Notwithstanding anything in this Agreement to the contrary, shares of Common Stock which are held by any record holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal rights in accordance with Section 262 of the DGCL (the "Dissenting Shares") shall not be converted into the right to receive the Merger Consideration but shall become the right to receive such consideration as may be determined to be due in respect of such Dissenting Shares pursuant to the DGCL; provided, however, that any holder of Dissenting Shares who shall have failed to perfect or shall have withdrawn or lost such holder's rights to appraisal of such Dissenting Shares, in each case under the DGCL, shall forfeit the right to appraisal of such Dissenting Shares, and such Dissenting Shares shall be deemed to have been converted into the right to receive, as of the Effective Time, the Merger Consideration without interest. Notwithstanding anything to the contrary contained in this Section 6.1, if (i) the Merger is rescinded or abandoned or (ii) if the stockholders of the Company revoke the authority to effect the Merger, then the right of any stockholder to be paid the fair value of such stockholder's Dissenting Shares pursuant to Section 262 of the DGCL shall cease. The Surviving Corporation shall comply with all of its obligations under the DGCL with respect to holders of Dissenting Shares. (b) The Company shall give Parent (i) prompt notice of any demands for appraisal, and any withdrawals of such demands, received by the Company and any other related instruments served pursuant to the DGCL and received by the Company, and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the DGCL. The Company shall not, except with the prior written consent of Parent, make any payment with respect to any demands for appraisal or offer to settle or settle any such demands. 6.2. Exchange of Certificates. (a) Prior to the Effective Time, Parent shall appoint a bank or trust company to act as paying agent hereunder, which shall be The First National Bank of Boston, or such other entity as Parent and the Company may mutually select (the "Paying Agent") for the payment of the Merger Consideration upon surrender of certificates formerly representing shares of Common Stock (the "Certificates"). All of the fees and expenses of the Paying Agent shall be borne by Parent. (b) On the Closing Date, Parent shall take all steps necessary to enable and cause the Surviving Corporation to provide the Paying Agent with cash in amounts necessary to pay the Merger Consideration, when and as such amounts are needed by the Paying Agent (the "Exchange Fund"). 8 13 (c) As soon as reasonably practicable after the Effective Time, the Paying Agent shall mail to each holder of record of Common Stock immediately prior to the Effective Time (excluding any shares of Common Stock which will be canceled pursuant to Section 5.1(a) and any Dissenting Shares) (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of such Certificates to the Paying Agent and shall be in such form and have such other provisions as Parent shall reasonably specify) and (ii) instructions for the use thereof in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by the Surviving Corporation, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor a bank check in the amount of cash into which the shares of Common Stock theretofore represented by such Certificate shall have been converted pursuant to Section 5.1, and the Certificates so surrendered shall forthwith be canceled. No interest will be paid or will accrue on the cash payable upon the surrender of any Certificate. If payment is to be made to a person other than the person in whose name the Certificate so surrendered is registered, it shall be a condition of payment that such Certificate shall be properly endorsed or otherwise in proper form for transfer and, that the person requesting such payment shall pay any transfer or other taxes required by reason of the transfer of such Certificate or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 6.2, each Certificate (other than Certificates representing Dissenting Shares and Certificates representing any shares of Common Stock to be canceled as set forth in Section 5.1(a) shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the amount of cash, without interest, into which the shares of Common Stock theretofore represented by such Certificate shall have been converted pursuant to Section 5.1. (d) Parent shall have the right to make additional rules, not inconsistent with the terms of this Agreement, governing the payment of cash for shares of Common Stock converted into the right to receive the Merger Consideration. (e) At or after the Effective Time, there shall be no transfers on the stock transfer books of the Company of the shares of Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Article 6. (f) Any portion of the Exchange Fund (including the proceeds of any investments thereof) that remains unclaimed by the former stockholders of the Company 9 14 two (2) years after the Effective Time shall be delivered to the Surviving Corporation. Any former stockholders of the Company who have not theretofore complied with this Article 6 shall thereafter look only to the Surviving Corporation and Parent for payment of the Merger Consideration deliverable in respect of each share of Common Stock such stockholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. (g) None of Parent, the Surviving Corporation, the Paying Agent or any other person shall be liable to any former holder of shares of Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. (h) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration, deliverable in respect thereof pursuant to this Agreement. ARTICLE 7 7. Representations and Warranties of the Company. Except as set forth in the disclosure letter delivered by or on behalf of the Company to Parent and Merger Sub at or prior to the execution of this Agreement (the "Company Disclosure Letter"), the Company represents and warrants to Parent and Merger Sub as follows: 7.1. Existence; Good Standing; Corporate Authority; Compliance With Law. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware. The Company is duly licensed or qualified to do business as a foreign corporation and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the financial condition, operations, assets, liabilities or results of operations of the Company and its Subsidiaries taken as a whole (a "Company Material Adverse Effect"). The Company has all requisite corporate power and authority to own, operate and lease its properties and carry on its business as now conducted. Each of the Company's Subsidiaries is either (i) a corporation or limited liability company duly organized, validly 10 15 existing and in good standing under the laws of its respective jurisdiction of incorporation or organization, or (ii) a partnership duly formed and validly existing under the laws of its respective jurisdiction of formation. Each of the Company's Subsidiaries has the requisite power and authority to own its properties and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not have a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in violation of any order of any court, governmental authority or arbitration board or tribunal, or any law, ordinance, governmental rule or regulation to which the Company or any of its Subsidiaries or any of their respective properties or assets is subject, except where such violation, individually or in the aggregate, is not and would not reasonably be expected to have a Company Material Adverse Effect. The Company and its Subsidiaries have obtained all licenses, permits and other authorizations and have taken all actions required by applicable law or governmental regulations in connection with their business as now conducted, where the failure to obtain any such item or to take any such action, individually or in the aggregate, is or would reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries is an "electric utility company" or "gas utility company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. The copies of the Company's Restated Certificate of Incorporation and By-laws previously delivered to Parent are true and correct. 7.2. Authorization, Validity and Effect of Agreements. The Company has the requisite corporate power and authority to execute and deliver this Agreement and all agreements and documents contemplated hereby. Subject only to the approval of the Merger by the holders of a majority of the outstanding shares of Common Stock, the consummation by the Company of the transactions contemplated hereby has been duly authorized by all requisite corporate action. The Board of Directors has approved the transactions contemplated by each of this Agreement, the Merger and the Option Agreement for the purposes of Section 203 of the DGCL and Article Eleventh of the Company's Restated Certificate of Incorporation. This Agreement constitutes, and all agreements and documents contemplated hereby (when executed and delivered pursuant hereto for value received) will constitute, the valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. 7.3. Capitalization. The authorized capital stock of the Company consists of 25,000,000 shares of Common Stock, and 5,000,000 shares of preferred stock, par value $.10 per share (the "Preferred Stock"). As of April 1, 1996, there were 12,515,959 shares of Common Stock issued and outstanding and no shares of Preferred Stock issued 11 16 and outstanding. Since such date, no additional shares of capital stock of the Company have been issued. The Company has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or, except for Warrants and the Options, which are convertible into, exchangeable for or exercisable for securities having the right to vote) with the stockholders of the Company on any matter. All such issued and outstanding shares of Common Stock are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. Other than as contemplated by this Agreement, there are no options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate the Company or any of its Subsidiaries to issue, transfer or sell any shares of capital stock of the Company or any of its Subsidiaries or any securities exercisable for, exchangeable for or convertible into such capital stock. After the Effective Time, the Surviving Corporation will have no obligation to issue, transfer or sell any shares of capital stock of the Company or the Surviving Corporation pursuant to any Company Benefit Plan (as defined in Section 7.11). 7.4. Subsidiaries. The Company owns directly or indirectly each of the outstanding shares of capital stock or other equity or ownership interests of each of its Subsidiaries. Each of the outstanding shares of capital stock or other equity or ownership interests of each of the Company's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and is owned, directly or indirectly, by the Company free and clear of all liens, pledges, security interests, claims or other encumbrances other than liens imposed by local law which would not have a Company Material Adverse Effect. The following information for each Subsidiary of the Company has been previously provided to Parent, if applicable: (i) its name and jurisdiction of incorporation or organization; (ii) its authorized capital stock or other equity or ownership interests; and (iii) the number of issued and outstanding shares of capital stock or other equity or ownership interests. 7.5. Other Interests. Except for interests in its Subsidiaries, neither the Company nor any of its Subsidiaries owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity. 7.6. No Violation. Neither the execution and delivery by the Company of this Agreement nor the consummation by the Company of the transactions contemplated hereby in accordance with the terms hereof will: (i) conflict with or result in a breach of any provisions of the Restated Certificate of Incorporation or By-laws of the Company; (ii) except as disclosed in the Company Reports (as defined in Section 7.7), result in a breach or violation of, a default under, or the triggering of any payment or other material obligations pursuant to any of the Option Plans, or any grant or award made under any of the foregoing, provided, however, that the consummation of the Offer and the Merger will result in the acceleration of vesting of Options under the Option Plans; (iii) violate, or 12 17 conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the triggering of any payments or obligations under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the material properties of the Company or its Subsidiaries under, or result in being declared void, voidable, or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any material license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation (collectively, "Contracts") to which the Company or any of its Subsidiaries is a party, or by which the Company or any of its Subsidiaries or any of their properties is bound or affected, except for any of the foregoing matters which, individually or in the aggregate, are not and would not reasonably be expected to have a Company Material Adverse Effect; or (iv) other than the filings provided for in Article 2, certain federal, state and local regulatory filings, filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the Exchange Act, the Securities Act of 1933, as amended (the "Securities Act"), or applicable state securities and "Blue Sky" laws or filings in connection with the maintenance of qualification to do business in other jurisdictions (collectively, the "Regulatory Filings"), require any consent, approval or authorization of, or declaration, filing or registration with, any domestic governmental or regulatory authority, the failure to obtain or make which would have a Company Material Adverse Effect. There are no Contracts which the Company or any of its Subsidiaries is a party or by which any of them is bound pursuant to which any rights or obligations will be triggered or affected by any stockholder, director, officer or employee of the Company or any of its Subsidiaries ceasing to be a stockholder, director, officer or employee. Each of the Contracts listed on Schedule 7.6 to the Company Disclosure Schedule is a valid and binding Contract, enforceable in accordance with its terms, is in full force and effect and no event has occurred which constitutes a default (or, with notice or lapse of time or both would constitute a default) under, or result in the termination of or in a right of termination or cancellation of, or result in being declared void, voidable or without further binding effect, any of the terms, conditions or provisions of such Contract. 7.7. Proxy Statement; Offer Documents; Schedule 14D-1; Schedule 14D-9. (a) The Schedule 14D-9 will not, at the time filed with the SEC, and, as such Schedule 14D-9 may have been amended, upon expiration of the Offer, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by the Company with respect to information supplied by Parent or Merger Sub in writing specifically for inclusion in the Schedule 14D-9. 13 18 (b) The Proxy Statement and the information supplied by the Company in writing specifically for inclusion or incorporation by reference in the Schedule 14D-1 and the Offer Documents will not, in the case of the Schedule 14D-1 and the Offer Documents, at the time filed with the SEC and, as such documents may have been amended from time to time, upon expiration of the Offer or, in the case of the Proxy Statement, at the time it is mailed, at the time of the special meeting of the stockholders of the Company to approve the Merger (the "Meeting") or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by the Company with respect to information supplied by Parent or Merger Sub in writing specifically for inclusion or incorporation by reference in the Proxy Statement. The letter to the stockholders, notice of meeting, proxy statement and form of proxy, or the information statement, as the case may be, if any, distributed to the stockholders of the Company in connection with the Option and Merger, or any schedule required to be filed with the SEC in connection therewith, are collectively referred to as the "Proxy Statement." If, prior to the Effective Time, any event relating to the Company or its Subsidiaries or any of their affiliates, officers or directors is discovered by the Company that should be set forth in an amendment of or supplement to the Schedule 14D-1 or the Offer Documents, the Company will promptly inform Parent. 7.8. SEC Documents. The Company has delivered to Parent each registration statement, report, proxy statement or information statement prepared by it since December 31, 1994, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "Company Reports"). As of their respective dates, the Company Reports (i) were prepared in all material respects in accordance with the applicable requirements of the Securities Act, the Exchange Act, and the respective rules and regulations thereunder and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each of the consolidated balance sheets of the Company included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presents the consolidated financial position of the Company and the Company's Subsidiaries as of its date and each of the consolidated statements of income, retained earnings and cash flows of the Company included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings or cash flows, as the case may be, of the Company and its Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted 14 19 therein. Except as and to the extent set forth on the consolidated balance sheet of the Company and its Subsidiaries at December 31, 1995, including all notes thereto, or as set forth in the Company Reports, neither the Company nor any of its Subsidiaries has any material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise), except liabilities arising in the ordinary course of business since such date. The Company and its Subsidiaries have no obligations under any earnout or deferred payment provisions of any agreement relating to the acquisition of stock or assets of any person. 7.9. Litigation. Except as disclosed in the Company Reports filed with the SEC prior to the date of this Agreement, there are no actions, suits or proceedings pending against the Company or any of its Subsidiaries or, to the actual knowledge of the executive officers of the Company, threatened against the Company or any of its Subsidiaries, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, that, individually or in the aggregate, are or would reasonably be expected to have a Company Material Adverse Effect. 7.10. Absence of Certain Changes. Except as disclosed in the Company Reports filed with the SEC prior to the date of this Agreement, since December 31, 1995, the Company has conducted its business only in the ordinary course of such business consistent with past practice and there has not been (i) any adverse change in the financial condition, operations, assets, liabilities or results of operations of the Company and its Subsidiaries which has or is reasonably likely to have a Company Material Adverse Effect, (ii) any declaration, setting aside or payment of any dividend or other distribution with respect to its capital stock or any redemption or repurchase of any shares of its capital stock, (iii) any material change in its accounting principles, practices or methods, (iv) any increase in the salaries or other compensation payable to any officer, director or employee of the Company or any of its Subsidiaries (except for normal increases in the ordinary course of business consistent with past practice) or any increase in, or addition to, other benefits to which any officer, director or employee may be entitled (except as required by the terms of plans as in effect on the date of this Agreement or as required by law), (v) any incurrence of indebtedness for borrowed money (except in the ordinary course of business consistent with past practice), (vi) any material adverse change or threat of a material adverse change in the Company's or any of its Subsidiaries' relations with, or any loss or threat of loss of, any of the Company's important suppliers or customers, the loss of which is material to the Company and its Subsidiaries taken as a whole, (vii) any termination, cancellation or waiver of any contract or other right material to the operation of the business of the Company and its Subsidiaries taken as a whole or (viii) any material damage, destruction or loss, whether or not covered by insurance, adversely affecting the properties, business or prospects of the Company and its Subsidiaries taken as a whole, or any deterioration in the operating condition of the assets 15 20 of the Company and its Subsidiaries which would have a Company Material Adverse Effect. 7.11. Taxes. The Company and each of its Subsidiaries (i) have timely filed all material federal, state and foreign tax returns required to be filed by any of them for tax years ended prior to the date of this Agreement or requests for extensions have been timely filed and any such request shall have been granted and not expired and all such returns are complete in all material respects, (ii) have paid or accrued all taxes that may be due and payable with respect to such returns, (iii) have properly accrued in all material respects all such taxes for such periods subsequent to the periods covered by such returns, and (iv) have "open" years for federal income tax returns only as set forth in the Company Reports. There is no tax examination, investigation, audit, claim or assessment pending or, to the knowledge of the executives of the Company, threatened, which would or would reasonably be expected to have a Company Material Adverse Effect. 7.12. Certain Employee Plans. (a) Each employee benefit or compensation plan or arrangement, including each "employee benefit plan," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") maintained by the Company or any of its Subsidiaries (the "Company Benefit Plans") complies, and has been administered, in all material respects in accordance with all applicable requirements of law, and no "reportable event" or "prohibited transaction" (as such terms are defined in ERISA) or termination has occurred with respect to any Company Benefit Plan under circumstances which present a risk of liability by the Company or any of its Subsidiaries to any governmental entity or other person, including a Company Benefit Plan, which liability would have a Company Material Adverse Effect. The Company Benefit Plans are listed on Schedule 7.11(a) and copies or descriptions of all material Company Benefit Plans have previously been provided to Parent. (b) Each Company Benefit Plan intended to qualify under Section 401(a) of the Code is so qualified and a determination letter has been issued by the Internal Revenue Service ("IRS") with respect to the qualification of each Company Benefit Plan and no circumstances exist which would adversely affect such qualification. Each Company Benefit Plan which is subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code has been maintained in compliance with the minimum funding standards of ERISA and the Code and no such Company Benefit Plan has incurred any "accumulated funding deficiency" (as defined in Section 412 of the Code and Section 302 of ERISA), whether or not waived. Neither the Company nor any of its Subsidiaries has sought or received a waiver of its minimum funding requirements with respect to any Company Benefit Plan. Neither the Company nor any of its Subsidiaries has incurred, nor reasonably expects to incur, any liability in respect of any Company Benefit Plan under Title IV of ERISA (other than with respect to the payment of premiums), which 16 21 liability would have a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries has incurred any material withdrawal liability under any "multiemployer plan" within the meaning of Section 3(37) of ERISA which has not been satisfied in full nor do any of them reasonably expect to incur such liability. (c) Except as required by applicable law or as set forth on Schedule 7.11(c), neither the Company nor any of its Subsidiaries provides any health, welfare or life insurance benefits to any of their former or retired employees. (d) Except as disclosed on Schedule 7.11(d), no payment or benefit which will or may be made by the Company or any of its Subsidiaries will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. 7.13. Labor Matters. Neither the Company nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the actual knowledge of the executive officers of the Company, threatened against the Company or its Subsidiaries relating to their business, except for any such proceeding which, individually or in the aggregate, is not and would not reasonably be expected to be material to the Company and its Subsidiaries taken as a whole. To the actual knowledge of the executive officers of the Company, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of the Company or any of its Subsidiaries. 7.14. No Brokers. The Company has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of the Company or Parent to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, except that the Company has retained Salomon Brothers, Inc., the arrangements with which have been disclosed in writing to Parent prior to the date hereof. Other than the foregoing arrangements, the Company is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 7.15. Fairness Opinion. The Company has received the opinion of Salomon Brothers, Inc., to the effect that, as of the date of this Agreement, the terms of the Offer and the Merger are fair from a financial point of view to the holders of Common Stock. 17 22 7.16. Environmental Matters. (a) For the purposes of this Agreement: "Environmental Matters" means any matter arising out of, relating to or resulting from pollution, protection of the environment and human health or safety, health or safety of employees, sanitation, and any matters relating to emissions, discharges, releases or threatened releases of Hazardous Materials or otherwise arising out of, resulting from or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. "Environmental Costs" means, without limitation, any actual or potential cleanup costs, remediation, removal, or other response costs, investigation costs, losses, liabilities or obligations, payments, damages, civil or criminal fines or penalties, judgments, and amounts paid in settlement arising out of or relating to or resulting from any Environmental Matter. "Environmental Laws" means, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Sections 11001 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Sections 136 et seq., the Clean Air Act, 42 U.S.C. Sections 7401 et seq., the Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C. Sections 1251 et seq., the Safe Drinking Water Act, 42 U.S.C. Sections 300f et seq., the Occupational Safety and Health Act, 29 U.S.C. Sections 641 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 et seq., as any of the above statutes have been or may be amended from time to time, all rules and regulations promulgated pursuant to any of the above statutes, and any other foreign, federal, state or local law, statute, ordinance, rule or regulation governing Environmental Matters, as the same have been or may be amended from time to time, including any common law cause of action providing any right or remedy with respect to Environmental Matters, and all applicable judicial and administrative decisions, orders, and decrees relating to Environmental Matters. "Hazardous Materials" means any pollutants, contaminants, or hazardous or toxic substances, materials, wastes, constituents or chemicals that are regulated by, or form the basis for liability under, any Environmental Laws. (b) (i) To the best knowledge of the management of the Company, without due inquiry, the Company and each of its Subsidiaries is in compliance in all material respects with all applicable Environmental Laws. 18 23 (ii) The Company and each of its Subsidiaries has obtained, and is in compliance in all material respects with, all permits, licenses, authorizations, registrations and other governmental consents ("Environmental Permits") required to be obtained by it by applicable Environmental Laws for the use, storage, treatment, transportation, release, emission and disposal of raw materials, by-products, wastes and other substances used or produced by or otherwise relating to its business. (iii) All such Environmental Permits are in all material respects in full force and effect, and the Company and each of its Subsidiaries has made all appropriate filings for issuance or renewal of such Environmental Permits. (iv) There are no Hazardous Materials in amounts required to be remediated under applicable Environmental Laws at, on, under or within any real property owned, leased or occupied by the Company or any of its Subsidiaries. (v) There are no material claims, notices, civil, criminal or administrative actions, suits, hearings, investigations, inquiries or proceedings pending or threatened that are based on or related to any Environmental Matters or the failure to have any required Environmental Permits. (vi) Neither the Company nor any of its Subsidiaries has used any waste disposal site, or otherwise disposed of, transported, or arranged for the transportation of, any Hazardous Materials to any place or location, in violation of any Environmental Laws. (vii) There are no underground storage tanks or surface impoundments at, on, under or within any of real property owned, leased or occupied by the Company or any of its Subsidiaries, or any portion thereof. (viii) None of the Company or its Subsidiaries has received any notice asserting that it may be a potentially responsible party at any waste disposal site or other location used for the disposal of any Hazardous Materials. 7.17. Related Party Transactions. There are no contracts, arrangements or transactions in effect between the Company or any of its Subsidiaries, on the one hand, and any officer, director or 5% stockholder of the Company, or any affiliate or immediate family member of any of the foregoing persons, on the other hand, except as set forth in the Company Disclosure Letter. ARTICLE 8 8. Representations and Warranties of Parent and Merger Sub. Parent and Merger Sub represent and warrant to the Company as follows: 19 24 8.1. Existence; Good Standing; Corporate Authority; Compliance with Law. Each of Parent and Merger Sub is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. Parent has all requisite corporate power and authority to own, operate and lease its properties and carry on its business as now conducted. 8.2. Authorization, Validity and Effect of Agreements. Each of Parent and Merger Sub has the requisite corporate power and authority to execute and deliver this Agreement and all agreements and documents contemplated hereby. The consummation by Parent and Merger Sub of the transactions contemplated hereby has been duly authorized by all requisite corporate action. This Agreement constitutes, and all agreements and documents contemplated hereby (when executed and delivered pursuant hereto for value received) will constitute, the valid and legally binding obligations of Parent and Merger Sub, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. 8.3. No Violation. Neither the execution and delivery by Parent and Merger Sub of this Agreement, nor the consummation by Parent and Merger Sub of the transactions contemplated hereby in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of the Certificate of Incorporation or By-laws of Parent or Merger Sub; (ii) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or encumbrance upon any of the material properties of Parent or its Subsidiaries under, or result in being declared void, voidable, or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any material license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which Parent or any of its Subsidiaries is a party, or by which Parent or any of its Subsidiaries or any of their properties is bound or affected, except for any of the foregoing matters which would not reasonable be expected to have a material adverse effect on the ability of Parent and Merger Sub to consummate the transactions contemplated hereby (a "Parent Material Adverse Effect"); or (iii) other than the Regulatory Filings, require any material consent, approval or authorization of, or declaration, filing or registration with, any domestic governmental or regulatory authority, the failure to obtain or make which would have a Parent Material Adverse Effect. 8.4. No Brokers. Neither Parent nor any of its Subsidiaries has entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of the Company or Parent to pay any finder's fees, brokerage or agent's 20 25 commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, except that Parent has retained Rodman & Renshaw, Inc. Other than the foregoing arrangements, Parent is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 8.5. Financing. Parent and Merger Sub have and will have sufficient funds to enable them to consummate the Offer and the Merger on the terms contemplated by this Agreement. 8.6. Proxy Statement; Offer Documents; Schedule 14D-1; Schedule 14D-9. (a) The Schedule 14D-1 and the Offer Documents will not, in the case of the Schedule 14D-1, at the time filed with the SEC, and, in the case of the Offer Documents, when first published, sent or given to the stockholders of the Company and, as such documents may have been amended, upon expiration of the Offer, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by Parent or Merger Sub with respect to information supplied by the Company in writing specifically for inclusion in the Schedule 14D-1 or the Offer Documents. (b) None of the information supplied by Parent, Merger Sub and their respective affiliates in writing specifically for inclusion or incorporation by reference in the Schedule 14D-9 and/or the Proxy Statement will, in the case of the Schedule 14D-9, at the time filed with the SEC and, as such Schedule 14D-9 may have been amended, upon expiration of the Offer, or, in the case of the Proxy Statement, at the time the Proxy Statement is mailed, at the time of the Meeting or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If, prior to the Effective Time, any event relating to Parent, Merger Sub or any of their affiliates, officers or directors is discovered by Parent that should be set forth in an amendment of or supplement to the Schedule 14D-9 or the Proxy Statement, Parent will promptly inform the Company. ARTICLE 9 9. Covenants. 9.1. No Solicitation of Transactions. Neither the Company nor any Subsidiary of the Company shall, directly or indirectly, through any officer, director, employee, agent or otherwise, initiate, solicit or knowingly encourage any inquiries or the 21 26 making of any proposal that constitutes, or may reasonably be expected to lead to, any "Proposal" (as defined below in this Section 9.1), or enter into discussions or negotiate with any person or entity in furtherance of such inquiries or to obtain a Proposal, or agree to or endorse any Proposal, and the Company shall notify Parent orally (within three business days) of the fact that the Company has received any Proposal and the identity of the person making such Proposal, but the Company shall not be required to disclose to Parent or Merger Sub the terms of any Proposal which it or any such officer, director, employee, agent or other representative may receive or to provide to Parent or Merger Sub a copy of any such Proposal; and provided, however, that nothing contained in this Section 9.1 shall prohibit the Company from: (i) referring a third party to this Section 9.1; (ii) furnishing information to, or entering into discussions or negotiations with, any person or entity that makes an unsolicited Proposal, if (A) the Board of Directors of the Company after consultation with its counsel and financial advisor, determines consistent with its fiduciary duties that such action should be pursued because it is reasonably likely to result in the Company or its stockholders receiving a "Superior Proposal" (as defined below in this Section 9.1) which is reasonably likely to be consummated and (B) prior to furnishing such information to, or entering into discussions or negotiations with, such person or entity, the Company (x) provides reasonable notice to Parent to the effect that it is furnishing information to, or entering into discussions or negotiations with, such person or entity and (y) receives from such person or entity an executed confidentiality agreement in reasonably customary form; (iii) complying with Rules 14e-2 and 14d-9 promulgated under the Exchange Act with regard to a tender or exchange offer; (iv) failing to make or withdrawing or modifying its recommendation referred to in Section 9.4 if there exists a Proposal and the Board of Directors of the Corporation, after consultation with its counsel and financial advisor, determines consistent with its fiduciary duties that such Proposal is a Superior Proposal; (v) making such disclosures as are required by applicable law; and (vi) after termination pursuant to Section 11.2, entering into an agreement with respect to a Superior Proposal. For purposes of this Agreement: "Proposal" shall mean any proposal, offer or expression of interest by any person involving with respect to the Company or any of its Subsidiaries any of the following: (i) any merger, consolidation, share exchange, business combination, or other similar transaction (other than any transaction contemplated hereby); (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 15% or more of the assets of such party and its Subsidiaries, taken as a whole, in a single transaction or series of transactions; (iii) any tender offer or exchange offer for 50% or more of the outstanding shares of capital stock of the Company or the filing of a registration statement under the Securities Act in connection therewith (other than the Offer); or (iv) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing; provided, however, that the transactions contemplated by the Option Agreement and the transactions 22 27 contemplated hereby shall not constitute a Proposal; and "Superior Proposal" shall mean a bona fide Proposal from an unaffiliated third party that is more favorable to the Company and its stockholders than the transactions contemplated hereby and is reasonably likely to be consummated. 9.2. Conduct of Businesses. Prior to the Effective Time, except as specifically set forth in the Company Disclosure Letter or as contemplated by any other provision of this Agreement, unless Parent has consented in writing thereto, the Company: (a) shall, and shall cause each of its Subsidiaries to, conduct its operations according to its usual, regular and ordinary course in substantially the same manner as heretofore conducted; (b) shall use its reasonable efforts, and shall cause each of its respective Subsidiaries to use its reasonable efforts, to preserve intact its business organization and goodwill, keep available the services of its officers and employees and maintain satisfactory relationships with those persons having business relationships with it; (c) shall confer on a regular basis with one or more representatives of Parent to report operational matters of materiality and any proposals to engage in material transactions; (d) shall not amend its organizational documents; (e) shall promptly notify Parent of (i) any material emergency or other material change in the condition (financial or otherwise) of the Company's or any Subsidiary's business, properties, assets, liabilities, prospects or the normal course of its businesses or in the operation of its properties, (ii) any material litigation or material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or (iii) the breach in any material respect of any representation or warranty or covenant contained herein; (f) shall promptly deliver to Parent true and correct copies of any report, statement or schedule filed by the Company with the SEC subsequent to the date of this Agreement; (g) shall not (i) issue any shares of its capital stock, effect any stock split or otherwise change its capitalization as it exists on the date of this Agreement, (ii) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any shares of its capital stock from the Company, (iii) increase any compensation or enter into or amend any employment, severance, 23 28 termination or similar agreement with any of its present or future officers or directors, except for normal increases in compensation to employees consistent with past practice and the payment of cash bonuses to employees pursuant to and consistent with existing plans or programs, or (iv) adopt any new employee benefit plan (including any stock option, stock benefit or stock purchase plan) or amend any existing employee benefit plan in any material respect, except for changes which are less favorable to participants in such plans or as may be required by applicable law; (h) shall not (i) declare, set aside or pay any dividend or make any other distribution or payment with respect to any shares of its capital stock; (ii) directly or indirectly redeem, purchase or otherwise acquire any shares of its capital stock or capital stock of any of its Subsidiaries, or make any commitment for any such action or (iii) split, combine or reclassify any of its capital stock; (i) shall not, and shall not permit any of its Subsidiaries to sell, lease or otherwise dispose of any of its assets (including capital stock of Subsidiaries) which are material, individually or in the aggregate, except in the ordinary course of business; (j) shall not (i) incur or assume any long-term or short-term debt or issue any debt securities except for borrowings under existing lines of credit (or any amendments thereto) in the ordinary course of business; (ii) except for obligations of wholly owned Subsidiaries of the Company, assume, guaranty, endorse or otherwise become liable or responsible (whether directly, indirectly, contingently or otherwise) for the obligations of any other person except in the ordinary course of business consistent with past practices in an amount not material to the Company and its Subsidiaries, taken as a whole; (iii) other than wholly owned Subsidiaries of the Company, make any loans, advances or capital contributions to, or investments in, any other person; (iv) modify in any material manner adverse to the Company or any of its Subsidiaries any outstanding indebtedness or obligation of the Company or any of its Subsidiaries; (v) pledge or otherwise encumber shares of capital stock of the Company or its Subsidiaries; or (vi) mortgage or pledge any of its material assets, tangible or intangible, or create or suffer to create any material mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect to such asset; (k) shall not acquire, sell, lease or dispose of any assets outside the ordinary course of business or any assets which in the aggregate are material to the Company and its Subsidiaries taken as a whole, or enter into any commitment or transaction outside the ordinary course of business consistent with past practices which would be material to the Company and its Subsidiaries taken as a whole; 24 29 (l) shall not change any of the accounting principles or practices used by the Company; (m) shall not (i) acquire (by merger, consolidation or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any equity interest therein; (ii) enter into any contract or agreement other than in the ordinary course of business consistent with past practice which would be material to the Company and its Subsidiaries taken as a whole; (iii) authorize any new capital expenditure or expenditures which, individually, is in excess of $50,000 or, in the aggregate, are in excess of $150,000; or (iv) enter into or amend any contract, agreement, commitment or arrangement providing for the taking of any action which would be prohibited hereunder; (n) shall not make any tax election or settle or compromise any income tax liability material to the Company and its Subsidiaries taken as a whole; (o) shall not pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected, reserved against or disclosed in the consolidated financial statements (or the notes thereto) of the Company and its Subsidiaries or incurred in the ordinary course of business consistent with past practice; (p) shall not settle or compromise any pending or threatened suit, action or claim relating to the transactions contemplated hereby; or (q) shall not take, or agree in writing or otherwise to take, any of the actions described in Section 9.2(a) through 9.2(p) or any action that would make any of the representations and warranties of the Company contained in this Agreement untrue or incorrect as of the date when made. 9.3. Board Representation. Promptly upon the purchase of shares of Common Stock pursuant to the Offer, Merger Sub shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as will give Merger Sub, subject to compliance with Section l4(f) of the Exchange Act and the rules and regulations promulgated thereunder, representation on the Board of Directors equal to the product of (a) the total number of directors on the Board of Directors and (b) the percentage that the number of shares of Common Stock purchased by Merger Sub bears to the number of shares of Common Stock outstanding, and the Company shall, upon request by Merger Sub, promptly increase the size of the Board of Directors and/or exercise its reasonable best efforts to secure the resignations of such number of directors as is necessary to enable Merger Sub's designees to be elected to 25 30 the Board of Directors and shall cause Merger Sub's designees to be so elected. The Company shall take, at its expense, all action required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 9.3 and shall include in the Schedule 14D-9 or otherwise timely mail to its stockholders such information with respect to the Company and its officers and directors as is required by Section 14(f) and Rule 14f-l in order to fulfill its obligations under this Section 9.3. Parent will supply to the Company in writing and be solely responsible for any information with respect to itself and its or Merger Sub's nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-l. In the event that Merger Sub's designees are elected to the Board of Directors of the Company, until the Effective Time, the Board of Directors shall have at least one director who is a director on the date hereof (the "Company Director"). In such event, if the Company Director is unable to serve for any reason whatsoever, the other directors shall designate a person to fill such vacancy who shall not be a designee, stockholder or affiliate of Parent or Merger Sub and such person shall be deemed to be a Company Director for purposes of this Agreement. Notwithstanding anything in this Agreement to the contrary, in the event that Merger Sub's designees are elected to the Board of Directors of the Company, after the acceptance for payment of shares of Common Stock pursuant to the Offer and prior to the Effective Time, the affirmative vote of the Company Director shall be required to (a) amend or terminate this Agreement by the Company, (b) exercise or waive any of the Company's rights, benefits or remedies hereunder, (c) extend the time for performance of Parent's and Merger Sub's respective obligations hereunder or (d) take any other action by the Board of Directors of the Company under or in connection with this Agreement. 9.4. Meeting of the Company's Stockholders. (a) If required by applicable law in order to consummate the Merger, the Company shall take all action necessary in accordance with the DGCL and its Restated Certificate of Incorporation and By-laws to convene the Meeting as promptly as practicable following the purchase of shares of Common Stock in the Offer. At the Meeting, all of the shares of Common Stock then owned by Parent, Merger Sub or any other Subsidiary of Parent shall be voted to approve the Merger and this Agreement (subject to applicable law and subject to the right of Parent, Merger Sub or any other Subsidiary of Parent to vote such shares of Common Stock as they may elect in the event of a Superior Proposal that is being recommended by the Board of Directors of the Company in lieu of the Merger). Subject to the provisions of Section 9.1, the Board of Directors of the Company shall recommend that the Company's stockholders vote to approve the Merger and this Agreement if such vote is sought, shall use its best efforts to solicit from stockholders of the Company proxies in favor of the Merger and shall take all other action in its judgment necessary and appropriate to secure the vote of stockholders required by the DGCL to effect the Merger. 26 31 (b) Parent and Merger Sub shall not, and shall cause their Subsidiaries not to, sell, transfer, assign, encumber or otherwise dispose of the shares of Common Stock acquired pursuant to the Offer or otherwise prior to the Meeting; provided, that this Section 9.4(b) shall not apply to the sale, transfer, assignment, encumbrance or other disposition of any or all of such shares of Common Stock in transactions solely involving Parent, Merger Sub and/or one or more of their wholly-owned Subsidiaries. 9.5. Filings; Other Action. Subject to the terms and conditions herein provided, the Company and Parent shall: (a) promptly make their respective filings and thereafter make any other required submissions under the HSR Act with respect to the Offer or the Merger; (b) use all reasonable efforts to cooperate with one another in (i) promptly determining which filings are required to be made prior to the Effective Time with, and which consents, approvals, permits or authorizations are required to be obtained from, governmental or regulatory authorities of the United States, the several states and foreign jurisdictions in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and (ii) timely making all such filings and timely seeking all such consents, approvals, permits or authorizations; and (c) use all reasonable efforts to take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate to promptly consummate and make effective the transactions contemplated by this Agreement. Each of Parent and the Company will use all reasonable efforts to resolve such objections, if any, as may be asserted with respect to the Offer or the Merger under the HSR Act or other antitrust laws. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purpose of this Agreement, the proper officers and directors of Parent and the Company shall take all such necessary action. 9.6. Inspection of Records; Access. From the date of this Agreement to the Effective Time, the Company shall allow all designated officers, attorneys, accountants and other representatives of Parent ("Parent's Representatives") access at all reasonable times to all employees, plants, offices, warehouses, transmission facilities and other facilities and to the records and files, correspondence, audits and properties, as well as to all information relating to commitments, contracts, titles and financial position, or otherwise pertaining to the business and affairs, of the Company and its Subsidiaries; provided, however, that Parent's Representatives shall use their reasonable best efforts to avoid unreasonably interfering with, hindering or otherwise disrupting the employees of the Company in the execution of their employment duties during any visit to, or inspection of, the Company's facilities. 9.7. Publicity. The initial press release relating to this Agreement shall be a joint press release and thereafter the Company and Parent shall, subject to their respective legal obligations (including requirements of stock exchanges and other similar regulatory bodies), consult with each other, and use reasonable efforts to agree upon the 27 32 text of any press release, before issuing any such press release or otherwise making public statements with respect to the transactions contemplated hereby and in making any filings with any federal or state governmental or regulatory agency or with any national securities exchange with respect thereto. 9.8. Proxy Statement. If required under applicable law, the Company shall prepare the Proxy Statement, file it with the SEC under the Exchange Act as promptly as practicable after Merger Sub purchases shares of Common Stock pursuant to the Offer, and use all reasonable efforts to have it cleared by the SEC. Parent, Merger Sub and the Company shall cooperate with each other in the preparation of the Proxy Statement, and the Company shall notify Parent of the receipt of any comments of the SEC with respect to the Proxy Statement and of any requests by the SEC for any amendment or supplement thereto or for additional information and shall provide to Parent promptly copies of all correspondence between the Company or any representative of the Company and the SEC. The Company shall give Parent and its counsel the opportunity to review the Proxy Statement prior to its being filed with the SEC and shall give Parent and its counsel the opportunity to review all amendments and supplements to the Proxy Statement and all responses to requests for additional information and replies to comments prior to their being filed with, or sent to, the SEC. Each of the Company, Parent and Merger Sub agrees to use its reasonable best efforts, after consultation with the other parties hereto to respond promptly to all such comments of and requests by the SEC. As promptly as practicable after the Proxy Statement has been cleared by the SEC, the Company shall mail the Proxy Statement to the stockholders of the Company. If a Proxy Statement is not required to be disseminated to stockholders of the Company under the federal securities laws in connection with the Merger, the Company shall prepare and mail to stockholders of the Company, as promptly as practicable following the purchase of shares of Common Stock in the Offer, such notices and other materials as may be required under the DGCL in connection with the consummation of the Merger. The Company shall give Parent and its counsel the opportunity to review such notices and other materials and all amendments and supplements thereto prior to their being mailed. 9.9. Further Action. Each party hereto shall, subject to the fulfillment at or before the Effective Time of each of the conditions of performance set forth herein or the waiver thereof, perform such further acts and execute such documents as may be reasonably required to effect the Offer or the Merger. 9.10. Expenses. Whether or not the Merger is consummated, except as provided in Section 11.5(b), all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. 28 33 9.11. Indemnification and Insurance. (a) Parent shall cause the Surviving Corporation to keep in effect provisions in its Certificate of Incorporation and By-laws providing for exculpation of director and officer liability and indemnification of the indemnified parties under the Company's Restated Certificate of Incorporation and By-laws (the "Indemnified Parties") to the fullest extent permitted under the DGCL, which provisions shall not be amended except as required by applicable law or except to make changes permitted by law that would enlarge the Indemnified Parties' right of indemnification. (b) The provisions of this Section shall survive the consummation of the Merger and expressly are intended to benefit each of the Indemnified Parties. (c) For a period of three years after the Effective Time, Parent shall cause to be maintained officers' and directors' liability insurance covering the parties who are currently covered, in their capacities as officers and directors, by the Company's existing officers' and directors' liability insurance policies on terms substantially no less advantageous to such parties than such existing insurance; provided, however, that Parent shall not be required, in order to maintain or procure such coverage, to pay premiums in excess of $350,000 in the aggregate over such three year period (the "Cap"); and provided, further, that if equivalent coverage cannot be obtained, or can be obtained only by paying an amount in excess of the Cap, Parent shall only be required to obtain such coverage for such three-year period as can be obtained by paying aggregate premiums equal to the Cap. 9.12. Certain Benefits. (a) From and after the Effective Time, subject to applicable law, Parent and its Subsidiaries will honor in accordance with their terms, all Company Benefit Plans; provided, however, that nothing herein shall preclude any change effected on a prospective basis in any Company Benefit Plan. (b) The Surviving Corporation shall employ at the Effective Time all employees of the Company and its Subsidiaries who are employed on the Closing Date on terms consistent with the Company's current employment practices and at comparable levels of compensation and positions. Subject to the obligations of the Surviving Corporation under existing employment agreements, such employment shall be at will and Parent and the Surviving Corporation shall be under no obligation to continue to employ any individuals. For purposes of eligibility to participate in and vesting in various benefits (but not for determination of benefits) provided to employees, employees of the 29 34 Company and its Subsidiaries will be credited with their years of service with the Company and its Subsidiaries. 9.13. Headquarters of the Surviving Corporation. Parent agrees that, for one year following the Effective Time, the headquarters of the Surviving Corporation (other than with respect to gas marketing operations) will be located in Dallas, Texas. ARTICLE 10 10. Conditions. 10.1. Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) Merger Sub shall have purchased pursuant to the Offer a number of shares of Common Stock which satisfies the Minimum Condition; (b) The waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated. (c) Neither of the parties hereto shall be subject to any order or injunction of a court of competent jurisdiction which prohibits the consummation of the transactions contemplated by this Agreement. (d) This Agreement and the Merger shall have been approved by the stockholders of the Company in accordance with the DGCL and the Company's Restated Certificate of Incorporation and By-laws. 10.2. Conditions to Obligation of the Company to Effect the Merger. The obligation of the Company to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the condition that Parent shall have performed its agreements contained in this Agreement required to be performed on or prior to the Closing Date and the representations and warranties of Parent and Merger Sub contained in this Agreement shall be true and correct in all material respects as of the date when made and (unless made as of a specified date) as of the Closing Date, and the Company shall have received a certificate of the President or a Vice President of Parent, dated the Closing Date, certifying to such effect. 10.3. Conditions to Obligation of Parent and Merger Sub to Effect the Merger. The obligations of Parent and Merger Sub to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the condition that the Company shall have performed its agreements contained in this Agreement required to be 30 35 performed on or prior to the Closing Date and the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects as of the date when made and (unless made as of a specified date) as of the Closing Date, and Parent shall have received a certificate of the Company, dated the Closing Date, certifying to such effect. ARTICLE 11 11. Termination. 11.1. Termination by Mutual Consent. This Agreement may be terminated and the Merger may be abandoned, notwithstanding the approval of the stockholders entitled to vote thereon, at any time prior to the Effective Time by the mutual consent of Parent and the Company. 11.2. Termination by Either Parent or the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, notwithstanding the approval of the stockholders entitled to vote thereon, by action of the Board of Directors of either Parent or the Company if (a) the Offer shall have expired or been terminated in accordance with its terms as the result of the failure of any of the conditions set forth in Annex I hereto without Merger Sub having purchased any shares of Common Stock pursuant to the Offer; provided, however, that the right to terminate this Agreement pursuant to this Section 11.2 (a) shall not be available to any party whose failure to fulfill any of its obligations under this Agreement results in the failure of any such condition, (b) the Merger shall not have been consummated by October 20, 1996 (the "Outside Closing Date"), (c) the approval of the Company's stockholders required by Section 10.1(d) shall not have been obtained at a meeting duly convened therefor or at any adjournment thereof; provided, however, that the right to terminate this Agreement pursuant to this Section 11.2(c) shall not be available to Parent if Parent or Merger Sub breaches its obligations under Section 9.4 of this Agreement, (d) a United States federal or state court of competent jurisdiction or United States federal or state governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, or ruling prevents the Merger from being consummated on or before the Outside Closing Date; provided, that the party seeking to terminate this Agreement pursuant to this clause (d) shall have used all reasonable efforts to remove such injunction, order or decree; and provided, in the case of a termination pursuant to clause (b) above, that the terminating party shall not have breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the failure to consummate the Merger by the Outside Closing Date, or (e) the Board of Directors of the Company shall have recommended to the stockholders of the Company a Proposal which, after consultation 31 36 with counsel and its investment advisor, the Board of Directors of the Company had determined to be a Superior Proposal. 11.3. Termination by the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, notwithstanding the approval of the stockholders entitled to vote thereon, by action of the Board of Directors of the Company (a) if the Offer shall not have been timely commenced in accordance with Section 1.l; (b) if the Offer shall have expired or have been terminated without any shares of Common Stock being purchased thereunder or if no shares of Common Stock shall have been purchased thereunder within 120 days following the date of this Agreement unless failure to so purchase shares of Common Stock has been caused by or results from a breach by the Company of this Agreement; (c) there has been a breach by Parent or Merger Sub of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have a Parent Material Adverse Effect or (d) there has been a material breach of any of the covenants or agreements set forth in this Agreement or the Option Agreement on the part of Parent or Merger Sub, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by the Company to Parent or the Outside Closing Date, whichever is the earlier. 11.4. Termination by Parent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, notwithstanding the approval of the stockholders entitled to vote thereon, by action of the Board of Directors of Parent, if (a) there has been a breach by the Company of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have a Company Material Adverse Effect, (b) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of the Company, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by Parent to the Company or the Outside Closing Date, whichever is the earlier, (c) the Board of Directors of the Company withdraws, modifies or changes its recommendation of this Agreement, the Offer or the Merger in a manner adverse to Parent or Merger Sub, (d) a tender offer or exchange offer (other than the Offer) for 50% or more of the outstanding shares of capital stock of the Company is commenced, and the Board of Directors of the Company recommends that stockholders tender their shares into such tender or exchange offer, (e) any person (other than Parent or Merger Sub) shall have acquired beneficial ownership or the right to acquire beneficial ownership of, or any "group" (as such terms defined under section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder), shall have been formed which beneficially owns, or has the right to acquire beneficial ownership of, more than 50% of the shares of capital stock of the Company on a fully diluted basis or (f) the Board of Directors or the Transfer Review Committee or the Transfer Review Officer shall authorize a Transfer by or to a 5% Holder (as such terms are defined in the Company's Restated Certificate of 32 37 Incorporation) of shares of Common Stock or the provisions of Article Eleventh of the Restated Certificate of Incorporation shall otherwise be waived or deemed inapplicable to any acquisition of beneficial ownership of more than 5% of the shares of Common Stock (other than by Parent or Merger Sub). 11.5. Effect of Termination and Abandonment. (a) In the event that this Agreement is terminated by either party pursuant to Section 11.2(a) by reason of the failure of any of the conditions set forth in paragraph (e) or (f) of the conditions of the Offer set forth in Annex I, by either party pursuant to Section 11.2(e) or by Parent and Merger Sub pursuant to Section 11.4(c), (d) or (f) and, in any such case, any person shall have made a Superior Proposal or the Company shall enter into an agreement in principle or definitive agreement with respect to a Superior Proposal within 9 months following such termination, then the Company shall simultaneously with such termination or the execution of such agreement, as the case may be, pay Parent a fee of $2,500,000 and shall reimburse Parent for all reasonable out- of-pocket expenses incurred in connection with the transactions contemplated by this Agreement up to a maximum of $1,000,000, which amount shall be payable by wire transfer of same day funds. The Company acknowledges that the agreements contained in this Section 11.5(a) are an integral part of the transactions contemplated in this Agreement, and that, without these agreements, Parent and Merger Sub would not enter into this Agreement; accordingly, if Company fails to promptly pay the amount due pursuant to this Section 11.5(a), and, in order to obtain such payment, Parent or Merger Sub commences a suit which results in a judgment against Company for the fee set forth in this Section 11.5(a), the Company shall pay to Parent its costs and expenses (including reasonable attorneys' fees) in connection with such suit, together with interest on the amount of the fee at the rate of 8% per annum. (b) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article 11, all obligations of the parties hereto shall terminate, except the obligations of the parties pursuant to this Section 11.5 and except for the provisions of the Confidentiality Agreement between the Company and Parent and Sections 12.3, 12.4, 12.6, 12.8, 12.9 and 12.12. Notwithstanding the foregoing, in the event of termination of this Agreement pursuant to Section 11.3 (a), (b), (c) or (d) or 11.4(a) or (b), nothing herein shall prejudice the ability of the non-breaching party from seeking damages from any other party for any breach of this Agreement, including without limitation, attorneys' fees and the right to pursue any remedy at law for damages or in equity; provided that in the event Parent has received the fee payable under Section 11.5(a) hereof, it shall not (i) assert or pursue in any manner, directly or indirectly, any claim or cause of action based in whole or in part upon alleged tortious or other interference with rights under this Agreement against any entity or person submitting a Superior Proposal or (ii) assert or pursue in any manner, directly or indirectly, any claim or cause of action against the Company or any of its officers, directors, attorneys, 33 38 advisors, agents or employees based in whole or in part upon its or their receipt, consideration, recommendation or approval of a Superior Proposal. 11.6. Extension; Waiver. At any time prior to the Effective Time, any party hereto by action taken by its Board of Directors may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE 12 12. General Provisions. 12.1. Survival of Representations and Warranties. Unless this Agreement is terminated pursuant to Article 11, the representations and warranties and covenants made in this Agreement shall terminate at the Closing, except that any covenant herein which by its terms contemplates performance after the Closing Date shall survive the Closing Date for the period contemplated thereby. 12.2. Notices. Any notice required to be given hereunder shall be sufficient if in writing, and sent by facsimile transmission and by courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid), addressed as follows: If to the Company: If to Parent or Merger Sub: Cornerstone Natural Gas, Inc. El Paso Natural Gas Company 8080 North Central Express One Paul Kayser Center Suite 1200 100 North Stanton Street Dallas, Texas 75206 El Paso, Texas 79901 Attention: Ray Davis Attention: H. Brent Austin Chairman of the Board Executive Vice President and Chief Executive Officer and Chief Financial Officer Facsimile: (214) 739-8251 Facsimile: (915) 541-5008 34 39 With copies to: With a copy to: Schlanger, Mills, Mayer Gary P. Cooperstein, Esq. & Grossberg, L.L.P. Fried, Frank, Harris, 5847 San Felipe, Suite 1700 Shriver & Jacobson Houston, Texas 77057 One New York Plaza Attention: Clarence Mayer, Esq. New York, NY 10004 Facsimile: (713) 785-2091 Facsimile: (212) 747-1526 and Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1700 Pacific Avenue Dallas, Texas 75201 Attention: Jack Stillwell, Esq. Facsimile: (214) 969-4343 or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so telecommunicated, personally delivered or mailed. 12.3. Assignment; Binding Effect; Benefit. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties; provided, however, that Parent may assign this Agreement to any of its Subsidiaries whether or not such Subsidiaries exist at the date hereof; provided, further, that no such assignment shall relieve Parent of any of its obligations hereunder. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, except for the provisions of Section 9.10, which are expressly intended to be enforceable by the beneficiaries thereof, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 12.4. Entire Agreement. This Agreement, the Company Disclosure Letter and the Confidentiality Agreement between the Company and Parent constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings (oral and written) among the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto. 35 40 12.5. Amendment. This Agreement may be amended, at any time prior to the Effective Time, to the fullest extent permitted by Section 251(d) of the DGCL and notwithstanding the approval of the Agreement by the Stockholders entitled to vote thereon, by the parties hereto by an instrument in writing signed by or on behalf of each of the parties hereto. 12.6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, except that Delaware law shall apply to those matters required to be governed by Delaware law under applicable choice of law principles. 12.7. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies of this Agreement, each of which may be signed by less than all of the parties hereto, but together all such copies are signed by all of the parties hereto. 12.8. Headings. Headings of the Articles and Sections of this Agreement are for the convenience of the parties only, and shall be given no substantive or interpretive effect whatsoever. 12.9. Interpretation. In this Agreement, unless the context otherwise requires, words describing the singular number shall include the plural and vice versa, and words denoting any gender shall include all genders and words denoting natural persons shall include corporations and partnerships and vice versa. As used in this Agreement, the word "Subsidiary" when used with respect to any party means any corporation or other organization, whether incorporated or unincorporated, of which such party directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization, or any organization of which such party is a general partner. 12.10. Waivers. Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder. 36 41 12.11. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 12.12. Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they may be entitled at law or in equity. 37 42 IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf as of the day and year first written above. EL PASO NATURAL GAS COMPANY By: /s/ H. BRENT AUSTIN ----------------------------------- Name: H. Brent Austin Title: Executive Vice President and Chief Financial Officer THE EL PASO COMPANY By: /s/ ROBERT G. PHILLIPS ----------------------------------- Name: Robert G. Phillips Title: Senior Vice President CORNERSTONE NATURAL GAS, INC. By: /s/ RAY C. DAVIS ----------------------------------- Name: Ray C. Davis Title: Chairman of the Board and Chief Executive Officer 38 43 ANNEX I to Agreement and Plan of Merger Conditions to the Offer. Notwithstanding any other term of the Offer or this Agreement, Merger Sub shall not be required to accept for payment or pay for, subject to any applicable rules and regulations of the SEC, including Rule 14e-l(c) of the Exchange Act, any shares of Common Stock not theretofore accepted for payment or paid for and may terminate the Offer unless (i) there shall have been validly tendered and not withdrawn prior to the expiration of the Offer that number of shares of Common Stock which, when added to the number of shares of Common Stock then issuable upon the exercise of presently exercisable Warrants subject to the Option Agreement and previously delivered to Merger Sub in accordance with the terms of the Option Agreement, would represent at least a majority of the outstanding shares of Common Stock on a fully diluted basis (the "Minimum Condition") and (ii) any waiting period under the HSR Act applicable to the purchase of shares of Common Stock pursuant to the Offer shall have expired or been terminated. Furthermore, notwithstanding any other term of the Offer or the Merger Agreement, Merger Sub shall not be required to accept for payment or, subject as aforesaid, to pay for any shares of Common Stock not theretofore accepted for payment or paid for, and may terminate the Offer if at any time on or after the date of this Agreement and before the acceptance of such shares of Common Stock for payment or the payment therefor, any of the following conditions exist or shall occur and remain in effect: (a) there shall have been instituted or pending any action or proceeding by or before any court or governmental, regulatory or administrative agency, authority or tribunal, domestic or foreign, which restrains or prohibits the making or consummation of the Offer or the Merger or which would be reasonably likely to (i) result in material liability or material damages being incurred by Parent or Merger Sub or (ii) have a Company Material Adverse Effect; or (b) there shall have been enacted, entered, enforced or deemed applicable to the Offer or the Merger, by any state, federal or foreign government or governmental authority or by any court, domestic or foreign, any statute, rule, regulation, judgment, decree, order or injunction, that prohibits or makes illegal the making or consummation of the Offer or the Merger; or (c) the Company and Merger Sub shall have reached an agreement or understanding that the Offer or the Merger Agreement be terminated or the Merger Agreement shall have been terminated in accordance with its terms; or A-1 44 (d) (i) (A) any of the representations and warranties made by the Company in Sections 7.1, 7.2, 7.3 or 7.4 of the Merger Agreement shall not have been true and correct in all material respects when made, or shall thereafter have ceased to be true and correct in all material respects as if made as of such later time (other than representations and warranties made as of a specified date) or (B) any of the other representations and warranties made by the Company in the Merger Agreement shall not have been true and correct when made or shall thereafter have ceased to be true and correct as if made as of such later time (other than representations and warranties made as of a specified date), with the result that such failure to be true and correct, either singly or in the aggregate with all other such failures, has or would reasonably be expected to have a Company Material Adverse Effect (it being understood that the foregoing shall not be construed as applying an additional standard of materiality to any representation or warranty which by its terms is qualified by materiality or by "Company Material Adverse Effect")or (ii) after notice of default by Merger Sub to the Company, the Company shall not, prior to the earlier of (A) the expiration of the time period prescribed in Section 11.4(b) of the Merger Agreement and (B) the expiration date of the Offer, in all material respects have performed each obligation and agreement and complied with each covenant to be performed and complied with by it under the Merger Agreement ; or (e) the Company's Board of Directors shall have modified or amended its recommendation of the Offer in any manner adverse to Parent and Merger Sub or shall have withdrawn its recommendation of the Offer, or shall have recommended acceptance of any Proposal or shall have resolved to do any of the foregoing, or shall have failed to reject any Proposal within 10 business days after public announcement thereof; or (f) so long as Parent and Merger Sub have not breached their obligation to purchase shares of Common Stock pursuant to the Offer or the Option Agreement, if (i) any person (other than Merger Sub) shall have acquired beneficial ownership of 50% or more of the shares of Common Stock on a fully diluted basis, or shall have been granted any option or right, conditional or otherwise, to acquire 50% or more of the shares of Common Stock on a fully diluted basis; (ii) any new group shall have been formed which beneficially owns more than 50% of the shares of Common Stock on a fully diluted basis; (iii) any person shall have entered into an agreement in principle or definitive agreement with the Company with respect to a tender or exchange offer for any shares of Common Stock or a merger, consolidation or other business combination with or involving the Company; or (iv) the Board of Directors or the Transfer Review Committee or the Transfer Review Officer shall authorize a Transfer by or to a 5% Holder (as such terms are defined in the Company's Restated Certificate of A-2 45 Incorporation) of shares of Common Stock or the provisions of Article Eleventh of the Restated Certificate of Incorporation shall otherwise be waived or deemed inapplicable to any acquisition of beneficial ownership of more than 5% of the shares of Common Stock (other than by Parent or Merger Sub); or (g) any of the agreements with each of Ben H. Cook, Ray C. Davis and Kelcy L. Warren dated as of the date of this Agreement, shall not be in full force and effect, or any of such persons shall have contested the validity of any such agreement or denied that he is bound by the terms thereof; which, in the reasonable judgment of Parent and Merger Sub, in any case, makes it inadvisable to proceed with the Offer or with such acceptance for payment, purchase of, or payment for the shares of Common Stock. The foregoing conditions are for the sole benefit of Merger Sub and may be asserted by Merger Sub regardless of the circumstances giving rise to any such condition and may be waived by Merger Sub, in whole or in part, at any time and from time to time, in the sole discretion of Merger Sub. The failure by Merger Sub at any time to exercise any of the foregoing rights will not be deemed a waiver of any right, the waiver of such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances, and each right will be deemed an ongoing right which may be asserted at any time and from time to time. Should the Offer be terminated pursuant to the foregoing provisions, all tendered shares of Common Stock not theretofore accepted for payment shall forthwith be returned by the Paying Agent to the tendering stockholders. A-3 EX-10.(G) 8 OPTION AGREEMENT 1 OPTION AGREEMENT OPTION AGREEMENT (this "Agreement") dated as of April 20, 1996 among the persons listed on Schedule 1 hereto (each, a "Holder" and, collectively, the "Holders"), El Paso Natural Gas Company, a Delaware corporation ("Parent"), and The El Paso Company, a Delaware corporation and a wholly owned subsidiary of Parent (the "Purchaser"). Parent, the Purchaser and Cornerstone Natural Gas, Inc., a Delaware corporation (the "Company"), propose to enter into an Agreement and Plan of Merger (the "Merger Agreement") on the date of this Agreement providing for the making of a tender offer by Purchaser (the "Offer") for shares of Common Stock, par value $.10 per share, of the Company (the "Company Common Stock"), at a purchase price of $6.00 per share, and a subsequent merger (the "Merger") between the Company and the Purchaser. Each Holder owns the number of shares of Company Common Stock (the "Shares"), options to purchase Company Common Stock (the "Stock Options") or warrants to purchase shares of Company Common Stock (the "Warrants" and, collectively with the Stock Options and the Shares, the "Optioned Securities"), or has the right to vote the number of Shares or other securities (the "Voting Securities"), listed opposite the name of such Holder on Schedule 1. Parent and the Purchaser have required, as a condition to entering into the Merger Agreement, that the Holders enter into this Agreement. The Holders believe that it is in the best interest of the Company and its stockholders to induce Parent and the Purchaser to enter into the Merger Agreement and, therefore, the Holders are willing to enter into this Agreement. Accordingly, in consideration of the mutual covenants and agreements set forth herein and in consideration of $1.00 and such other valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. The Option. Each Holder hereby grants the Purchaser an irrevocable option (the "Option") to purchase all of the Optioned Securities of such Holder at the price set forth with respect to such Optioned Securities on Schedule 1 (or such higher price as may be paid pursuant to the Offer), payable in cash, without interest. 2. Exercise of the Option; Term. On the terms and subject to the conditions of this Agreement, (a) the Purchaser may exercise the Option at any time after later of (i) December 2, 1996, (ii) the date on which all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), applicable to the exercise of the Option have expired or been terminated and (iii) the date of expiration or termination of the Offer, by written notice to each Holder specifying a date and time for the closing not later than thirty (30) business days from the date of such notice (which date and time may be one day after the delivery of such notice or earlier if reasonably practicable), but only if (b) (i) the Merger Agreement shall have been terminated and (ii) either (A) the stockholders of the Company shall have failed to approve the Merger at the stockholders' meeting contemplated by Section 9.4 of the Merger Agreement (the "Meeting"), (B) the Meeting shall not have 2 occurred (other than by reason of a breach by Parent or the Purchaser of its obligations under the Merger Agreement), or (C) the termination fee contemplated by Section 11.5(a) of the Merger Agreement shall have become due and payable or the Merger Agreement shall have been terminated pursuant to Section 11.2(e) or Section 11.4(c), (d), (e) or (f); provided that, (x) notwithstanding clause (a)(i) of this sentence, the Purchaser may exercise the Option at any time after the later of the periods prescribed in clauses (a)(ii) and (a)(iii) of this sentence, if the Merger Agreement shall have been terminated pursuant to Section 11.2(e) or Section 11.4(c), (d), (e) or (f) and (y) notwithstanding clause (b) of this sentence, the Purchaser shall exercise the Option if the Offer has been consummated in accordance with its terms. The Option shall expire on the earliest of (a) the Effective Time (as defined in the Merger Agreement), or (b) twelve months after the termination of the Merger Agreement (but in any event not later than June 30, 1997) (such expiration date is referred to herein as the "Expiration Date"). 3. Closing. At the closing: (a) against delivery of the Optioned Securities, free and clear of all liens, claims, charges and encumbrances of any kind or nature whatsoever, Parent shall cause the Purchaser to make payment to each Holder of the aggregate price for such Holder's Optioned Securities by wire transfer of immediately available funds; and (b) each Holder shall deliver to the Purchaser a duly executed certificate or certificates representing the number of Optioned Securities purchased from such Holder, together with transfer powers endorsed in blank relating to such certificates and, if requested by the Purchaser, an irrevocable proxy (subject to receiving an opinion from the Purchaser's counsel that such proxy does not violate the federal proxy rules), duly executed by such Holder, authorizing such persons as the Purchaser shall designate to act for such Holder as his lawful agents, attorneys and proxies, with full power of substitution, to vote in such manner as each such agent, attorney and proxy or his substitute shall in his sole discretion deem proper, and otherwise act with respect to the Optioned Securities at any meeting (whether annual or special and whether or not an adjourned meeting) of the Company's Holders or otherwise, and revoking any prior proxies granted by such Holder with respect to the Holder's Optioned Securities. Notwithstanding any provision of this Agreement to the contrary, the Holders shall validly tender their Shares pursuant to the Offer and shall not withdraw such Shares prior to the expiration of the Offer, and their obligation to sell any Optioned Securities shall be satisfied, solely with respect to the Shares so tendered, upon the purchase of such Shares by the Purchaser pursuant to the Offer. If the Shares, together with any other shares of Company Common Stock validly tendered and not withdrawn pursuant to the Offer, satisfy the Minimum Condition (as defined in the Merger Agreement), then, subject to the terms and conditions of the Offer, the Purchaser shall purchase the Shares pursuant to the Offer. -2- 3 4. Covenants of the Holders. (a) During the period from the date of this Agreement until the Expiration Date, except in accordance with the provisions of this Agreement, each Holder severally and not jointly agrees that he will not: (i) sell, transfer, pledge, hypothecate, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, pledge, hypothecation, assignment or other disposition of, any Optioned Securities or Voting Securities; (ii) deposit any Optioned Securities or Voting Securities into a voting trust, or grant any proxies or enter into a voting agreement with respect to any Optioned Securities or Voting Securities; or (iii) initiate, solicit or knowingly encourage, directly or indirectly, any inquiries or the making or implementation of any proposal that constitutes, or may reasonably be expected to lead to, any Proposal (as defined in the Merger Agreement) or enter into discussions or negotiate with any person or entity in furtherance of such inquiries or to obtain a Proposal, or agree to or endorse any Proposal; except that any Holder who is a member of the board of directors of the Company may conduct himself in the manner expressly permitted under Section 9.1 of the Merger Agreement. (b) Any additional shares of Company Common Stock, warrants, options or other securities or rights exercisable for, exchangeable for or convertible into shares of Company Common Stock (collectively, "Equity Securities") acquired by any Holder will become subject to this Agreement and shall, for all purposes of this Agreement, be considered Optioned Securities or Voting Securities, as the case may be. (c) Each Holder agrees not to engage in any action or omit to take any action which would have the effect of preventing or disabling such Holder from delivering his Optioned Securities to the Purchaser or otherwise performing his obligations under this Agreement. To the extent that any Optioned Securities (other than Company Common Stock) may not be assigned by such Holder to the Purchaser without exercising, exchanging or converting such Optioned Securities for or into Company Common Stock, subject to the Purchaser making a non-interest bearing loan as set forth below, each Holder agrees to exercise, exchange or convert such Optioned Securities for or into Company Common Stock prior to the closing of the purchase of such Optioned Securities upon exercise of the Option. In order to facilitate the exercise of any Stock Option, the Purchaser shall loan to any requesting Holder funds sufficient to allow such Holder to exercise the Stock Option. Such loan shall be non- interest bearing and, at the Purchaser's option, shall be secured by a pledge of the shares of Company Common Stock acquired upon exercise of such Stock Option. -3- 4 5. Representations and Warranties of each Holder. Each Holder severally and not jointly represents and warrants to Parent and the Purchaser as follows: (a) (i) such Holder is the record or beneficial owner of the Optioned Securities, or has the right to vote the Voting Securities, listed opposite the name of such Holder on Schedule 1, (ii) such Optioned Securities or Voting Securities are the only Equity Securities owned of record or beneficially by such Holder or in which such Holder has any interest or which such Holder has the right to vote, as the case may be, and (iii) such Holder does not have any option or other right to acquire any other Equity Securities; (b) such Holder has the right, power and authority to execute and deliver this Agreement and to perform his obligations hereunder; the execution, delivery and performance of this Agreement by such Holder will not require the consent of any other person and will not constitute a violation of, conflict with or result in a default under (i) any contract, understanding or arrangement to which such Holder is a party or by which such Holder is bound, (ii) any judgment, decree or order applicable to such Holder, or (iii) any law, rule or regulation of any governmental body applicable to such Holder; and this Agreement constitutes a valid and binding agreement on the part of such Holder, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity; (c) any Shares included in the Optioned Securities owned by such Holder have been validly issued and are fully paid and nonassessable and any shares of Company Common Stock issuable upon exercise of the Stock Options or Warrants, when issued and upon payment of the exercise price therefor, will be validly issued, fully paid and nonassessable; (d) except as set forth on Schedule 1 and except for the Endevco Investors Joint Venture Agreement, which will terminate on or before sale of the Optioned Securities, the Optioned Securities owned by such Holder are now, and at all times during the term of this Agreement will be, held by such Holder free and clear of all adverse claims, liens, encumbrances and security interests, and none of the Optioned Securities or Voting Securities are subject to any voting trust or other agreement or arrangement (except as created by this Agreement) with respect to the voting or disposition of the Optioned Securities or Voting Securities; and there are no outstanding options, warrants or rights to purchase or acquire, or agreements (except for this Agreement) relating to, such Optioned Securities or Voting Securities; and (e) upon purchase of the Optioned Securities owned by such Holder, the Purchaser will obtain good and marketable title to such Optioned Securities, free and clear of all adverse claims, liens, encumbrances and security interests (except any created by the Purchaser). -4- 5 6. Effect of Representations, Warranties and Covenants of Holders. The representations, warranties and covenants of the Holders shall be several and not joint. The liability of each individual Holder shall extend only to the representations, warranties and covenants of such Holder and not to any representation, warranty or covenant of any other Holder. 7. Representations and Warranties of Parent and the Purchaser. Each of Parent and the Purchaser hereby represents and warrants to each Holder that: it is a corporation duly formed under the laws of the State of Delaware; it has all requisite corporate power and authority to enter into and perform all its obligations under this Agreement; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on its part; this Agreement has been duly executed and delivered by it; and this Agreement constitutes a valid and binding agreement on its part, enforceable in accordance with its terms, subject to applicable bankruptcy insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. 8. Voting of Equity Securities. Each Holder listed on Exhibit A hereby agrees that, during the time this Agreement is in effect, at any meeting of the stockholders of the Company, however called, and in any action by written consent of the stockholders of the Company, he shall (a) vote all Voting Securities of such Holder in favor of the Merger; (b) not vote any Voting Securities in favor of any action or agreement which would result in a breach in any material respect of any covenant, representation or warranty or any other obligation of the Company under the Merger Agreement; and (c) vote all Voting Securities of such Holder against any action or agreement which would impede, interfere with or attempt to discourage the Offer or the Merger, including, but not limited to: (i) any Proposal (other than the Offer and the Merger) involving the Company or any of its subsidiaries; (ii) any change in the management or board of directors of the Company, except as otherwise agreed to in writing by the Purchaser; (iii) any material change in the present capitalization or dividend policy of the Company; or (iv) any other material change in the Company's corporate structure or business. At the request of the Purchaser, each Holder listed on Exhibit A, in furtherance of the transactions contemplated hereby and by the Merger Agreement, shall promptly execute and deliver to the Purchaser an irrevocable proxy substantially in the form of Exhibit B hereto and irrevocably appoint the Purchaser or its designees, its attorney and proxy to vote all Voting Securities of such Holder, for all purposes whatsoever, with full power of substitution. Each such Holder acknowledges that this proxy (a) shall be coupled with an interest, (b) constitutes, among other things, an inducement for Parent and the Purchaser to enter into the Merger Agreement, and (c) shall be irrevocable and shall not be terminated by operation of law upon the occurrence of any event. Any such proxy shall terminate upon the termination of this Agreement. 9. Adjustments. In the event of any increase or decrease or other change in the Optioned Securities by reason of stock dividends, split-up, recapitalizations, combinations, exchanges of shares or the like, the number of Optioned Securities and Voting Securities subject to this Agreement shall be adjusted appropriately. -5- 6 10. Purchase of Warrants. Immediately following the purchase of shares of Company Common Stock pursuant to the Offer, Parent shall purchase (and the Holders shall sell) all outstanding Warrants held by the Holders, at a purchase price per Warrant in cash equal to the excess, if any, of $6.00 (or such higher cash price per share of Company Common Stock as shall be paid by the Purchaser pursuant to the Offer) over the exercise price per share of Company Common Stock covered by such Warrant, multiplied by the number of shares of Company Common Stock covered by such Warrant. Each Holder shall deliver to the Purchaser not less than two business days prior to the expiration of the Offer the Warrants of such Holder and all documents necessary or appropriate to effect the transactions contemplated by this Section 10, duly executed by or on behalf of such Holder. All payments required by this Section 10 shall be made by wire transfer of immediately available funds at the closing. 11. Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York without regard to its rules of conflict of laws. 12. Further Assurances. Each party hereto shall perform such further acts and execute such further documents as may reasonably be required to carry out the provisions of this Agreement. 13. Legend. As soon as practicable after the execution of this Agreement, the following legend shall be placed on the certificates representing the Optioned Securities: "The Securities represented by this certificate are subject to certain transfer and other restrictions contained in an Option Agreement, dated as of April 20, 1996, among El Paso Natural Gas Company, The El Paso Company and certain stockholders of the Corporation." 14. Assignment. This Agreement may not be assigned by any party hereto, except that the Purchaser may assign its right to purchase the Optioned Securities to one or more of its affiliates. 15. Remedies. The parties agree that legal remedies for breach of this Agreement will be inadequate and that this Agreement may be enforced by Parent and the Purchaser by injunctive or other equitable relief. 16. Notices. All notices or other communications required or permitted hereunder shall be in writing (except as otherwise provided herein) and shall be deemed duly given if delivered in person, by confirmed facsimile transmission or by overnight courier service, addressed as follows: -6- 7 To Parent or the Purchaser: El Paso Natural Gas Company 100 North Stanton Street El Paso, Texas 79901 Attention: H. Brent Austin, Senior Vice President and Chief Financial Officer With a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Gary P. Cooperstein, Esq. Facsimile: (212) 859-4000 To each Holder: At the address set forth beneath the name of such Holder on Schedule 1 Akin, Gump, Strauss, Hauer & Feld, LLP 1700 Pacific Avenue., #4100 Dallas, Texas 75201 Attention: Jack Stillwell, Esq. With copies to: Schlanger, Mills, Mayer & Grossberg, LLP 5847 San Felipe, #1700 Houston, Texas 77057 Attention: Clarence Mayer, Esq. 17. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. -7- 8 18. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. 19. Binding Effect; Benefits. This Agreement shall survive the death or incapacity of any Holder and shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. Nothing in this Agreement, expressed or implied, is intended to or shall confer on any person other than the parties hereto and their respective heirs, legal representatives and successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. IN WITNESS WHEREOF, the Holders and the Purchaser have entered into this Agreement as of the date first written above. EL PASO NATURAL GAS COMPANY By: /s/ H. Brent Austin ----------------------------------- H. Brent Austin THE EL PASO COMPANY By: /s/ Robert G. Phillips ----------------------------------- Robert G. Phillips HOLDERS: ENDEVCO INVESTORS JOINT VENTURE By: /s/ Ray C. Davis ----------------------------------- Ray C. Davis, Trustee COLLINS & WARE, INC. By: /s/ Ted Collins, Jr. ----------------------------------- Ted Collins, Jr., President /s/ James E. Davison -------------------------------------- JAMES E. DAVISON -8- 9 H&S PRODUCTION, INC., PENSION TRUST By: /s/ Scott G. Heape ----------------------------------- Scott G. Heape, Trustee /s/ Robert W. McDonald -------------------------------------- ROBERT W. McDONALD R. LACY, INC. By: /s/ Neal A. Hawthorn ----------------------------------- Neal A. Hawthorn, V.P. /s/ Richard D. Brannon -------------------------------------- RICHARD D. BRANNON, TRUSTEE SANDOLLAR OIL & GAS, INC. By: /s/ Jon P. Stephenson ----------------------------------- Jon P. Stephenson SMITH & CULPEPPER By: /s/ Roger M. Smith ----------------------------------- Roger M. Smith, G.P. /s/ W.H. Hunt -------------------------------------- W.H. HUNT LYDA HUNT-HERBERT TRUSTS DAVID S. HUNT By: /s/ Gage A. Prichard, Trustee /s/ John G. Rebensdorf, Trustee ----------------------------------- -9- 10 LYDA HUNT-HERBERT TRUSTS DOUGLAS HUNT By: /s/ Gage A. Prichard, Trustee /s/ John G. Rebensdorf, Trustee ----------------------------------- LYDA HUNT-HERBERT TRUSTS BRUCE W. HUNT By: /s/ Gage A. Prichard, Trustee /s/ John G. Rebensdorf, Trustee ----------------------------------- LYDA HUNT-HERBERT TRUSTS BARBARA A. HUNT By: /s/ Gage A. Prichard, Trustee /s/ John G. Rebensdorf, Trustee ----------------------------------- LYDA HUNT-HERBERT TRUSTS LYDA BUNKER HUNT By: /s/ Gage A. Prichard, Trustee /s/ John G. Rebensdorf, Trustee ----------------------------------- /s/ Ben H. Cook -------------------------------------- BEN H. COOK /s/ Ray C. Davis -------------------------------------- RAY C. DAVIS /s/ Kelcy L. Warren -------------------------------------- KELCY L. WARREN -10- 11 /s/ James W. Bryant -------------------------------------- JAMES W. BRYANT /s/ Kelly J. Jameson -------------------------------------- KELLY J. JAMESON /s/ Clarence Mayer -------------------------------------- CLARENCE MAYER /s/ Robert L. Cavnar -------------------------------------- ROBERT L. CAVNAR -11- 12 SCHEDULE 1
Name Shares Stock Options Warrants Voting Securities ---- ------ ------------- -------- ----------------- Endevco Investors Joint Venture Collins & Ware, Inc. 228,833 0 0 228,833 James E. Davison 533,944 0 0 533,944 H&S Production, Inc 99,924 0 0 99,924 Robert W. McDonald 152,554 0 0 152,554 R. Lacy, Inc. 533,944 0 0 533,944 Richard D. Brannon, 0 0 Trustee 300,000 300,000 Sandollar Oil & Gas, 150,000 0 0 150,000 Inc. Smith & Culpepper 43,516 0 0 43,516 W.H. Hunt 152,554 0 0 152,554 Lyda Hunt-Herbert Trusts David S. Hunt 76,278 0 0 76,278 Douglas Hunt 76,278 0 0 76,278 Bruce W. Hunt 76,278 0 0 76,278 Barbara A. Hunt 76,278 0 0 76,278 Lyda Bunker Hunt 76,278 0 0 76,278 Total 2,576,659 0 0 2,576,659 Ben H. Cook 1,618,612 0 512,821 1,618,612 Ray C. Davis 381,388 60,000 769,231 381,388 Kelcy L. Warren 352,465 60,000 769,231 352,465 James W. Bryant 509,062 0 0 509,062 Kelly J. Jameson 3,328 15,000 256,410 3,328 Clarence Mayer 0 0 256,410 0 Robert L. Cavnar 5,000 69,500 0 5,000 Total 5,446,514 204,500 2,564,103 5,446,514
-12- 13 EXHIBIT A SECTION 8 HOLDERS
Name Voting Securities - ---- ----------------- Ben H. Cook 1,618,612 Ray C. Davis 381,388 Kelcy L. Warren 352,465 James W. Bryant 509,062 R. Lacy, Inc. 533,944 James E. Davison 533,944 Richard D. Brannon, Trustee 300,000 Collins & Ware, Inc. 228,833 Robert W. McDonald 152,554 W.H. Hunt 152,554 Total 4,763,356
-13- 14 EXHIBIT B PROXY The undersigned hereby irrevocably appoints designees of The El Paso Company, a Delaware corporation (the "Purchaser"), the attorneys, agents and proxies, with full power of substitution, for the undersigned and in the name, place and stead of the undersigned to vote in such manner as such attorneys, agents and proxies or their substitutes shall in their sole discretion deem proper and otherwise act, including the execution of written consents, with respect to all voting equity securities (the "Securities"), of Cornerstone Natural Gas, Inc., a Delaware corporation (the "Company"), which the undersigned is or may be entitled to vote at any meeting of the Company held after the date hereof, whether annual or special and whether or not an adjourned meeting, or in respect of which the undersigned is or may be entitled to act by written consent. This Proxy is coupled with an interest and shall be irrevocable and binding on any successor in interest of the undersigned. This Proxy shall operate to revoke any prior proxy as to the Securities heretofore granted by the undersigned. This Proxy shall terminate upon the termination of the Option Agreement dated as of April 20, 1996 among the undersigned, certain other Holders, El Paso Natural Gas Company and the Purchaser. Dated: -14- EX-10.(H) 9 BEN H. COOK NON-COMPETITION AGREEMENT 1 NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT, made as of the 20th day of April, 1996, by and between Cornerstone Natural Gas, Inc., a Delaware corporation ("Cornerstone") and Ben H. Cook ("Individual"). WHEREAS, El Paso Natural Gas Company, a Delaware corporation ("EPG"), The El Paso Company, a Delaware corporation ("Purchaser"), and Cornerstone have entered into an Agreement and Plan of Merger, dated as of April 20, 1996 (the "Merger Agreement"); WHEREAS, Individual will sell his shares in Cornerstone to Purchaser pursuant to the Merger Agreement and will receive from Purchaser substantial payments for such shares by reason of such sale; WHEREAS, in connection with and as an inducement for EPG and Purchaser to enter into the Merger Agreement and to purchase the shares owned by Individual, Individual agrees not to compete with Cornerstone for the periods described herein; and WHEREAS, it is a prerequisite to the consummation of the transactions under the Merger Agreement that Individual and Cornerstone enter into this Noncompetition Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants, agreements and understandings contained herein, the parties hereto agree as follows: 1. Covenants. (a) Unauthorized Disclosure and Confidentiality. Individual understands, acknowledges and agrees that the business, profitability and goodwill of Cornerstone are dependent upon certain trade secrets and other proprietary information which are unique and valuable property of Cornerstone; 2 Individual further understands, acknowledges and agrees that such trade secrets and other proprietary information, which for the purpose of this Agreement are restricted to mean only the terms of contracts to which Cornerstone and its subsidiaries are parties, including sources of supply under such contracts (collectively known as "Trade Secrets"), shall be kept confidential and agrees not to disclose any of such Trade Secrets to any person, firm or corporation for any reason or purpose whatsoever, except to authorized representatives of Cornerstone, except as required by law and except to the extent that such Trade Secrets are or become publicly known other than by reason of a breach of this provision by Individual. (b) Noncompetition. In recognition of the above nature of Cornerstone's Trade Secrets and the geographic scope of its business and competition, Individual agrees, for the purpose of protecting the goodwill and other legitimate business interests of Cornerstone, that he will not, directly or indirectly, for his own account or for the account of others, as an officer, director, stockholder, owner, partner, employee, promoter, consultant, manager, or otherwise, contract, arrange or otherwise participate in any manner in the business of processing or gathering oil, natural gas or natural gas liquids (x) for three (3) years following the Effective Time (as defined in the Merger Agreement) with respect to the areas listed in Part A of Appendix I attached hereto, (y) for three (3) years following the Effective Time with respect to any processing or gathering opportunity in any area within a 10 mile radius of any existing processing or gathering system or facility of Cornerstone or any of its subsidiaries or any point of any such system or facility as it presently exists, unless the proposed processing or gathering activities do not compete with any existing system or facility of Cornerstone or any of its subsidiaries and Cornerstone and its subsidiaries have no plans to pursue the proposed processing or gathering opportunity, and (z) for eighteen (18) months following the Effective Time with respect to any gathering or processing systems or facilities that will serve production from the Austin Chalk formation in the areas listed in Part B of 2 3 Appendix I; provided, however, that nothing herein shall prohibit Individual and any entities controlled by him from owning not more than 2% of any class of securities of a publicly traded entity which is engaged in any such business. (c) Non-Solicitation. Individual agrees, for one (1) year following the Effective Time, that neither he nor any entity directly or indirectly controlled by him will interfere with the relationship of Cornerstone or any of its subsidiaries or other entities owned or controlled by Cornerstone (the "Subsidiaries") with, or endeavor to employ or entice away from Cornerstone or any of the Subsidiaries, any individual, which is an employee of Cornerstone or any of the Subsidiaries; provided that nothing herein shall restrict Individual or any entity controlled by him from hiring either (i) John Noland if John Noland is required by Cornerstone to relocate from Dallas, Texas and declines to so relocate or (ii) Doug Dormer. (d) Individual agrees that in the event of a breach or threatened breach by Individual of this Noncompetition Agreement, Cornerstone shall be entitled to an injunction restraining Individual from such breach or threatened breach. (e) Individual further agrees that Cornerstone may at any time, provide a copy, or disclose the contents, of this Noncompetition Agreement, to any new or prospective employer(s) or business associates of Individual prior to the termination of this Noncompetition Agreement upon determination by Cornerstone that Individual or the new or prospective employer or business associate is engaging in or planning to engage in any action which may breach or aid in the breach of any provision of this Noncompetition Agreement. (f) Individual understands that Cornerstone will pursue any and all remedies at law or otherwise to recover from any new or prospective employer of Individual for any loss, damage or costs which Cornerstone incurs as a result of the breach or the inducement of the breach of this Agreement, including, but not limited, to recovery for damages and expense resulting from loss of business or profit 3 4 (g) In the event that any provisions of this Noncompetition Agreement shall be deemed to exceed the time, geographic or occupational limitations permitted by the applicable laws or court interpretations thereof, such provisions deemed excessive shall be reformed, without affecting the validity and enforceability of the provisions of this Agreement which are not reformed, to the maximum time, geographic and occupational limitations which shall be permitted. 2. Gathering System. (a) Each of Individual and each affiliate he controls which has any rights to purchase interests in the Oletha gathering system, whether pursuant to Section 6 of the Bill of Sale, Assignment and Deed dated April 1, 1993 (the "Assignment") from Ben H. Cook, H&S Production, Inc., Palo Verde Oil Company, Sandollar Oil & Gas, Inc., S&P Co. and Gary S. Swindell or otherwise (the "Purchase Option") is, concurrently with the execution of this Agreement, executing an irrevocable assignment (to the extent such rights are assignable) effective as of the Effective Time in favor of EPG of any and all rights which Individual and his affiliates have or may have under the Purchase Option, in the form of Appendix II, if such assignment has not previously been effected. Individual hereby covenants to use his best efforts (but without the requirement to expend funds) to cause all other persons who may have rights under the Purchase Option to irrevocably waive such rights or to assign such rights to EPG, and to take such other actions as may be necessary or appropriate to cause such Purchase Option to be terminated or otherwise to prevent such Purchase Option becoming exercisable. (b) Individual hereby agrees to indemnify and hold harmless EPG, Cornerstone and their respective affiliates from and against all losses, damages, including consequential damages, liabilities, costs and expenses, including legal fees and expenses, which may be suffered or incurred arising out of, resulting from or relating to Kelcy L. Warren ("Warren") ceasing to perform the Required Functions (as defined in the Noncompetition Agreement dated the date hereof between Cornerstone and Warren) for 4 5 any reason other than (a) death or (b) physical or mental disability preventing Warren from performing the Required Functions including, but not limited to damages, costs or losses suffered or incurred by reason of the exercise of the Purchase Option contained in paragraph 6 of the Assignment; provided, however, in no event shall Individual have any liability for the failure of Warren to actively serve as the President of Energy Transfer Corporation or perform the Required Functions after the Purchase Option has, by its terms, terminated, or has been waived or assigned to Cornerstone in its entirety. 3. New Ventures. (a) If, within three years after the Effective Date, Individual or any entity directly or indirectly controlled by him, either alone or together with Ben H. Cook and/or Warren or any entities either of them controls, directly or indirectly, forms or invests in any venture (whether a corporation, partnership, joint venture, business trust or other entity) in the business of processing or gathering of oil, natural gas or natural gas liquids, for which third party equity financing is or has been received or is sought (a "New Venture") (other than warrants or other equity "kickers" granted as a yield enhancement as part of bona fide debt financing arrangements provided by financial institutions whose primary business is providing debt financing (which shall exclude any individual, corporation, partnership, joint venture, business trust or other person or entity engaged in the oil and gas industry whose primary business is not providing debt financing)) , then Cornerstone (or its affiliates) shall have the option to acquire a one-eighth (1/8) equity or ownership interest in each such New Venture, free of any promote or override to which the equity interest acquired or to be acquired by such third party may be subject. Individual shall notify Cornerstone promptly in writing of any New Venture and provide all information reasonably available so that Cornerstone or such affiliate can make an investment decision, and within 30 days following receipt of such written notice, Cornerstone shall notify Individual in writing of its election whether to exercise its option with respect to such New Venture. The exercise of the option with respect to any New 5 6 Venture shall take place as promptly as practicable following receipt by Individual of an election by Cornerstone to exercise the option. Notwithstanding the foregoing, if gathering or processing facilities are being built as part of development of an oil or gas field in which Individual has a working interest and the equity interests in such facilities are owned solely by the working interest owners, so long as Individual's investment in the wells or working interest exceeds his investment in the gathering or processing facilities, such facilities shall not constitute a New Venture within the meaning of this Agreement. (b) In the event that any New Venture in respect of which Cornerstone or an affiliate has exercised the option described in the preceding paragraph intends to issue (i) any shares of capital stock or other equity securities or ownership interests or (ii) securities or rights convertible into, exchangeable for or exercisable for shares of capital stock or equity securities or interests: (A) such New Venture shall give Cornerstone (or such affiliate) written notice of its intent to sell such securities or interests, specifying the number thereof to be sold and the minimum price and terms and conditions of such sale and offering to sell such securities or interests to Cornerstone (or such affiliate); (B) if Cornerstone (or such affiliate) shall not, within 30 days after receipt of the notice given pursuant to clause (A) above, accept such offer in writing with respect to the securities or interests specified in such notice, then such New Venture shall be free to sell the securities or interests specified in such notice (but only those securities or interests) at a price equal to or above the minimum price and on other terms and conditions no less favorable to such New Venture than those specified in such notice, at any time after the expiration of such 30-day period; (C) if Cornerstone (or such affiliate) shall accept such offer within 30 days after the notice given pursuant to clause (A) above, then Cornerstone (or such affiliate) shall purchase the securities or interests specified in such notice in accordance with the terms of the offer. 6 7 4. Certain Opportunities. Cornerstone agrees that, subject to compliance by Individual with the provisions of Section 1 of this Agreement, including, without limitation, the non-competition restrictions contained in Section 1(b), Individual may pursue the business opportunities set forth on Appendix III hereto, and Cornerstone hereby disclaims any interest in pursuing such opportunities to the extent, if any, that such opportunities may be deemed corporate opportunities of Cornerstone. EPG and Purchaser acknowledge that the price paid to stockholders was not reduced by reason of the provisions of this Section and that EPG and Purchaser would not have increased the price paid to stockholders if this Section 4 did not exist. 5. Notices. Any notice required to be given hereunder shall be sufficient if in writing, and sent by facsimile transmission and by courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid), addressed as follows: If to Cornerstone: If to Individual: Cornerstone Natural Gas, Inc. to the address set forth 8080 North Central Express on the signature page Suite 1200 hereof Dallas, Texas 75206 Attention: Chairman of the Board and Chief Executive Officer Facsimile: (214) 739-8251 With a copy to: With a copy to: Gary P. Cooperstein, Esq. Clarence Mayer, Esq. Fried, Frank, Harris, Schlanger, Mills, Mayer Shriver & Jacobson & Grossberg, L.L.P. One New York Plaza 5847 San Felipe, Suite 1700 New York, NY 10004 Houston, Texas 77057 Facsimile: (212) 747-1526 Facsimile: (713) 785-2091 7 8 or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so telecommunicated, personally delivered or mailed. 6. Binding Effect/Assignment. This Noncompetition Agreement shall be binding upon the parties hereto and shall inure to the benefit of Cornerstone and EPG and their respective successors and assigns. This Noncompetition Agreement may be assigned by Cornerstone and EPG to their respective affiliates. Neither this Noncompetition Agreement nor any right, interest or obligation hereunder shall be assignable or transferable by Individual, or such party's beneficiaries or legal representatives. 7. Miscellaneous. No provision of this Noncompetition Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Individual and Cornerstone. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Noncompetition Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Noncompetition Agreement. 8. Effective Date. The term of this Agreement shall begin as of the Effective Time, provided that this Agreement shall be null and void if the Merger Agreement is terminated. 9. Entire Agreement. This Noncompetition Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and thereof 8 9 and supersede all prior agreements, written or oral, between them as to such subject matter. 10. Headings. The headings contained herein are solely for the purpose of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement. 11. Severability. If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this Agreement. 12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, without reference to the principles of conflict of laws thereof. 13. Consent to Jurisdiction. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the jurisdiction of the courts of the State of Texas or of the United States of America located in the State of Texas for any actions, suits or proceedings arising out of or relating to this Noncompetition Agreement and the transactions contemplated hereby and agrees not to commence any action, suit or proceeding relating hereto except in such courts, and further agrees that service of any process, summons, notice or document by United States registered or certified mail shall be effective service of process for any action, suit or proceeding brought in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to personal jurisdiction and the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby, in the courts of the State of Texas or of the United States of America located in the State of Texas, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in 9 10 any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 14. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. APPROVED CORNERSTONE NATURAL GAS, INC. THE EL PASO COMPANY By: /s/ RAY C. DAVIS ----------------------------------- By: /s/ ROBERT G. PHILLIPS Name: Ray C. Davis --------------------------- --------------------------------- Name: Robert G. Phillips Title: Chief Executive Officer ----------------------- -------------------------------- Title: Senior Vice President ----------------------- /s/ BEN H. COOK -------------------------------------- Ben H. Cook Address for notices: Ben H. Cook P.O. Box 1906 Longview, Texas 75606 10 EX-10.(I) 10 RAY C. DAVIS NON-COMPETITION AGREEMENT 1 NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT, made as of the 20th day of April, 1996, by and between Cornerstone Natural Gas, Inc., a Delaware corporation ("Cornerstone") and Ray C. Davis ("Individual"). WHEREAS, El Paso Natural Gas Company, a Delaware corporation ("EPG"), The El Paso Company, a Delaware corporation ("Purchaser"), and Cornerstone have entered into an Agreement and Plan of Merger, dated as of April 20, 1996 (the "Merger Agreement"); WHEREAS, Individual will sell his shares in Cornerstone to Purchaser pursuant to the Merger Agreement and will receive from Purchaser substantial payments for such shares by reason of such sale; WHEREAS, in connection with and as an inducement for EPG and Purchaser to enter into the Merger Agreement and to purchase the shares owned by Individual, Individual agrees not to compete with Cornerstone for the periods described herein; and WHEREAS, it is a prerequisite to the consummation of the transactions under the Merger Agreement that Individual and Cornerstone enter into this Noncompetition Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants, agreements and understandings contained herein, the parties hereto agree as follows: 1. Covenants. (a) Unauthorized Disclosure and Confidentiality. Individual understands, acknowledges and agrees that the business, profitability and goodwill of Cornerstone are dependent upon certain trade secrets and other proprietary information which are unique and valuable property of Cornerstone; 2 Individual further understands, acknowledges and agrees that such trade secrets and other proprietary information, which for the purpose of this Agreement are restricted to mean only the terms of contracts to which Cornerstone and its subsidiaries are parties, including sources of supply under such contracts (collectively known as "Trade Secrets"), shall be kept confidential and agrees not to disclose any of such Trade Secrets to any person, firm or corporation for any reason or purpose whatsoever, except to authorized representatives of Cornerstone, except as required by law and except to the extent that such Trade Secrets are or become publicly known other than by reason of a breach of this provision by Individual. (b) Noncompetition. In recognition of the above nature of Cornerstone's Trade Secrets and the geographic scope of its business and competition, Individual agrees, for the purpose of protecting the goodwill and other legitimate business interests of Cornerstone, that he will not, directly or indirectly, for his own account or for the account of others, as an officer, director, stockholder, owner, partner, employee, promoter, consultant, manager, or otherwise, contract, arrange or otherwise participate in any manner in the business of processing or gathering oil, natural gas or natural gas liquids (x) for three (3) years following the Effective Time (as defined in the Merger Agreement) with respect to the areas listed in Part A of Appendix I attached hereto, (y) for three (3) years following the Effective Time with respect to any processing or gathering opportunity in any area within a 10 mile radius of any existing processing or gathering system or facility of Cornerstone or any of its subsidiaries or any point of any such system or facility as it presently exists, unless the proposed processing or gathering activities do not compete with any existing system or facility of Cornerstone or any of its subsidiaries and Cornerstone and its subsidiaries have no plans to pursue the proposed processing or gathering opportunity, and (z) for eighteen (18) months following the Effective Time with respect to any gathering or processing systems or facilities that will serve production from the Austin Chalk formation in the areas listed in Part B of 2 3 Appendix I; provided, however, that nothing herein shall prohibit Individual and any entities controlled by him from owning not more than 2% of any class of securities of a publicly traded entity which is engaged in any such business. (c) Non-Solicitation. Individual agrees, for one (1) year following the Effective Time, that neither he nor any entity directly or indirectly controlled by him will interfere with the relationship of Cornerstone or any of its subsidiaries or other entities owned or controlled by Cornerstone (the "Subsidiaries") with, or endeavor to employ or entice away from Cornerstone or any of the Subsidiaries, any individual, which is an employee of Cornerstone or any of the Subsidiaries; provided that nothing herein shall restrict Individual or any entity controlled by him from hiring either (i) John Noland if John Noland is required by Cornerstone to relocate from Dallas, Texas and declines to so relocate or (ii) Doug Dormer. (d) Individual agrees that in the event of a breach or threatened breach by Individual of this Noncompetition Agreement, Cornerstone shall be entitled to an injunction restraining Individual from such breach or threatened breach. (e) Individual further agrees that Cornerstone may at any time, provide a copy, or disclose the contents, of this Noncompetition Agreement, to any new or prospective employer(s) or business associates of Individual prior to the termination of this Noncompetition Agreement upon determination by Cornerstone that Individual or the new or prospective employer or business associate is engaging in or planning to engage in any action which may breach or aid in the breach of any provision of this Noncompetition Agreement. (f) Individual understands that Cornerstone will pursue any and all remedies at law or otherwise to recover from any new or prospective employer of Individual for any loss, damage or costs which Cornerstone incurs as a result of the breach or the inducement of the breach of this Agreement, including, but not limited, to recovery for damages and expense resulting from loss of business or profit 3 4 (g) In the event that any provisions of this Noncompetition Agreement shall be deemed to exceed the time, geographic or occupational limitations permitted by the applicable laws or court interpretations thereof, such provisions deemed excessive shall be reformed, without affecting the validity and enforceability of the provisions of this Agreement which are not reformed, to the maximum time, geographic and occupational limitations which shall be permitted. 2. Gathering System. (a) Each of Individual and each affiliate he controls which has any rights to purchase interests in the Oletha gathering system, whether pursuant to Section 6 of the Bill of Sale, Assignment and Deed dated April 1, 1993 (the "Assignment") from Ben H. Cook, H&S Production, Inc., Palo Verde Oil Company, Sandollar Oil & Gas, Inc., S&P Co. and Gary S. Swindell or otherwise (the "Purchase Option") is, concurrently with the execution of this Agreement, executing an irrevocable assignment (to the extent such rights are assignable) effective as of the Effective Time in favor of EPG of any and all rights which Individual and his affiliates have or may have under the Purchase Option, in the form of Appendix II, if such assignment has not previously been effected. Individual hereby covenants to use his best efforts (but without the requirement to expend funds) to cause all other persons who may have rights under the Purchase Option to irrevocably waive such rights or to assign such rights to EPG, and to take such other actions as may be necessary or appropriate to cause such Purchase Option to be terminated or otherwise to prevent such Purchase Option becoming exercisable. (b) Individual hereby agrees to indemnify and hold harmless EPG, Cornerstone and their respective affiliates from and against all losses, damages, including consequential damages, liabilities, costs and expenses, including legal fees and expenses, which may be suffered or incurred arising out of, resulting from or relating to Kelcy L. Warren ("Warren") ceasing to perform the Required Functions (as defined in the Noncompetition Agreement dated the date hereof between Cornerstone and Warren) for 4 5 any reason other than (a) death or (b) physical or mental disability preventing Warren from performing the Required Functions including, but not limited to damages, costs or losses suffered or incurred by reason of the exercise of the Purchase Option contained in paragraph 6 of the Assignment; provided, however, in no event shall Individual have any liability for the failure of Warren to actively serve as the President of Energy Transfer Corporation or perform the Required Functions after the Purchase Option has, by its terms, terminated, or has been waived or assigned to Cornerstone in its entirety. 3. New Ventures. (a) If, within three years after the Effective Date, Individual or any entity directly or indirectly controlled by him, either alone or together with Ben H. Cook and/or Warren or any entities either of them controls, directly or indirectly, forms or invests in any venture (whether a corporation, partnership, joint venture, business trust or other entity) in the business of processing or gathering of oil, natural gas or natural gas liquids, for which third party equity financing is or has been received or is sought (a "New Venture") (other than warrants or other equity "kickers" granted as a yield enhancement as part of bona fide debt financing arrangements provided by financial institutions whose primary business is providing debt financing (which shall exclude any individual, corporation, partnership, joint venture, business trust or other person or entity engaged in the oil and gas industry whose primary business is not providing debt financing)) , then Cornerstone (or its affiliates) shall have the option to acquire a one-eighth (1/8) equity or ownership interest in each such New Venture, free of any promote or override to which the equity interest acquired or to be acquired by such third party may be subject. Individual shall notify Cornerstone promptly in writing of any New Venture and provide all information reasonably available so that Cornerstone or such affiliate can make an investment decision, and within 30 days following receipt of such written notice, Cornerstone shall notify Individual in writing of its election whether to exercise its option with respect to such New Venture. The exercise of the option with respect to any New 5 6 Venture shall take place as promptly as practicable following receipt by Individual of an election by Cornerstone to exercise the option. Notwithstanding the foregoing, if gathering or processing facilities are being built as part of development of an oil or gas field in which Individual has a working interest and the equity interests in such facilities are owned solely by the working interest owners, so long as Individual's investment in the wells or working interest exceeds his investment in the gathering or processing facilities, such facilities shall not constitute a New Venture within the meaning of this Agreement. (b) In the event that any New Venture in respect of which Cornerstone or an affiliate has exercised the option described in the preceding paragraph intends to issue (i) any shares of capital stock or other equity securities or ownership interests or (ii) securities or rights convertible into, exchangeable for or exercisable for shares of capital stock or equity securities or interests: (A) such New Venture shall give Cornerstone (or such affiliate) written notice of its intent to sell such securities or interests, specifying the number thereof to be sold and the minimum price and terms and conditions of such sale and offering to sell such securities or interests to Cornerstone (or such affiliate); (B) if Cornerstone (or such affiliate) shall not, within 30 days after receipt of the notice given pursuant to clause (A) above, accept such offer in writing with respect to the securities or interests specified in such notice, then such New Venture shall be free to sell the securities or interests specified in such notice (but only those securities or interests) at a price equal to or above the minimum price and on other terms and conditions no less favorable to such New Venture than those specified in such notice, at any time after the expiration of such 30-day period; (C) if Cornerstone (or such affiliate) shall accept such offer within 30 days after the notice given pursuant to clause (A) above, then Cornerstone (or such affiliate) shall purchase the securities or interests specified in such notice in accordance with the terms of the offer. 6 7 4. Certain Opportunities. Cornerstone agrees that, subject to compliance by Individual with the provisions of Section 1 of this Agreement, including, without limitation, the non-competition restrictions contained in Section 1(b), Individual may pursue the business opportunities set forth on Appendix III hereto, and Cornerstone hereby disclaims any interest in pursuing such opportunities to the extent, if any, that such opportunities may be deemed corporate opportunities of Cornerstone. EPG and Purchaser acknowledge that the price paid to stockholders was not reduced by reason of the provisions of this Section and that EPG and Purchaser would not have increased the price paid to stockholders if this Section 4 did not exist. 5. Notices. Any notice required to be given hereunder shall be sufficient if in writing, and sent by facsimile transmission and by courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid), addressed as follows: If to Cornerstone: If to Individual: Cornerstone Natural Gas, Inc. to the address set forth 8080 North Central Express on the signature page Suite 1200 hereof Dallas, Texas 75206 Attention: Chairman of the Board and Chief Executive Officer Facsimile: (214) 739-8251 With a copy to: With a copy to: Gary P. Cooperstein, Esq. Clarence Mayer, Esq. Fried, Frank, Harris, Schlanger, Mills, Mayer Shriver & Jacobson & Grossberg, L.L.P. One New York Plaza 5847 San Felipe, Suite 1700 New York, NY 10004 Houston, Texas 77057 Facsimile: (212) 747-1526 Facsimile: (713) 785-2091 7 8 or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so telecommunicated, personally delivered or mailed. 6. Binding Effect/Assignment. This Noncompetition Agreement shall be binding upon the parties hereto and shall inure to the benefit of Cornerstone and EPG and their respective successors and assigns. This Noncompetition Agreement may be assigned by Cornerstone and EPG to their respective affiliates. Neither this Noncompetition Agreement nor any right, interest or obligation hereunder shall be assignable or transferable by Individual, or such party's beneficiaries or legal representatives. 7. Miscellaneous. No provision of this Noncompetition Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Individual and Cornerstone. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Noncompetition Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Noncompetition Agreement. 8. Effective Date. The term of this Agreement shall begin as of the Effective Time, provided that this Agreement shall be null and void if the Merger Agreement is terminated. 9. Entire Agreement. This Noncompetition Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and thereof 8 9 and supersede all prior agreements, written or oral, between them as to such subject matter. 10. Headings. The headings contained herein are solely for the purpose of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement. 11. Severability. If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this Agreement. 12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, without reference to the principles of conflict of laws thereof. 13. Consent to Jurisdiction. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the jurisdiction of the courts of the State of Texas or of the United States of America located in the State of Texas for any actions, suits or proceedings arising out of or relating to this Noncompetition Agreement and the transactions contemplated hereby and agrees not to commence any action, suit or proceeding relating hereto except in such courts, and further agrees that service of any process, summons, notice or document by United States registered or certified mail shall be effective service of process for any action, suit or proceeding brought in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to personal jurisdiction and the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby, in the courts of the State of Texas or of the United States of America located in the State of Texas, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in 9 10 any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 14. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. APPROVED CORNERSTONE NATURAL GAS, INC. THE EL PASO COMPANY By: /s/ KELCY L. WARREN ----------------------------------- By: /s/ ROBERT G. PHILLIPS Name: Kelcy L. Warren --------------------------- --------------------------------- Name: Robert G. Phillips Title: President ----------------------- -------------------------------- Title: Senior Vice President ----------------------- /s/ RAY C. DAVIS -------------------------------------- Ray C. Davis Address for notices: Ray C. Davis 9826 Crestline Drive Dallas, TX 75220 10 EX-10.(J) 11 KELCY L. WARREN NON-COMPETITION AGREEMENT 1 NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT, made as of the 20th day of April, 1996, by and between Cornerstone Natural Gas, Inc., a Delaware corporation ("Cornerstone") and Kelcy L. Warren ("Individual"). WHEREAS, El Paso Natural Gas Company, a Delaware corporation ("EPG"), The El Paso Company, a Delaware corporation ("Purchaser"), and Cornerstone have entered into an Agreement and Plan of Merger, dated as of April 20, 1996 (the "Merger Agreement"); WHEREAS, Individual will sell his shares in Cornerstone to Purchaser pursuant to the Merger Agreement and will receive from Purchaser substantial payments for such shares by reason of such sale; WHEREAS, in connection with and as an inducement for EPG and Purchaser to enter into the Merger Agreement and to purchase the shares owned by Individual, Individual agrees not to compete with Cornerstone for the periods described herein; and WHEREAS, it is a prerequisite to the consummation of the transactions under the Merger Agreement that Individual and Cornerstone enter into this Noncompetition Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants, agreements and understandings contained herein, the parties hereto agree as follows: 1. Covenants. (a) Unauthorized Disclosure and Confidentiality. Individual understands, acknowledges and agrees that the business, profitability and goodwill of Cornerstone are dependent upon certain trade secrets and other proprietary information which are unique and valuable property of Cornerstone; 2 Individual further understands, acknowledges and agrees that such trade secrets and other proprietary information, which for the purpose of this Agreement are restricted to mean only the terms of contracts to which Cornerstone and its subsidiaries are parties, including sources of supply under such contracts (collectively known as "Trade Secrets"), shall be kept confidential and agrees not to disclose any of such Trade Secrets to any person, firm or corporation for any reason or purpose whatsoever, except to authorized representatives of Cornerstone, except as required by law and except to the extent that such Trade Secrets are or become publicly known other than by reason of a breach of this provision by Individual. (b) Noncompetition. In recognition of the above nature of Cornerstone's Trade Secrets and the geographic scope of its business and competition, Individual agrees, for the purpose of protecting the goodwill and other legitimate business interests of Cornerstone, that he will not, directly or indirectly, for his own account or for the account of others, as an officer, director, stockholder, owner, partner, employee, promoter, consultant, manager, or otherwise, contract, arrange or otherwise participate in any manner in the business of processing or gathering oil, natural gas or natural gas liquids (x) for three (3) years following the Effective Time (as defined in the Merger Agreement) with respect to the areas listed in Part A of Appendix I attached hereto, (y) for three (3) years following the Effective Time with respect to any processing or gathering opportunity in any area within a 10 mile radius of any existing processing or gathering system or facility of Cornerstone or any of its subsidiaries or any point of any such system or facility as it presently exists, unless the proposed processing or gathering activities do not compete with any existing system or facility of Cornerstone or any of its subsidiaries and Cornerstone and its subsidiaries have no plans to pursue the proposed processing or gathering opportunity, and (z) for eighteen (18) months following the Effective Time with respect to any gathering or processing systems or facilities that will serve production from the Austin Chalk formation in the areas listed in Part B of 2 3 Appendix I; provided, however, that nothing herein shall prohibit Individual and any entities controlled by him from owning not more than 2% of any class of securities of a publicly traded entity which is engaged in any such business. (c) Non-Solicitation. Individual agrees, for one (1) year following the Effective Time, that neither he nor any entity directly or indirectly controlled by him will interfere with the relationship of Cornerstone or any of its subsidiaries or other entities owned or controlled by Cornerstone (the "Subsidiaries") with, or endeavor to employ or entice away from Cornerstone or any of the Subsidiaries, any individual, which is an employee of Cornerstone or any of the Subsidiaries; provided that nothing herein shall restrict Individual or any entity controlled by him from hiring either (i) John Noland if John Noland is required by Cornerstone to relocate from Dallas, Texas and declines to so relocate or (ii) Doug Dormer. (d) Individual agrees that in the event of a breach or threatened breach by Individual of this Noncompetition Agreement, Cornerstone shall be entitled to an injunction restraining Individual from such breach or threatened breach. (e) Individual further agrees that Cornerstone may at any time, provide a copy, or disclose the contents, of this Noncompetition Agreement, to any new or prospective employer(s) or business associates of Individual prior to the termination of this Noncompetition Agreement upon determination by Cornerstone that Individual or the new or prospective employer or business associate is engaging in or planning to engage in any action which may breach or aid in the breach of any provision of this Noncompetition Agreement. (f) Individual understands that Cornerstone will pursue any and all remedies at law or otherwise to recover from any new or prospective employer of Individual for any loss, damage or costs which Cornerstone incurs as a result of the breach or the inducement of the breach of this Agreement, including, but not limited, to recovery for damages and expense resulting from loss of business or profit 3 4 (g) In the event that any provisions of this Noncompetition Agreement shall be deemed to exceed the time, geographic or occupational limitations permitted by the applicable laws or court interpretations thereof, such provisions deemed excessive shall be reformed, without affecting the validity and enforceability of the provisions of this Agreement which are not reformed, to the maximum time, geographic and occupational limitations which shall be permitted. 2. Gathering System. (a) Each of Individual and each affiliate he controls which has any rights to purchase interests in the Oletha gathering system, whether pursuant to Section 6 of the Bill of Sale, Assignment and Deed dated April 1, 1993 (the "Assignment") from Ben H. Cook, H&S Production, Inc., Palo Verde Oil Company, Sandollar Oil & Gas, Inc., S&P Co. and Gary S. Swindell or otherwise (the "Purchase Option") is, concurrently with the execution of this Agreement, executing an irrevocable assignment (to the extent such rights are assignable) effective as of the Effective Time in favor of EPG of any and all rights which Individual and his affiliates have or may have under the Purchase Option, in the form of Appendix II, if such assignment has not previously been effected. Individual hereby covenants to use his best efforts (but without the requirement to expend funds) to cause all other persons who may have rights under the Purchase Option to irrevocably waive such rights or to assign such rights to EPG, and to take such other actions as may be necessary or appropriate to cause such Purchase Option to be terminated or otherwise to prevent such Purchase Option becoming exercisable. In connection with the foregoing, Individual shall continue to be and actively serve as the President of Energy Transfer Corporation ("ETC"), without compensation, for as long as EPG may request and, at the direction of EPG, will perform the following functions (the "Required Functions"): Individual will have all powers and duties usually associated with the office of President (subject to such limitations or extensions set by the Board of Directors) and will not delegate any such powers or duties; as President of ETC, Warren will 4 5 continue to be the senior officer of ETC answering only to the Board of Directors of ETC and will be responsible for the general and active management of ETC; among other things, Individual will be responsible for (i) making sure that new gas is correctly and promptly connected to the Oletha gathering system, (ii) the marketing of gas from the system and (iii) causing the system to be maintained. (b) Individual hereby agrees to indemnify and hold harmless EPG, Cornerstone and their respective affiliates from and against all losses, damages, including consequential damages, liabilities, costs and expenses, including legal fees and expenses, which may be suffered or incurred arising out of, resulting from or relating to Individual's ceasing to perform the Required Functions for any reason other than (a) death or (b) physical or mental disability preventing Individual from performing the Required Functions including, but not limited to damages, costs or losses suffered or incurred by reason of the exercise of the Purchase Option contained in paragraph 6 of the Assignment; provided, however, in no event shall Individual have any liability for the failure to actively serve as the President of ETC or perform the Required Functions after the Purchase Option has, by its terms, terminated, or has been waived or assigned to Cornerstone in its entirety. 3. New Ventures. (a) If, within three years after the Effective Date, Individual or any entity directly or indirectly controlled by him, either alone or together with Ben H. Cook and/or Ray C. Davis or any entities either of them controls, directly or indirectly, forms or invests in any venture (whether a corporation, partnership, joint venture, business trust or other entity) in the business of processing or gathering of oil, natural gas or natural gas liquids, for which third party equity financing is or has been received or is sought (a "New Venture") (other than warrants or other equity "kickers" granted as a yield enhancement as part of bona fide debt financing arrangements provided by financial institutions whose primary business is providing debt financing (which shall exclude any individual, corporation, partnership, joint venture, business trust or other person or entity 5 6 engaged in the oil and gas industry whose primary business is not providing debt financing)) , then Cornerstone (or its affiliates) shall have the option to acquire a one-eighth (1/8) equity or ownership interest in each such New Venture, free of any promote or override to which the equity interest acquired or to be acquired by such third party may be subject. Individual shall notify Cornerstone promptly in writing of any New Venture and provide all information reasonably available so that Cornerstone or such affiliate can make an investment decision, and within 30 days following receipt of such written notice, Cornerstone shall notify Individual in writing of its election whether to exercise its option with respect to such New Venture. The exercise of the option with respect to any New Venture shall take place as promptly as practicable following receipt by Individual of an election by Cornerstone to exercise the option. Notwithstanding the foregoing, if gathering or processing facilities are being built as part of development of an oil or gas field in which Individual has a working interest and the equity interests in such facilities are owned solely by the working interest owners, so long as Individual's investment in the wells or working interest exceeds his investment in the gathering or processing facilities, such facilities shall not constitute a New Venture within the meaning of this Agreement. (b) In the event that any New Venture in respect of which Cornerstone or an affiliate has exercised the option described in the preceding paragraph intends to issue (i) any shares of capital stock or other equity securities or ownership interests or (ii) securities or rights convertible into, exchangeable for or exercisable for shares of capital stock or equity securities or interests: (A) such New Venture shall give Cornerstone (or such affiliate) written notice of its intent to sell such securities or interests, specifying the number thereof to be sold and the minimum price and terms and conditions of such sale and offering to sell such securities or interests to Cornerstone (or such affiliate); 6 7 (B) if Cornerstone (or such affiliate) shall not, within 30 days after receipt of the notice given pursuant to clause (A) above, accept such offer in writing with respect to the securities or interests specified in such notice, then such New Venture shall be free to sell the securities or interests specified in such notice (but only those securities or interests) at a price equal to or above the minimum price and on other terms and conditions no less favorable to such New Venture than those specified in such notice, at any time after the expiration of such 30-day period; (C) if Cornerstone (or such affiliate) shall accept such offer within 30 days after the notice given pursuant to clause (A) above, then Cornerstone (or such affiliate) shall purchase the securities or interests specified in such notice in accordance with the terms of the offer. 4. Certain Opportunities. Cornerstone agrees that, subject to compliance by Individual with the provisions of Section 1 of this Agreement, including, without limitation, the non-competition restrictions contained in Section 1(b), Individual may pursue the business opportunities set forth on Appendix III hereto, and Cornerstone hereby disclaims any interest in pursuing such opportunities to the extent, if any, that such opportunities may be deemed corporate opportunities of Cornerstone. EPG and Purchaser acknowledge that the price paid to stockholders was not reduced by reason of the provisions of this Section and that EPG and Purchaser would not have increased the price paid to stockholders if this Section 4 did not exist. 5. Notices. Any notice required to be given hereunder shall be sufficient if in writing, and sent by facsimile transmission and by courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid), addressed as follows: 7 8 If to Cornerstone: If to Individual: Cornerstone Natural Gas, Inc. to the address set forth 8080 North Central Express on the signature page Suite 1200 hereof Dallas, Texas 75206 Attention: Chairman of the Board and Chief Executive Officer Facsimile: (214) 739-8251 With a copy to: With a copy to: Gary P. Cooperstein, Esq. Clarence Mayer, Esq. Fried, Frank, Harris, Schlanger, Mills, Mayer Shriver & Jacobson & Grossberg, L.L.P. One New York Plaza 5847 San Felipe, Suite 1700 New York, NY 10004 Houston, Texas 77057 Facsimile: (212) 747-1526 Facsimile: (713) 785-2091 or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so telecommunicated, personally delivered or mailed. 6. Binding Effect/Assignment. This Noncompetition Agreement shall be binding upon the parties hereto and shall inure to the benefit of Cornerstone and EPG and their respective successors and assigns. This Noncompetition Agreement may be assigned by Cornerstone and EPG to their respective affiliates. Neither this Noncompetition Agreement nor any right, interest or obligation hereunder shall be assignable or transferable by Individual, or such party's beneficiaries or legal representatives. 7. Miscellaneous. No provision of this Noncompetition Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Individual and Cornerstone. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or 8 9 provision of this Noncompetition Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Noncompetition Agreement. 8. Effective Date. The term of this Agreement shall begin as of the Effective Time, provided that this Agreement shall be null and void if the Merger Agreement is terminated. 9. Entire Agreement. This Noncompetition Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and thereof and supersede all prior agreements, written or oral, between them as to such subject matter. 10. Headings. The headings contained herein are solely for the purpose of reference, are not part of this Agreement and shall not in any way affect the meaning or interpretation of this Agreement. 11. Severability. If any provision of this Agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this Agreement. 12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, without reference to the principles of conflict of laws thereof. 13. Consent to Jurisdiction. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the jurisdiction of the courts of the State of 9 10 Texas or of the United States of America located in the State of Texas for any actions, suits or proceedings arising out of or relating to this Noncompetition Agreement and the transactions contemplated hereby and agrees not to commence any action, suit or proceeding relating hereto except in such courts, and further agrees that service of any process, summons, notice or document by United States registered or certified mail shall be effective service of process for any action, suit or proceeding brought in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to personal jurisdiction and the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby, in the courts of the State of Texas or of the United States of America located in the State of Texas, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 14. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same Agreement. 15. Consulting Agreement. If requested by Cornerstone at any time prior to the Effective Time, Individual agrees to enter into the Consulting Agreement, the form of which is attached as Appendix IV hereto. EPG and Purchaser have required, as a condition to their willingness to enter into the Merger Agreement, that Individual agrees to provide the consulting services under the Consulting Agreement if requested. At no time has individual requested such Consulting Agreement; in fact, Individual declined a more attractive employment offer from Cornerstone and EPG. 10 11 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. APPROVED CORNERSTONE NATURAL GAS, INC. THE EL PASO COMPANY By: /s/ RAY C. DAVIS ----------------------------------- By: /s/ ROBERT G. PHILLIPS Name: Ray C. Davis --------------------------- --------------------------------- Name: Robert G. Phillips Title: Chief Executive Officer ----------------------- -------------------------------- Title: Senior Vice President ----------------------- /s/ KELCY L. WARREN -------------------------------------- Kelcy L. Warren Address for notice: Kelcy L. Warren P.O. Box 706 Palestine, TX 75802 11 EX-10.(K) 12 FORM OF CONSULTING AGREEMENT 1 FORM OF CONSULTING AGREEMENT THIS CONSULTING AGREEMENT, made as of the ____ day of _____, 1996, by and between Cornerstone Natural Gas, Inc., a Delaware corporation ("Cornerstone") and Kelcy Warren ("Warren"). WHEREAS, El Paso Natural Gas Company, a Delaware corporation, The El Paso Company, a Delaware corporation, and Cornerstone have entered into an Agreement and Plan of Merger, dated as of April 20, 1996 (the "Merger Agreement"); WHEREAS, Warren has served Cornerstone in various capacities since 1985, including serving as President and Chief Operating Officer since 1993; WHEREAS, Cornerstone desires to obtain Warren's services as a consultant to Cornerstone, both for his expertise and to provide for a smooth transition; and WHEREAS, Warren agrees to be so retained upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereby agree as follows: 1. Term. Cornerstone hereby agrees to retain Warren as a consultant to Cornerstone and Warren agrees to be so retained by Cornerstone on the terms and conditions set forth below for a period of one year from the date hereof (the "Term"). 2. Services. During the Term, Warren shall perform the services described herein as may reasonably be requested from time to time by the Board of Directors or Chief Executive Officer of Cornerstone in consultation with Warren. Such consulting services shall consist of the rendering of advice with respect to Cornerstone's operations in natural gas gathering, processing and marketing. Warren agrees to make himself available at reasonable times and places not more frequently than an average of four (4) days per month in any calendar quarter (such availability to be limited for example due to illness or vacation) or as may otherwise be mutually agreed between the parties. It is understood that Warren is not expected to be on regular or full time call and 2 that Warren's services as a consultant may be rendered by personal consultation at his residence or office or by correspondence through mail, telephone or telecopy or other modes of communications at times, including evenings and weekends, most convenient to him, and that Warren shall not be required to relocate in connection with his services hereunder; provided that he may be required to travel in connection with his services hereunder, but not more than two (2) days in any calendar month. 3. Compensation. In full consideration for the services to be rendered by Warren to Cornerstone hereunder, Cornerstone shall pay to Warren a fee of $17,791.67 on the first day of each calendar month during the Term. Cornerstone shall reimburse Warren, promptly after receipt of invoices therefor, for all reasonable out-of-pocket expenses incurred by Warren in connection with his service hereunder. 4. Governing Law. This Consulting Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, without reference to the principles of conflict of laws thereof. 5. Consent to Jurisdiction. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the jurisdiction of the courts of the State of Texas or of the United States of America located in the State of Texas for any actions, suits or proceedings arising out of or relating to this Consulting Agreement and the transactions contemplated hereby and agrees not to commence any action, suit or proceeding relating hereto except in such courts, and further agrees that service of any process, summons, notice or document by United States registered or certified mail shall be effective service of process for any action, suit or proceeding brought in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to personal jurisdiction and the laying of venue of any action, suit or proceeding arising out of this Consulting Agreement or the transactions contemplated hereby, in the courts of the State of Texas or of the United States of America located in the State of Texas, and hereby further irrevocably and unconditionally waives and agrees not to plead 2 3 or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 6. Counterparts. This Consulting Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same Consulting Agreement. IN WITNESS WHEREOF, the parties have caused this Consulting Agreement to be duly executed as of the date first written above. CORNERSTONE NATURAL GAS, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- -------------------------------------- Kelcy Warren 3 -----END PRIVACY-ENHANCED MESSAGE-----