<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.________)*
Tom Brown, Inc.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $0.10
- --------------------------------------------------------------------------------
(Title of Class of Securities)
115660201
----------------------------------------------------
(CUSIP Number)
K N Energy, Inc., 370 Van Gordon Street, Lakewood, Colorado 80228-8304
Attention: Ms. Martha B. Wyrsch, Deputy General Counsel, (303) 989-1740
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
January 31, 1996
-------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
Check the following box if a fee is being paid with the statement /X/. (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
<PAGE> 2
SCHEDULE 13D
CUSIP NO. 115660201 PAGE OF PAGES
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
K N ENERGY, INC. 48-0290000
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) / /
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Kansas
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 2,584,367
SHARES -------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
0
OWNED BY
------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 2,584,367
PERSON ------------------------------------------------
10 SHARED DISPOSITIVE POWER
WITH
0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,584,367
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/ /
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.34%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
INCLUDED BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND SIGNATURE ATTESTATION.
<PAGE> 3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
Item 1. Security and Issuer. This statement relates to the Common Stock, par
value $.10 per share (the "Common Stock"), of Tom Brown, Inc., a Delaware
corporation (the "Issuer"), P. O. Box 2608, Midland, Texas 79702.
Item 2. Identity and Background. The person filing this statement is K N
Energy, Inc., a Kansas corporation ("KNE"). KNE is principally engaged in the
transmission and distribution of natural gas. The address of its principal
business and the address of its principal office is 370 Van Gordon Street,
Lakewood, Colorado 80228-8304. During the last five years, KNE has not been
convicted in any criminal proceeding (excluding traffic violations or similar
misdemeanors). During the last five years, KNE has not been a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and
as a result of such proceeding, was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration. On January 31,
1996 pursuant to the closing of the Agreement and Plan of Reorganization dated
as of January 31, 1996 among the Issuer, TBI Acquisition, Inc., a Delaware
corporation and a wholly owned subsidiary of the Issuer ("TBI Acquisition"),
KNE, and K N Production Company, a wholly owned subsidiary of KNE ("KNPC"), TBI
Acquisition was merged with and into KNPC, which changed its legal name to TBI
Production Company. Pursuant to such merger (the "Merger"), the shares of
common stock of KNPC previously held by KNE were changed into 1,000,000 shares
of $1.75 Convertible Preferred Stock, Series A, par value $.10 per share
("Preferred Stock"), of the Issuer and 918,367 shares of Common Stock of the
Issuer. Accordingly, the source of the consideration used to acquire the
shares of Common Stock of the Issuer now beneficially owned by KNE is the
outstanding stock of KNPC which was held by KNE prior to the Merger.
Item 4. Purposes of Transaction. KNE's purpose in acquiring the shares of
Common Stock and Preferred Stock of the Issuer acquired by KNE pursuant to the
Agreement and Plan of Reorganization is to make a long-term investment which
KNE considers attractive and expects to appreciate in value. KNE believes that
the Issuer will potentially be able to realize more value from KNPC because of
the synergies available to the Issuer as a result of its greater involvement in
oil and gas exploration and production. KNE believes its investment in oil and
gas exploration and production is substantially diversified as a result of this
transaction. Although it owns a lesser percentage of the business of KNPC, it
owns that percentage interest in a much larger oil and gas exploration
business. KNE's intention with respect to the shares of Common Stock and
Preferred Stock of the Issuer is to hold such shares as a long-term investment
which KNE considers attractive
<PAGE> 4
and which KNE expects to appreciate in value. Pursuant to the Agreement and
Plan of Reorganization, KNE agreed that, unless waived in writing by the
Issuer, during the period commencing on January 31, 1996 and ending on the
third anniversary thereof, neither KNE nor any of its affiliates shall:
(a) acquire or agree, offer, seek or propose to acquire (or
request permission to do so), ownership (including, but not limited to,
beneficial ownership as defined in Rule 13d-3 under the Securities Exchange Act
of 1934 [the "Act"]) of any assets (with certain exceptions specified in the
Agreement and Plan of Reorganization) or businesses or any additional
securities issued by the Issuer, or any rights or options to acquire such
ownership (including from a third party); or
(b) contest any election of directors by the stockholders of the
Issuer (except as otherwise provided by the Certificate of Designations,
Powers, Preferences and Rights of the Preferred Stock), provided that if all
cumulative dividends on the Preferred Stock have not been declared and paid by
the Issuer as they accumulate, then KNE and its affiliates may contest any
election of directors by the shareholders of the Issuer; or
(c) enter into any discussions, negotiations, arrangements or
understandings of any third party with respect to any of the foregoing.
In connection with the Agreement and Plan of Reorganization, KNE was
granted certain registration rights relating to the shares of Common Stock of
the Issuer received pursuant to the Merger and also the shares of Common Stock
of the Issuer which KNE may acquire upon conversion of the shares of Preferred
Stock of the Issuer received pursuant to the Merger. At this time KNE has no
plan for the disposition of such securities.
The shares of Preferred Stock of the Issuer have the following voting
rights:
(i) So long as any shares of the Preferred Stock remain
outstanding, the Issuer will not, either directly or indirectly, without the
affirmative vote at a meeting or the written consent with or without a meeting
of the holders of at least 66 2/3% of the shares of Preferred Stock then
outstanding, amend, alter or repeal any of the provisions of the Certificate of
the Designations, Powers, Preferences and Rights of the Preferred Stock or the
Certificate of Incorporation of the Issuer, or authorize any reclassification
of the Preferred Stock, so as in any such case to affect adversely the
preferences, special rights or powers of the Preferred Stock or authorize any
capital stock of the Issuer ranking, either as to payment of dividends or upon
liquidation, dissolution or winding up of the Issuer, prior to the Preferred
Stock.
(ii) So long as any shares of the Preferred Stock remain
outstanding, the Issuer will not either directly or indirectly, without the
affirmative vote at a meeting or the written consent of the holders of at least
a majority in voting power of shares of the Preferred Stock then outstanding,
increase the authorized number of shares of preferred stock of the Issuer or
create, or increase the authorized number of shares of, any other class of
capital stock of the Issuer ranking on a parity with the preferred stock of the
Issuer either as to payment of dividends or upon liquidation, dissolution or
winding up of the Issuer.
-2-
<PAGE> 5
(iii) If at any time dividends payable on the Preferred Stock are in
arrears and unpaid in an amount equal to or exceeding the amount of dividends
payable thereon for four quarterly dividend periods, the total number of
directors on the Issuer's Board of Directors shall be limited to a maximum of
nine and the holders of the outstanding shares of Preferred Stock will have the
exclusive right, voting separately as a class without regard to series, to
designate a special class of two directors of the Issuer at the next annual or
special meeting of stockholders of the Issuer. Such right of the holders of
Preferred Stock to designate special directors will continue until all
dividends accumulated and payable on the Preferred Stock have been paid in
full, at which time such right to designate special directors will terminate,
subject to revesting in the event of a subsequent arrearage. Upon any
termination of the aforesaid right of designation, the term of office of all
special directors designated by holders of Preferred Stock will immediately
terminate without action by the Issuer or the Board of Directors thereof.
(iv) To the extent that such rights do not prevent the continued
listing for quotation on the National Association of Securities Dealers
Automated Quotation National Market of the Common Stock of the Issuer, then (a)
for so long as KNE owns 80% or more of the voting power of the securities of
the Issuer issued pursuant to the Merger (such voting power being determined in
accordance with paragraph (v) below), KNE shall have the right to elect a
special class of two directors to the Board of Directors of the Issuer, and (b)
for so long as KNE owns securities of the Issuer issued pursuant to the Merger
possessing less than 80% of the voting power of the securities of the Issuer
issued pursuant to the Merger (such voting power being determined in accordance
with paragraph (v) below), but more than 30% of such voting power, KNE shall
have the right to elect a special class of one director to the Board of
Directors of the Issuer.
(v) So long as any shares of Preferred Stock remain outstanding,
the holders of shares of the Preferred Stock shall be entitled to vote on all
matters upon which holders of the Issuer's Common Stock have the right to vote.
In such voting, each share of Preferred Stock shall be entitled to a number of
votes per share equivalent to the number of shares of Common Stock issuable
upon conversion of the Preferred Stock and shall vote together with the holders
of the outstanding shares of the Issuer's Common Stock as if a part of that
class.
At the present time, KNE has no plan for any extraordinary corporate
transaction, such as a merger, reorganization or liquidation involving the
Issuer. KNE has no plan or proposal for any sale or transfer of a material
amount of the assets of the Issuer or any change in the present board of
directors or management of the Issuer, other than the election of two directors
to the Board of Directors pursuant to paragraph (iv) above. KNE also has no
plan or proposal for any of the following:
(a) any material change in the present capitalization or dividend
policy of the Issuer;
(b) any other material change in the Issuer's business or corporate
structure;
(c) changes in the Issuer's charter, bylaws or instruments
corresponding thereto or other actions which may impede the
acquisition of control of the Issuer by any person;
-3-
<PAGE> 6
(d) causing a class of securities of the Issuer to be
delisted from a national securities exchange or to
cease to be authorized to be quoted in an interdealer
quotation system of a registered national securities
association;
(e) a class of equity securities of the Issuer becoming eligible
for termination of registration pursuant to Section 12(g)(4)
of the Act; or
(f) any action similar to any of those enumerated above.
Item 5. Interest in Securities of the Issuer.
Pursuant to the Merger, as described above in Item 4, KNE acquired
918,367 shares of Common Stock of the Issuer and 1,000,000 shares of Preferred
Stock of the Issuer, which Preferred Stock is convertible into an aggregate of
1,666,000 shares of Common Stock of the Issuer, subject to adjustment in
certain circumstances as provided in the Certificate of Designations, Powers,
Preferences and Rights of the Preferred Stock. Accordingly, KNE is currently
the beneficial owner of an aggregate of 2,584,367 shares of Common Stock of the
Issuer or approximately 11.34% of the 22,780,144 shares of Common Stock of the
Issuer believed to be outstanding, including the 1,666,000 shares of Common
Stock issuable upon conversion of the Preferred Stock.
KNE has sole voting and dispositive power with respect to all shares
of Common Stock of the Issuer beneficially owned by KNE.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
As indicated in Items 4 and 5 above, the Certificate of Designations,
Powers, Preferences and Rights of the Preferred Stock provides various voting
rights to the holders of the Preferred Stock and also provides that the
Preferred Stock is convertible into Common Stock of the Issuer. As indicated
in Item 4 above, in connection with the Agreement and Plan of Reorganization
relating to the Merger, KNE was granted certain registration rights relating to
a future sale of the shares of Preferred Stock and Common Stock of the Issuer
held by KNE. Except for the Agreement and Plan of Reorganization, the
Certificate of Designations, Powers, Preferences and Rights of the Preferred
Stock, and the Registration Rights Agreement between the Issuer and KNE dated
January 31, 1996, there are no contracts, arrangements, understandings or
relationships (legal or otherwise) among the persons named in Item 2 or between
such persons and any person with respect to any securities of the Issuer.
Item 7. Material to be Filed as Exhibits.
l. Agreement and Plan of Reorganization dated January 31, 1996 among the
Issuer, TBI Acquisition, KNE and KNPC.
2. Certificate of Designations, Powers, Preferences and Rights of the
Preferred Stock.
3. Registration Rights Agreement dated January 31, 1996 between the Issuer
and KNE.
-4-
<PAGE> 7
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
February 8, 1996 K N ENERGY, INC.
- ------------------------
Date
By /s/William S. Garner, Jr.
----------------------------------
(Signature)
William S. Garner, Jr.
Vice President, General Counsel and
Secretary
--------------------------------------
(Name/Title)
-5-
<PAGE> 8
EXHIBIT INDEX
l. Agreement and Plan of Reorganization dated January 31, 1996 among the
Issuer, TBI Acquisition, KNE and KNPC.
2. Certificate of Designations, Powers, Preferences and Rights of the
Preferred Stock.
3. Registration Rights Agreement dated January 31, 1996 between the Issuer
and KNE.
<PAGE> 1
EXHIBIT 1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
TOM BROWN, INC.,
TBI ACQUISITION, INC.,
K N PRODUCTION COMPANY
AND
K N ENERGY, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. TRANSACTIONS AND TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Time of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Manner and Basis of Converting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
II. REPRESENTATIONS AND WARRANTIES OF TBI AND TBI ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 No Conflict With Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Authorization for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 TBI Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.9 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.14 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Other Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Environmental Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
III. REPRESENTATIONS AND WARRANTIES OF KNPC AND KNE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Organization and Standing; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Capitalization of KNPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.6 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.7 Inventories; Prepaid Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 Condition of Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.10 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
3.11 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.12 No Conflict With Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.13 KNPC Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.14 KNE Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.15 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.16 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.17 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.18 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.19 Pension and Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.21 No Pending Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.22 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.23 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.24 Environmental Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.25 Bank Accounts and Powers of Attorney and Compensation of Employees . . . . . . . . . . . . . . . . . 14
IV. COVENANTS OF TBI AND TBI ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.1 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Cause Conditions to be Satisfied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.3 Notice of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
V. COVENANTS OF KNPC AND KNE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.4 Notice of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Corporate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.6 Cause Conditions to be Satisfied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.7 Hiring Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
VI. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2 Restrictions on Transferability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Notice of Proposed Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 TBI Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
VII. CONDITIONS TO TBI'S AND TBI ACQUISITION'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Approvals of Governmental Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 No Adverse Proceedings or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.5 Consents and Actions; Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
7.6 Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.7 Other Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.8 Execution of Limited Liability Company Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.9 Execution of Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.10. Filing of Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.11 Delivery of Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
VIII. CONDITIONS TO KNPC'S AND KNE'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Approval of Governmental Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.4 No Adverse Proceedings or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.5 Consents and Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.6 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.7 Other Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.8 Execution of Limited Liability Company Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.9 Execution of Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.10 Filing of Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.11 Delivery of Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
IX. COVENANTS TO BE PERFORMED AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.1 Agreements to Survive Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.2 Option to Purchase Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.3 Standstill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.4 Reorganization Covenants and Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Preparation of Tax Returns; Responsibility for Taxes . . . . . . . . . . . . . . . . . . . . . . . . 25
X. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.1 Indemnification of TBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.2 Indemnification of KNE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.3 Threshold Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.4 Survival of Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.5 Notice and Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.6 Limitation on Indemnity Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
XI. SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
XII. BROKERS AND ADVISORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
XIII. FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
XIV. NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
XV. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
XVI. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
XVII. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
iv
<PAGE> 6
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement"), dated
January 31, 1996, by and among TOM BROWN, INC. ("TBI"), a Delaware corporation,
TBI ACQUISITION, INC. ("TBI ACQUISITION"), a Delaware corporation and wholly
owned subsidiary of TBI, K N ENERGY, INC. ("KNE"), a Kansas corporation, and
K N PRODUCTION COMPANY ("KNPC"), a Delaware Corporation and wholly owned
subsidiary of KNE. TBI ACQUISITION and KNPC are hereinafter sometimes
collectively referred to as the "Constituent Corporations".
WITNESSETH:
----------
TBI, TBI ACQUISITION, KNPC and KNE have reached an agreement for the
merger of TBI ACQUISITION with and into KNPC (the "Merger") in accordance with
the applicable provisions of the laws of the State of Delaware. TBI, TBI
ACQUISITION, KNPC and KNE wish to enter into this definitive agreement setting
forth the terms and conditions of the Merger.
For federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
For and in consideration of the foregoing and of the mutual covenants,
agreements, representations and warranties hereinafter contained, TBI, TBI
ACQUISITION, KNE and KNPC hereby agree as follows:
I. TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms of this Agreement, on the
Effective Date (as defined in Section 1.2), TBI ACQUISITION shall be merged
with and into KNPC, and the separate existence of TBI ACQUISITION shall
thereupon cease, all in accordance with the applicable provisions of the
General Corporation Law of the State of Delaware ("DGCL"). KNPC shall be the
surviving corporation of the Merger (sometimes referred to herein as the
"Surviving Entity") and shall continue to be governed by the DGCL and the
separate corporate existence of KNPC and all of its rights, privileges,
immunities and franchises, public and private, and all of its duties and
liabilities as a corporation organized under the DGCL, will continue unaffected
by the Merger. All rights and obligations, and all assets and liabilities of
TBI Acquisition, possessed by it at the Effective Date shall be transferred to,
assumed by and vested in the Surviving Entity.
1.2 Effective Time of Merger. Contemporaneously with the closing
of the transactions contemplated by this Agreement, the parties hereto shall
cause the Merger to be consummated by filing a Certificate of Merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware,
in such form as required by, and executed in accordance with, the relevant
provisions
1
<PAGE> 7
of the DGCL (the date and time of such filing, or such later date and time as
may be agreed upon by TBI and KNE and set forth therein, being called the
"Effective Date"). Notwithstanding the foregoing, the parties hereto agree
that upon the filing of the Certificate of Merger, the transactions contemplated
by this Agreement shall be deemed for all economic purposes to have been
effective as of the close of business on December 31, 1995.
1.3 Certificate of Incorporation. From and after the Effective
Date, and until thereafter amended as provided by law, the Certificate of
Incorporation of KNPC as in effect immediately prior to the Effective Date
shall continue to be the Certificate of Incorporation of the Surviving Entity;
provided, however, Article First of the Certificate of Incorporation of KNPC
shall be amended to change the name of the Surviving Entity to TBI Production
Company.
1.4 Bylaws. From and after the Effective Date, and until
thereafter amended as provided by law, the Bylaws of KNPC as in effect
immediately prior to the Effective Date shall continue to be the Bylaws of the
Surviving Entity.
1.5 Directors and Officers. On the Effective Date, the persons
who are serving as the officers and directors of TBI ACQUISITION immediately
prior to the Effective Date shall become the officers and directors,
respectively, of the Surviving Entity. Such persons shall serve until their
successors have been elected and qualified in accordance with law and the
Certificate of Incorporation and Bylaws of the Surviving Entity.
1.6 Manner and Basis of Converting Shares.
(a) On the Effective Date, the 100,000 issued and outstanding
shares of common stock, $0.01 par value, of KNPC (the "KNPC Common
Stock"), the same being all of the issued and outstanding shares of
KNPC stock, and all of which is owned by KNE, shall, in the aggregate
and by virtue of the Merger and without any action on the part of the
holder thereof, be converted into 1,000,000 shares of $1.75
Convertible Preferred Stock, Series A, $0.10 par value, of TBI (the
"TBI Preferred Stock") having the terms set forth on Exhibit A
attached hereto and 918,367 shares of common stock, $0.10 par value,
of TBI (the "TBI Common Stock").
(b) On the Effective Date, the 10,000 issued and
outstanding shares of common stock, $0.10 par value, of TBI
ACQUISITION (the "TBI ACQUISITION Stock"), the same being all of the
issued and outstanding shares of TBI ACQUISITION stock, and all of
which is owned by TBI, shall, in the aggregate and by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into an aggregate of 100,000 fully paid and nonassessable
shares of the common stock, $0.01 par value, of the Surviving Entity.
(c) Any shares of KNPC capital stock held in the treasury
of KNPC shall automatically be cancelled and no shares or other
securities shall be issuable, and no cash shall be paid, with respect
thereto.
2
<PAGE> 8
(d) Immediately after the Effective Date and as a part of
the Closing, KNE, as the sole owner and holder of all outstanding
certificates theretofore representing all of the outstanding KNPC
Common Stock, upon receipt by KNE of stock certificates registered in
its name representing the TBI Preferred Stock and the TBI Common
Stock, shall deliver such certificates representing all of the KNPC
Common Stock to TBI (in proper form for transfer to TBI).
1.7 Time and Place of Closing. A closing of the transactions
contemplated hereby (the "Closing") shall take place at 9:00 o'clock A.M. on
Wednesday, January 31, 1996, or as soon as practicable thereafter as the
conditions set forth herein are satisfied or waived and contemporaneously with
the filing of the Certificate of Merger, at the offices of KNE, 370 Van Gordon
Street, Lakewood, Colorado, or at such other location as the parties may agree
in writing. The date on which the Closing occurs is referred to as the
"Closing Date". At the Closing, the documents required to be delivered by the
parties shall be exchanged (including properly endorsed stock certificates
representing all of the KNPC Common Stock, the TBI Preferred Stock and the TBI
Common Stock), and the Certificate of Merger will be executed, certified,
acknowledged and filed as provided in Section 1.2.
II. REPRESENTATIONS AND WARRANTIES OF TBI AND TBI ACQUISITION
TBI and TBI ACQUISITION each jointly and severally represent and
warrant to KNPC and KNE as follows:
2.1 Organization and Standing. TBI and TBI ACQUISITION are each
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and have full corporate power to conduct their
business as it is now being conducted. Copies of the Certificates of
Incorporation and Bylaws of TBI and TBI ACQUISITION have been delivered to KNE,
and such copies are complete and correct and in full force and effect on the
date of this Agreement. TBI and TBI ACQUISITION are both duly qualified to do
business and are in good standing as foreign corporations in all jurisdictions
where the character of their properties or the nature of their activities makes
such qualification necessary and where the failure to be so qualified would
have a Material Adverse Effect (as defined in Section 2.9 hereof) on the
business or financial condition of TBI or TBI ACQUISITION.
2.2 No Conflict With Other Documents. Neither the execution and
delivery of this Agreement nor the carrying out of the transactions
contemplated hereby will result in any violation, termination or modification
of, or be in conflict with, TBI's or TBI ACQUISITION's Certificates of
Incorporation or Bylaws, any terms of any contracts or other instruments to
which TBI or TBI ACQUISITION is a party, or any judgment, decree or order
applicable to TBI or TBI ACQUISITION, or result in the creation of any lien,
charge or encumbrance upon any of the properties or assets of TBI or TBI
ACQUISITION.
3
<PAGE> 9
2.3 Authority. The execution, delivery and performance of this
Agreement by TBI and TBI ACQUISITION have been duly authorized by their
respective Boards of Directors, and this Agreement is a valid, legally binding
and enforceable obligation of TBI and TBI ACQUISITION.
2.4 Authorization for Shares. On the Closing Date the shares of
TBI Preferred Stock and the shares of TBI Common Stock referred to in Section
1.6(a) of this Agreement will have been duly authorized and, when issued in the
Merger, will have been legally and validly issued and will be fully paid and
nonassessable and no stockholder of TBI will have any preemptive right of
subscription or purchase in respect thereof. The shares of TBI Common Stock
issuable upon conversion of the TBI Preferred Stock are duly authorized and
reserved for issuance and, when issued in accordance with the terms of the TBI
Preferred Stock, will be validly issued, fully paid, nonassessable and free of
preemptive rights.
2.5 TBI Reports. Since December 31, 1992, TBI has filed on a
timely basis with the United States Securities and Exchange Commission (the
"Commission") all forms, reports and documents required to be filed by it
(collectively, the "TBI SEC Reports") pursuant to the federal securities laws
and the Rules and Regulations (defined below), all of which have complied as of
their respective filing dates in all material respects with the applicable
provisions of the Securities Act of 1933, as amended (the "Securities Act"),
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the Rules and Regulations promulgated by the Commission thereunder (the "Rules
and Regulations"), and none of the TBI SEC Reports, including without
limitation, any financial statements or schedules included therein, at the time
filed, contained any untrue statement of a material fact or omitted 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. TBI has heretofore delivered or made available to KNE,
in the form filed with the SEC, all of the TBI SEC Reports.
2.6 Consents and Approvals. Neither the execution and delivery of
this Agreement by TBI or TBI ACQUISITION nor the consummation of the
transactions contemplated hereby will require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, except (i) for filings required under the Exchange
Act, (ii) for notification pursuant to, and expiration or termination of the
waiting period under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), (iii) for filing and recording of the Certificate
of Merger pursuant to the DGCL and (iv) such consents as have been obtained or
will be obtained prior to Closing.
2.7 Capitalization. TBI's authorized capital stock consists of
(i) 30,000,000 shares of common stock, $0.10 par value, per share, of which
21,114,144 were issued and outstanding as of January 1, 1996, and (ii)
2,500,000 shares of preferred stock, $0.10 par value per share, of which
1,000,000 shares were issued and outstanding as of January 1, 1996 (inclusive
of the shares issued pursuant to the Merger). Since January 1, 1996, no shares
of common stock of TBI have been issued except upon exercise of employee and
director stock options or pursuant to employee benefit plans. As of January 1,
1996 there were outstanding options to purchase 1,610,350 shares of common
stock
4
<PAGE> 10
of TBI and no options have been granted after January 1, 1996, except for
options granted to employees and directors under existing stock option plans in
the ordinary course of business. Except for such stock options and TBI's
Shareholder Rights Plan, there are no existing options, warrants, calls,
subscriptions, or other rights or other agreements or commitments obligating TBI
to issue, transfer or sell any shares of capital stock of TBI. There are no
voting trusts or other agreements or understandings to which TBI is a party with
respect to the voting of capital stock of TBI.
2.8 Financial Statements. The audited consolidated financial
statements of TBI contained in the TBI SEC Reports were prepared in accordance
with generally accepted accounting principles, consistently applied throughout
the periods covered by such statements ("GAAP"), and present fairly TBI's
consolidated financial condition and the consolidated results of its operations
as of the relevant dates thereof and for the periods covered thereby.
2.9 Absence of Certain Changes. Except as disclosed in TBI's SEC
Reports (without further amendment), since September 30, 1995 there has not
been any (i) change in the financial condition, results of operations or
business of TBI and its subsidiaries, taken as a whole (except for changes due
to general economic or industry-wide conditions) or (ii) other events or
conditions of any character that, individually or in the aggregate, have or
would reasonably be expected to have an adverse effect of $1,000,000 or more (a
"Material Adverse Effect") upon the financial condition, business or operations
of TBI and its subsidiaries, taken as a whole.
2.10 Absence of Undisclosed Liabilities. Neither TBI nor any
subsidiary has any material indebtedness, liability or obligation, contingent
or otherwise, of the type required by GAAP to be reflected on a balance sheet
that is not reflected or reserved against in the balance sheet dated as of
September 30, 1995 (which is included in TBI's Form 10-Q Report for the interim
period then ended) or otherwise disclosed in TBI's SEC Reports, except for such
indebtedness, liabilities or obligations which have arisen after such date in
the ordinary course of business.
2.11 Compliance. Each of TBI and its subsidiaries has all
licenses, franchises, certificates, consents, permits and authorizations from
all governmental authorities necessary for the lawful conduct of its business,
except where the failure to hold any of the foregoing would not have a Material
Adverse Effect upon the financial condition, business or operations of TBI.
Neither TBI nor any subsidiary has violated, nor is it in violation of, any
such licenses, franchises, certificates, consents, permits or authorizations or
any applicable statutes, laws, ordinances, rules and regulations (including,
without limitation, any of the foregoing related to occupational safety,
conservation, unfair competition, labor practices or corrupt practices) of any
governmental authorities, except where such violations do not, and insofar as
reasonably can be foreseen will not, have a Material Adverse Effect upon the
financial condition, business or operations of TBI and its subsidiaries, taken
as a whole, and, except as disclosed in the TBI SEC Reports, neither TBI nor
any subsidiary has received any notice from a governmental or regulatory
authority within three years of the date hereof of any such violation. This
Section 2.11 shall not apply to any matters involving product registration,
pollution control or environmental contamination or any matters arising under
any
5
<PAGE> 11
Environmental Laws (as that term is defined in Section 2.16 hereof), which
matters will be governed by Section 2.16 of this Agreement.
2.12 Tax Matters.
(a) All tax returns required to be filed by TBI and its
subsidiaries before the date hereof with respect to any of their income,
properties or operations, are in all material respects true, complete and
correct and have been duly filed in a timely manner, and all taxes required to
have been paid in connection with such tax returns have been paid, except where
the failure to so file or pay would not have a Material Adverse Effect upon the
financial condition, business or operations of TBI and its subsidiaries, taken
as a whole.
(b) To TBI's knowledge, (i) there are no claims, investigations or
assessments pending or threatened against TBI and its subsidiaries for any
alleged deficiency in taxes, and (ii) there is no audit or investigation
currently being conducted that could cause TBI or its subsidiaries to be liable
for any taxes, which in any case would have a Material Adverse Effect upon the
financial condition, business or operations of TBI and its subsidiaries, taken
as a whole.
(c) TBI and its subsidiaries have complied in all material
respects with all tax withholding provisions of applicable federal, state and
local laws and have paid over to the proper governmental authorities all
amounts required to be so withheld or paid over before the date hereof, except
where the failure to so withhold would not have a Material Adverse Effect upon
the financial condition, business or operations of TBI and its subsidiaries,
taken as a whole.
(d) Neither TBI nor any of its affiliates has taken or agreed to
take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a) of the Code.
(e) Neither TBI nor TBI ACQUISITION is an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(f) Neither TBI nor TBI ACQUISITION is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
(g) There is no intercorporate indebtedness existing between TBI
and KNPC or between TBI ACQUISITION and KNPC that was issued or acquired or
that will be settled at a discount.
2.13 Litigation. There are no claims, actions, suits, proceedings
or investigations pending or, to the knowledge of TBI, threatened against TBI
or any of its subsidiaries, or any properties or rights of TBI or any of its
subsidiaries, before any court, arbitrator, administrative, governmental or
regulatory authority or body, domestic or foreign, that, in the event of an
adverse decision or outcome, could reasonably be expected to have a Material
Adverse Effect upon the financial condition, business or operations of TBI and
its subsidiaries, taken as a whole.
6
<PAGE> 12
2.14 Title to Property. TBI and each of its subsidiaries have good
and defensible title to all of their properties and assets, free and clear of
all liens, charges and encumbrances, except those reflected in the financial
statements included in the TBI SEC Reports or in the notes to such financial
statements, liens for taxes not yet due and payable, materialman's, mechanic's,
repairman's, employee's, contractor's, operator's and other similar liens and
imperfections or charges arising in the ordinary course of business (i) if they
have not been filed pursuant to law, (ii) if so filed, they have not yet become
due and payable or payment is being withheld as provided by law, or (iii) if
their validity is being contested in good faith by appropriate actions and such
other liens or imperfections of title, if any, as are in the nature of
customary defects expected to be encountered in the area involved and
customarily acceptable to prudent operators and interest owners in the area and
which do not materially detract from the value of or interfere with the present
use of the property affected thereby (all of such liens, charges, encumbrances,
imperfections and defects which are so permitted are herein called "Permitted
Imperfections").
2.15 Other Vote Required. No vote of the holders of any class or
series of TBI's capital stock is necessary to approve the issuance of the TBI
Preferred Stock or the TBI Common Stock in the Merger.
2.16 Environmental Laws and Regulations. Except as disclosed in
the TBI SEC Reports, TBI is in compliance in all material respects with all
applicable federal, state and local laws and regulations relating to product
registration, pollution control and environmental contamination including, but
not limited to, all laws and regulations governing the generation, use,
collection, discharge or disposal of Hazardous Materials as herein defined and
all laws and regulations with regard to record keeping, notification and
reporting requirements respecting Hazardous Materials (collectively,
"Environmental Laws"). Except as disclosed in the TBI SEC Reports, TBI has not
been alleged to be in violation of, or has not been subject to any
administrative or judicial proceeding pursuant to Environmental Laws, either
now or anytime during the past three years. There are no facts or
circumstances known to TBI which TBI reasonably expects could form the basis
for the assertion of any Charge (as defined below) against TBI relating to
product registration, pollution control or environmental contamination
including, but not limited to, any Charge arising from past or present
environmental practices asserted under CERCLA (as defined below) and RCRA (as
defined below) or any other Environmental Law, which TBI believes might have a
material adverse affect on the business, results of operations, financial
condition or prospects of TBI.
For purposes of this section, the following terms shall have the
following meanings:
"Hazardous Materials" shall mean materials defined as
"hazardous substances" or "hazardous waste" or "solid wastes"
(including petroleum, petroleum products and oils) (i) the
Comprehensive Environmental Response Compensation and Liability Act of
1980, and any amendments thereto ("CERCLA"), (ii) the Resource
Conservation and Recovery Act and any amendments thereto ("RCRA"),
and (iii) any similar federal, state or local environmental
statutes; and "Charge" shall mean any and all claims, demands, causes
of action, suits, proceedings,
7
<PAGE> 13
administrative proceedings, losses, judgments, decrees, debts,
damages, liabilities, court costs attorney's fees and any other
expenses incurred, assessed or sustained by or against TBI.
III. REPRESENTATIONS AND WARRANTIES OF KNPC AND KNE
KNPC and KNE each hereby jointly and severally represent and warrant
to TBI and TBI ACQUISITION as follows:
3.1 Organization and Standing; Subsidiaries. KNE and KNPC are
each corporations duly organized, validly existing and in good standing under
the laws of the States of Kansas and Delaware, respectively, and have full
corporate power to carry on their respective business as it is now being
conducted and to own or hold under lease the properties and assets they now own
or hold under lease. KNPC has no subsidiaries (GASCO, Inc., formerly a wholly
owned subsidiary of KNPC, having been merged with and into KNPC, effective
January 1, 1995). In addition, KNPC does not own, directly or indirectly, any
capital stock or equity securities of any corporation or have any direct or
indirect equity or other ownership interest in any other business. Copies of
the charter documents and bylaws of KNPC have been delivered to TBI, and such
copies are complete and correct and in full force and effect. KNPC is duly
qualified to do business in all jurisdictions where the character of its
properties or the nature of its activities makes such qualification necessary.
3.2 Capitalization of KNPC. KNPC's entire authorized capital
stock consists of 100,000 shares of common stock, $0.01 par value, all of which
are issued and outstanding and owned of record and beneficially owned by KNE.
All such shares of KNPC Common Stock have been duly and validly issued and are
fully paid, non-assessable and free of any preemptive rights. KNE has good and
defensible title to the KNPC Common Stock, free of liens, restrictions or
encumbrances of any kind. Neither KNPC nor KNE is a party to or bound by any
options, calls, contracts or commitments of any character relating to any
issued or unissued stock or any other equity security issued or to be issued by
KNPC.
3.3 Financial Statements. KNPC has delivered to TBI copies of
KNPC's unaudited financial statements for the fiscal years ended December 31,
1992, December 31, 1993 and December 31, 1994 and KNPC's unaudited financial
statements for the ten month period ended October 31, 1995. These financial
statements are true and complete in all material respects, have been prepared
in accordance with GAAP, and present fairly the financial position and results
of operations of KNPC at the dates of such statements and for the periods
covered thereby.
3.4 Absence of Undisclosed Liabilities. Except as and to the
extent reflected or reserved against in the unaudited balance sheets (including
the notes thereto) included within KNPC's financial statements referred to in
Section 3.3 of this Agreement or as disclosed in Schedule 3.4, at the
respective dates of such financial statements, KNPC had no material
indebtedness, liability or obligation, contingent or otherwise, of a type
required by GAAP to be reflected on a balance sheet that is not reflected or
reserved against in the KNPC balance sheet as of October 31, 1995, except
8
<PAGE> 14
for such indebtedness, liabilities or obligations which have arisen after such
date in the ordinary course of business.
3.5 Absence of Certain Changes. Since October 31, 1995, there has
not been any (i) change in KNPC's financial position, results of operations,
assets, liabilities, net worth or business of KNPC (except for changes due to
general economic or industry-wide conditions) or (ii) other events or
conditions of any character that, in either case, individually or in the
aggregate, have or would reasonably be expected to have a Material Adverse
Effect upon the financial condition, business or operations of KNPC.
3.6 Accounts Receivable. The accounts receivable shown on the
balance sheet contained in the October 31, 1995 financial statements of KNPC,
or those accounts receivable thereafter acquired by KNPC, have been collected
or are collectible in the normal course of business at the aggregate recorded
amounts thereof less applicable reserves computed in accordance with past
practice, and such reserves are adequate.
3.7 Inventories; Prepaid Items. The inventories of KNPC shown on
the balance sheet of KNPC as of October 31, 1995 and those shown on Schedule
3.7 hereto, or those inventories thereafter acquired by KNPC, consisted of
items of a quality and quantity usable or salable in the normal course of
business; the value of all inventory items which were obsolete or of below
standard quality were, at the date of such balance sheets, written off or down
to realizable market value, or adequate reserves were provided therefor; and
the values at which such inventories are carried reflect KNPC's normal
inventory valuation policy of stating inventories at cost or market, whichever
is lower. The prepaid items shown as assets on such balance sheet are
consistent with past practice and are stated at proper values.
3.8 Condition of Tangible Assets. All facilities, equipment and
other material items of tangible property and assets of KNPC are adequate,
subject to routine maintenance, for the operations for which they are being
used by KNPC; such facilities and equipment are in good repair and operating
condition, normal wear and tear excepted, and are sufficient for KNPC to
operate its business as it is currently being operated.
3.9 Litigation. Except as set forth on Schedule 3.9 hereof, there
is no litigation, proceeding or governmental investigation pending or, to the
knowledge of KNPC or KNE, threatened against or relating to KNPC, its
properties or businesses, or the transactions contemplated by this Agreement.
Except as set forth on Schedule 3.9 hereof, KNPC is not subject to or bound by
any order of any court, regulatory commission, board or administrative body
entered in any proceeding to which it is a party or of which it or KNE have
knowledge. KNE agrees, represents and warrants that it will retain the
obligation of defending KNPC in that certain suit styled Grynberg v. K N., et
al, Cause No. 92 N 2000 in the United States District Court for Colorado (and
any other litigation or regulatory proceedings arising therefrom) and will
indemnify and hold TBI and KNPC harmless from any and all liability that may
result from such suit.
9
<PAGE> 15
3.10 Intellectual Property. KNPC does not own or possess any
trademarks, service marks, trade names, copyrights, licenses or franchises and
none are necessary for the present and currently planned future conduct of its
business.
3.11 Compliance. KNPC has all licenses, franchises, certificates,
consents, permits and authorizations from all governmental authorities
necessary for the lawful conduct of its business, except where the failure to
hold any of the foregoing would not have a Material Adverse Effect upon the
financial condition, business or operations of KNPC. Schedule 3.11 fairly and
accurately summarizes and lists all material licenses, permits, approvals,
authorizations and regulatory matters relating to the business or products of
KNPC. KNPC has not violated, nor is it in violation of, any such licenses,
franchises, certificates, consents, permits or authorizations or any applicable
statutes, laws, ordinances, rules and regulations (including, without
limitation, any of the foregoing related to occupational safety, conservation,
unfair competition, labor practices or corrupt practices) of any governmental
authorities, except where such violations do not, and insofar as reasonably can
be foreseen will not, have a Material Adverse Effect upon the financial
condition, business or operations of KNPC, and, except as disclosed on Schedule
3.11, KNPC has not received any notice from any governmental or regulatory
authority within three years of the date hereof of any such violation. This
Section 3.11 shall not apply to any matters involving product registration,
pollution control or environmental contamination or any matters arising under
any Environmental Laws (as that term is defined in Section 2.16 hereof), which
matters will be governed by Section 3.24 of this Agreement.
3.12 No Conflict With Other Documents. Except as shown on Schedule
3.12, neither the execution and delivery of this Agreement nor the carrying out
of the transactions contemplated hereby will result in any violation,
termination or modification of, or be in conflict with, KNPC's or KNE's
Certificate of Incorporation or Bylaws, any terms of any contract or other
instruments to which KNPC or KNE is a party, or any judgment, decree or order
applicable to KNPC or KNE, or result in the creation of any lien, charge or
encumbrance upon any of the properties or assets of KNPC or permit the
termination or acceleration of the maturity of, any indebtedness for borrowed
money of KNPC, or permit the termination of, or trigger a right of first
refusal under, or cause the loss of any right or option under any instrument to
which KNPC is a party or by which any of its property is bound.
3.13 KNPC Authority. The execution, delivery and performance of
this Agreement by KNPC has been duly authorized and approved by the Board of
Directors of KNPC and this Agreement is a valid, legally binding and
enforceable obligation of KNPC. This Agreement and the other transactions
contemplated hereunder have been, or will be prior to the Closing, approved by
KNE as the sole shareholder of KNPC, and all corporate authorizations required
for consummation of the transactions contemplated by this Agreement have been,
or will be prior to the Closing, received and will continue to be in full force
and effect.
10
<PAGE> 16
3.14 KNE Authority. KNE has full power and authority to enter into
this Agreement and to agree to the transactions contemplated hereby. This
Agreement has been duly executed and delivered by KNE and constitutes a valid
and legally binding and enforceable obligation of KNE.
3.15 Contracts. Except as shown on Schedule 3.15 attached hereto
(the "Contract Schedule"), KNPC is not a party to or subject to: (a) any
employment contract with any officer, consultant, director, employee; (b) any
plan or contract or arrangement providing for bonuses, pensions, options,
deferred compensation, retirement payments, profit sharing or the like; (c) any
contract or agreement with any labor union, (d) any lease (other than oil, gas
and mineral leases) of real or personal property with a remaining term in
excess of three months; (e) any agreement for the purchase, sale or other
disposition of any materials, equipment, supplies or inventory, except
individual purchases from or sales to customers pursuant to agreements having a
term of less than three months and incurred in the ordinary course of business;
(f) any instrument creating a lien (other than Permitted Imperfections) or
evidencing or related to indebtedness for borrowed money; (g) any franchise,
distributorship or similar agreement; (h) any material contract containing
covenants not to enter into or consummate the transactions contemplated hereby
or which will be terminated or modified by the carrying out of such
transactions; (i) any contract or agreement to provide services that are not
terminable with less than thirty (30) days notice; or (j) any other material
contract or agreement not of the type covered by any of the other specific
items of this section. Except as shown on the Contract Schedule, each of the
contracts, instruments and other documents described on the Contract Schedule
is valid and in full force and effect, and a true and complete copy thereof has
heretofore been delivered to TBI. Except as shown on the Contract Schedule,
KNPC is not in default, or alleged to be in default, in any material respect
under any of the contracts, instruments, obligations or other documents to
which it is a party or by which it is bound. Except as shown on the Contract
Schedule, the consummation of the transactions contemplated by this Agreement
will not cause a default under, or provide any right of termination with
respect to, any contract, instrument, obligation or other document to which
KNPC or KNE is a party or by which either company is bound or permit the
termination or acceleration of the maturity of, any indebtedness for borrowed
money of KNPC, or permit the termination of, or trigger a right of first
refusal under, or cause the loss of any right or option under any instrument to
which KNPC is a party or by which any of its property is bound. Except as
shown on the Contract Schedule, to the best of KNPC's and KNE's knowledge, no
party which whom KNPC has an agreement is in default thereunder in any material
respect.
3.16 Customers. Schedule 3.16 attached hereto is a true and
complete listing of the ten largest customers of KNPC for the fiscal year
December 31, 1994 and for the ten months ended October 31, 1995. KNPC and KNE
have received no notice and do not have knowledge, that any such customer will
not continue to do business with KNPC at volumes consistent with past practices
subsequent to the closing of the transactions contemplated by this Agreement.
3.17 Tax Matters. All Federal, state and local tax returns
required to be filed by KNPC have been duly filed, and all taxes, interest,
penalties, assessments and/or deficiencies shown to be due on such returns or
for which KNPC has received notices or assessments from applicable taxing
11
<PAGE> 17
authorities, have in all respects been paid or adequate provision for payment
thereof has been made. The current provisions made for taxes on the balance
sheets of KNPC contained in the financial statements referred to in Section 3.3
of this Agreement are sufficient for the payment of all unpaid federal, state,
county, local and other taxes of KNPC which were due and owing as of the
respective date of each such balance sheet. The consolidated Federal income
tax returns of the affiliated group of companies of which KNE is the common
parent have been audited by the Internal Revenue Service through 1985. No
notices of deficiencies have been issued with respect to any year examined or
not yet examined. KNE has entered into agreements extending the statute of
limitations with respect to federal or state taxes, including the statute
pertaining to KNPC.
3.18 Title to Properties. KNPC has good and defensible title to
all its properties and assets, real and personal (including those reflected in
the balance sheet contained in the October 31, 1995 financial statements
referred to in Section 3.3 of this Agreement, except as sold or otherwise
disposed of in the ordinary course of business since October 31, 1995), in each
case, free and clear of all liens, charges and encumbrances, except for such
Permitted Imperfections. KNPC's ownership of its oil and gas properties is
such that, with respect to any oil and gas property listed on Schedule 3.18
attached hereto (a) KNPC is entitled to receive a percentage share of the oil,
gas and other hydrocarbons produced from or allocated to, such oil and gas
property which is not less than the percentage share set forth on Schedule 3.18
in connection with such oil and gas property in the column headed "NRI" or (b)
KNPC is not obligated to bear a percentage share of the cost of operation of
such oil and gas property which is not greater than the percentage share set
forth on Schedule 3.18 in connection with such oil and gas property in the
column headed "WI" (unless the share of production from such oil and gas
property to which KNPC is entitled is proportionately larger than the "NRI"
shown for such oil and gas property on Schedule 3.18).
3.19 Pension and Employee Benefit Plans. KNPC has no employees and
no plans in effect for pension, profit sharing, deferred compensation,
severance pay, bonuses, stock options, stock purchases, or any other form of
retirement or deferred benefit, or for any health, accident or other welfare
plan. All severance benefits payable to employees of KNE or others performing
services for KNPC as of the date of Closing shall be the sole responsibility of
KNE.
3.20 Insurance. Schedule 3.20 attached hereto summarizes
completely and accurately the insurance currently carried by KNE and KNPC in
respect of the properties and operations of KNPC, including, without
limitation, information as to limits of coverage, deductibles, annual premium
requirements and expiration dates with respect to product liability, general
liability, umbrella liability, contractual liability, employers' liability,
automobile liability, workers' compensation, property and casualty, business
interruption and other insurance carried by KNPC. Such insurance continues to
be in full force and effect, and KNPC is in compliance with all materials
requirements and provisions thereof. Except as set forth on such schedule,
none of the insurance carried by KNPC is subject to any retroactive rate or
audit adjustments, or co-insurance arrangements. True and correct copies of
all insurance policies relating to such coverage have been provided by KNPC to
TBI.
12
<PAGE> 18
3.21 No Pending Transactions. Except for the transactions
contemplated by this Agreement and those disclosed on Schedule 3.21 hereto,
KNPC is not a party to or bound by or the subject of any agreement, undertaking
or commitment (i) to merge or consolidate with, or acquire all or substantially
all of the property and assets of, any other corporation or person, or (ii) to
sell, lease or exchange any of its property and assets to any other corporation
or person other than transactions which are in the ordinary course of business.
Except for the transactions contemplated by this Agreement, KNE is not a party
to or bound by or the subject of any agreements, undertaking or commitment to
sell or otherwise transfer any of the KNPC Common Stock.
3.22 Disclosure. No representation or warranty made by KNPC or KNE
in this Agreement and no written statement contained in any certificate,
schedule, list or other instrument or document specified in or delivered
pursuant to this Agreement, whether heretofore furnished to TBI or hereafter
required to be furnished to TBI, contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact necessary
to make the statements contained herein or therein not misleading. To the best
knowledge of KNE and KNPC, all information relating to the historical and
prospective financial position, results of operations, assets and business of
KNPC which is or would be material (based on standards applied under the
Securities Act, the Exchange Act and the Rules and Regulations) to the
conversion and transfer of KNPC Common Stock has been provided by KNPC and KNE
to TBI.
3.23 Transactions with Affiliates. KNPC is not a party to any
transaction with any (i) current or former officer, director, shareholder or
employee of KNPC or KNE, or (ii) any parent, spouse, child, brother, sister or
other family member of any such officer, director, shareholder or employee;
(iii) any corporation, partnership or other entity of which any such officer,
director, shareholder or employee or any such family member is an officer,
director, partner, trustee or greater than 10% shareholder (based on percentage
ownership of voting stock or other voting interest) or (iv) any "affiliate" or
"associate" of any such persons or entities (as such terms are defined in the
rules and regulations promulgated under the Securities Act) including, without
limitation, any transaction involving a contract, agreement or other
arrangement providing for the employment of, furnishing of materials, products
or services by, rental of real or personal property from, or otherwise
requiring payments to, any such person or entity.
3.24 Environmental Laws and Regulations. Except as disclosed on
Schedule 3.24 attached hereto, KNPC is in compliance in all material respects
with all applicable federal, state and local laws and regulations relating to
product registration, pollution control and environmental contamination
including, but not limited to, all laws and regulations governing the
generation, use, collection, discharge or disposal of Hazardous Materials as
herein defined and all laws and regulations with regard to record keeping,
notification and reporting requirements respecting Hazardous Materials. Except
as disclosed on Schedule 3.24 attached hereto, KNPC has not been alleged to be
in violation of, or has not been subject to any administrative or judicial
proceeding pursuant to any Environmental Law, either now or at any time during
the past three years. Except as disclosed on Schedule 3.24 attached hereto,
there are no facts or circumstances known to KNE or KNPC which KNE or KNPC
reasonably expect could form the basis for the assertion of any
13
<PAGE> 19
Charge (as defined below) against KNPC relating to product registration,
pollution control or environmental contamination, including, but not limited
to, any Charge arising under CERCLA (as defined in Section 2.16 hereof) and
RCRA (as defined in Section 2.16 hereof), or any other Environmental Law, which
KNPC believes might have a material adverse effect on the business, results of
operations, financial condition or prospects of KNPC.
For purposes of this Section, the term "Charge" shall mean any and all
claims, demands, causes of action, suits, proceedings, administrative
proceedings, losses, judgments, decrees, debts, damages, liabilities, court
costs, attorney's fees and any other expenses incurred, assessed or sustained
by or against KNPC.
3.25 Bank Accounts and Powers of Attorney. Set forth in Schedule
3.25 attached hereto is an accurate and complete list showing the name and
address of each bank or financial institution in which KNPC has an account or
safe deposit box, the persons authorized to draw thereon or to have access
thereto, and the names of all persons, if any, holding powers of attorney from
KNPC and a summary statement of the terms thereof.
IV. COVENANTS OF TBI AND TBI ACQUISITION
TBI and TBI ACQUISITION jointly and severally covenant to KNPC and KNE
except as otherwise consented to in writing by KNE after the date of this
Agreement, as follows:
4.1 Consents. TBI and TBI ACQUISITION will take all necessary
corporate or other action and use their respective best efforts to complete all
filings and obtain all governmental and other consents and approvals required
for consummation of the transactions contemplated by this Agreement, including,
specifically, any filings required to comply with the requirements of the HSR
Act.
4.2 Cause Conditions to be Satisfied. TBI and TBI ACQUISITION
will use their best efforts to cause all of the conditions described in
Articles VII and VIII of this Agreement to be satisfied (to the extent such
matters reasonably are within their control).
4.3 Notice of Litigation. TBI and TBI ACQUISITION will provide
written notice to KNE of any litigation, proceeding or governmental
investigation which arises, or to the knowledge of TBI or TBI ACQUISITION, is
threatened or in process, after the date of this Agreement and prior to the
Closing, against or relating to the transactions contemplated by this
Agreement, setting forth in such notice the facts and circumstances currently
available to TBI or TBI ACQUISITION with respect to such litigation, proceeding
or investigation.
V. COVENANTS OF KNPC AND KNE
KNPC and KNE jointly and severally covenant to TBI and TBI ACQUISITION
except as otherwise consented to in writing by TBI after the date of this
Agreement, as follows:
14
<PAGE> 20
5.1 Conduct of Business. After the date of this Agreement and on
or prior to the date of the Closing, KNPC (a) will conduct its business only in
the ordinary course; (b) will not enter into or agree to enter into or adopt
any employee pension, profit-sharing, retirement, insurance, incentive
compensation, severance or similar plan, agreement or arrangement, or enter
into any employment contracts; (c) shall not, other than in the customary and
ordinary course of business, incur any liability for borrowed money, encumber
any of its assets or enter into any agreements relating to the incurrence of
additional debt; (d) will use its best efforts to preserve its business
organization intact, to keep available the service of its officers, and
independent contractors and the employees of KNE providing services to KNPC and
to preserve the goodwill of suppliers, customers and others doing business with
it; (e) will not acquire or agree to acquire by merging or consolidating with,
purchasing substantially all of the assets of, or otherwise, any business or
any corporation, partnership, association or other business organization or
division thereof; (f) will not enter into or amend any contract or agreement
with any labor union or any lease of real estate or personal property other
than oil, gas and mineral leases and other leases entered into or amended in
the ordinary course of business in a manner consistent with past practices
calling for yearly lease payments not in excess of $10,000; (g) will not enter
into any agreement for the purchase, sale or other disposition, or purchase,
sell or dispose of, any equipment, supplies, inventory, investments or other
assets (other than sales of inventory and purchases of materials and supplies
in the ordinary course of business and in accordance with past practices); (h)
will not compromise or write-off any material account receivable other than by
collection of the full recorded amount thereof; (i) will not change its
Certificate of Incorporation or bylaws; (j) will not change the number of
shares or terms of its authorized, issued or outstanding capital stock, nor
enter into or grant any options, calls, contracts or commitments of any
character relating to any issued or unissued capital stock; and (k) will not
declare or make any dividend or other distribution or payment in respect of its
capital stock; provided, however, and notwithstanding anything in the foregoing
to the contrary, KNPC may, prior to the Closing, distribute to KNE or other
designees of KNE the assets described on Schedule 5.1 hereof.
5.2 Information. KNPC will give TBI and to TBI's officers,
accountants, counsel and other representatives full access, during normal
business hours throughout the period prior to the Closing, to all the
properties, books, contracts, commitments and records of KNPC and all such
information concerning KNPC and its business and properties as TBI may
reasonably request.
5.3 Consents. KNPC and KNE will take all necessary corporate or
other action and use their respective best efforts to complete all filings and
obtain all governmental and other consents and approvals required for
consummation of the transactions contemplated by this Agreement, including,
specifically, any filings required to comply with the requirements of the HSR
Act.
5.4 Notice of Litigation. KNE and KNPC will provide written
notice to TBI of any litigation, proceeding or governmental investigation which
arises, or to the knowledge of KNPC or KNE, is threatened or in process, after
the date of this Agreement and prior to the Closing, against or relating to
KNPC, its properties or businesses, or the transactions contemplated by this
15
<PAGE> 21
Agreement, setting forth in such notice the facts and circumstances currently
available to KNE or KNPC with respect to such litigation, proceeding or
investigation.
5.5 Corporate Transactions. During the term of this Agreement,
neither KNPC nor KNE will seek the affiliation of KNPC with any entity other
than TBI and neither will negotiate or entertain any offer with respect to the
sale of part or all of the capital stock of KNPC or any of KNPC's assets.
During the term of this Agreement, neither KNPC nor KNE will authorize or
permit any officer, director or employee of KNE or KNPC to, or any investment
banker, attorney, accountant or other representative retained by KNPC or KNE
to, solicit or encourage (including by way of furnishing information) any
inquiries or the making of any proposal that may reasonably be expected to lead
to the acquisition of part or all of KNPC's capital stock or substantially all
of its assets by any person other than TBI. During the term of this Agreement,
KNPC promptly will advise TBI orally, followed by written confirmation, of any
such inquiries or proposals.
5.6 Cause Conditions to be Satisfied. KNPC and KNE will use their
best efforts to cause all of the conditions described in Articles VII and VIII
of this Agreement to be satisfied (to the extent such matters reasonably are
within their control).
5.7 Hiring Employees. KNE will use its reasonable efforts to
assist TBI in hiring such of the present oil and gas employees of KNE as TBI
shall make known to KNE.
VI. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT
6.1 Definition. As used in this Article VI, the term "Holder"
shall mean KNE and any other party holding certificates representing shares of
the TBI Preferred Stock or the TBI Common Stock or any other securities of TBI
issued in connection therewith or in respect thereof.
6.2 Restrictions on Transferability. The TBI Preferred Stock and
the TBI Common Stock shall not be sold, assigned, transferred or pledged except
pursuant to a registration statement prepared and filed with the Commission
pursuant to the Securities Act or upon satisfaction of the conditions specified
in this Article VI, which conditions are intended to ensure compliance with the
provisions of the Securities Act. KNE will cause any proposed purchaser,
assignee, transferee, or pledgee of the TBI Preferred Stock or the TBI Common
Stock to agree to take and hold such securities subject to the provisions and
conditions of this Article VI, unless the TBI Preferred Stock or the TBI Common
Stock is being distributed pursuant to a registration statement prepared and
filed with the Commission pursuant to the Securities Act.
6.3 Restrictive Legend. Each certificate representing (i) the TBI
Preferred Stock or the TBI Common Stock and (ii) any other securities issued in
respect of the TBI Preferred Stock or the TBI Common Stock upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of Section 6.4
below) be stamped
16
<PAGE> 22
or otherwise imprinted with legends substantially in the following form (in
addition to any other legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. SUCH
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR QUALIFICATION UNLESS TOM BROWN, INC. RECEIVES AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE
OR TRANSFER IS EXEMPT FROM THE REGISTRATION, QUALIFICATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT OR STATE SECURITIES LAWS.
IN ADDITION, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON THE TRANSFER AND DISPOSITIONS THEREOF CONTAINED IN
SECTION 6.4 OF THAT CERTAIN AGREEMENT AND PLAN OF REORGANIZATION DATED
AS OF JANUARY 31, 1996, BY AND AMONG TOM BROWN, INC., TBI ACQUISITION,
INC., K N ENERGY, INC. AND K N PRODUCTION COMPANY. COPIES OF THE
AGREEMENT COVERING THE ACQUISITION OF THESE SHARES AND RESTRICTING
THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF TOM
BROWN, INC. AT THE PRINCIPAL EXECUTIVE OFFICES OF TOM BROWN, INC.
KNE and each Holder consent to TBI's making a notation on its records
and giving instructions to any transfer agent of the TBI Preferred Stock or the
TBI Common Stock in order to implement the restrictions on transfer established
in this Article VI.
6.4 Notice of Proposed Transfers. KNE and the Holder of each
certificate representing TBI Preferred Stock or TBI Common Stock, by acceptance
thereof, agree to comply in all respects with the provisions of this Section
6.4. Prior to any proposed sale, assignment, transfer or pledge of any TBI
Preferred Stock or TBI Common Stock (other than transfers not involving a
change in beneficial ownership) unless there is in effect a registration
statement under the Securities Act covering the proposed transfer, the Holder
thereof shall give written notice to TBI of such Holder's intention to effect
such transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge
in sufficient detail, and shall be accompanied, at KNE's or such Holder's
expense, by either (i) an unqualified written opinion of legal counsel who
shall be, and whose legal opinion shall be, reasonably satisfactory to TBI and
addressed to TBI, to the effect that the proposed transfer of the TBI Preferred
Stock or TBI Common Stock may be effected without registration under the
Securities Act, or (ii) a "no action" letter from the Commission to the effect
that the transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the Holder of such TBI Preferred Stock or TBI Common Stock
shall be entitled
17
<PAGE> 23
to transfer such TBI Preferred Stock or TBI Common Stock in accordance with the
terms of the notice delivered by the Holder to TBI or (iii) other evidence of
compliance with the Securities Act acceptable to TBI. Unless such transfer is
made pursuant to Rule 144 under the Securities Act each certificate evidencing
the TBI Preferred Stock and the TBI Common Stock transferred as above provided
shall be stamped or imprinted with the legend set forth in Section 6.3 above,
except that any such certificate shall not bear such legend if in the opinion of
counsel for KNE or such Holder and TBI such legend is not required in order to
establish compliance with the Securities Act.
6.5 TBI Investment Representations. TBI represents and warrants
that it is acquiring the KNPC Common Stock for investment and not with a view
to the public distribution thereof and agrees that any future distribution
thereof will be in compliance with all applicable securities laws.
VII. CONDITIONS TO TBI'S AND TBI ACQUISITION'S OBLIGATIONS
Unless waived by TBI and TBI ACQUISITION in writing in their sole
discretion, all obligations of TBI and TBI ACQUISITION under this Agreement are
subject to the fulfillment, prior to or at the Closing, of each of the
following conditions:
7.1 Representations, Warranties and Covenants. The
representations and warranties of KNPC and KNE contained in Article III of this
Agreement shall be true at and as of the Closing Date, and shall be deemed made
again at and as of such date and be true as so made again; KNPC and KNE shall
have performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with by them on or prior to the Closing.
7.2 Opinion of Counsel. KNPC and KNE shall have delivered to TBI
a favorable opinion of their counsel, Martha Wyrsch, Esquire, dated the
Closing Date, in form and substance satisfactory to TBI and its counsel, to the
effect that: (a) each of KNE and KNPC is a corporation duly organized, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation, and has full corporate power to carry on its business as it
is now being conducted and to own or hold under lease the properties and assets
it now owns or holds under lease; (b) KNPC is duly qualified to do business in
all jurisdictions where the character of its properties or the nature of its
activities makes such qualification necessary and where the failure to qualify
would be materially adverse to KNPC; (c) the authorized, issued and outstanding
capital stock of KNPC is as set forth in Section 3.2 of this Agreement, and
each of the issued and outstanding shares of KNPC Common Stock has been duly
authorized and issued and is fully paid and non-assessable; (d) the execution,
delivery and performance of this Agreement and all other documents to be
executed by KNE and KNPC in connection with this Agreement (the "KNPC
Documents") have been duly authorized and approved by all requisite action of
the Board of Directors of KNE and KNPC and KNE as the sole shareholder of KNPC,
and this Agreement and all other KNPC Documents have been duly executed and
delivered by KNE and KNPC and constitute valid and legally binding obligations
of KNE and KNPC; (e) the execution and delivery of this Agreement and the other
KNPC Documents did not, and the consummation of the transactions contemplated
hereby and thereby will not, violate any provision of any agreement,
instrument, order, judgment or decree, of
18
<PAGE> 24
which such counsel has knowledge, to which KNE or KNPC may be a party or by
which either of them is bound; (f) except as may be specified by such counsel,
such counsel does not know of any material suit or proceeding pending or
threatened against or affecting KNPC, KNE or any of their respective businesses
or properties or the consummation of the transactions contemplated hereunder;
(g) all regulatory and governmental approvals, consents and filings required of
KNPC or KNE for the consummation of the transactions contemplated by this
Agreement or any of the other KNPC Documents have been obtained or made, and,
to the best knowledge of such counsel, all such approvals, consents or filings
remain in full effect as of the date of such opinion; and (h) to such further
effect regarding the validity and sufficiency of legal proceedings and matters
relative to the transactions contemplated by this Agreement as TBI may
reasonably request.
7.3 Approvals of Governmental Authorities. All governmental
approvals necessary or advisable in the opinion of TBI's counsel to consummate
the transactions contemplated by this Agreement shall have been received and
shall not contain any provision which, in the judgment of TBI, is unduly
burdensome.
7.4 No Adverse Proceedings or Events. No suit, action or any
other proceeding against KNE, KNPC, TBI or TBI ACQUISITION, or their respective
officers or directors, shall have been instituted and resulted in entry of a
court order (which has not subsequently been dismissed, terminated or vacated)
enjoining, either temporarily or permanently, the consummation of the
transactions contemplated by this Agreement. No suit, action or other
proceeding against KNE, KNPC, TBI or TBI ACQUISITION, or their respective
officers or directors, shall be threatened or pending before any court or
governmental agency in which it will be, or it is, sought to restrain or
prohibit any of the transactions contemplated by this Agreement or to obtain
damages or other relief in connection with this Agreement or the transactions
contemplated hereby.
7.5 Consents and Actions; Contracts. All requisite consents of
any third parties and other actions which KNPC and KNE have covenanted to use
their best efforts to obtain and take under Section 5.3 hereof shall have been
obtained and completed or any waiting period required in connection therewith
shall have expired. All material contracts and agreements of KNPC, including,
without limitation, all contracts and agreements listed on the Contract
Schedule, shall be in full force and effect and shall not be affected by the
consummation of the transactions contemplated hereby.
7.6 Certificate. KNPC and KNE shall have delivered to TBI a
Certificate or Certificates dated the Closing Date, in form and substance
satisfactory to TBI and its counsel, certifying that the representations and
warranties of KNPC and KNE contained in this Agreement are true and correct on
and as of the Closing Date.
7.7 Other Evidence. TBI shall have received from KNPC and KNE
such further certificates and documents evidencing due action in accordance
with this Agreement, including certified copies of proceedings of the Board of
Directors and shareholder of KNPC, as TBI reasonably shall request.
19
<PAGE> 25
7.8 Execution of Limited Liability Company Agreement. The Limited
Liability Company Agreement attached hereto as Exhibit B shall be executed and
delivered on behalf of both KNE and TBI.
7.9 Execution of Registration Rights Agreement. The Registration
Rights Agreement attached hereto as Exhibit C shall be executed and delivered
on behalf of KNE and TBI.
7.10. Filing of Certificate of Merger. The Certificate of Merger
shall be filed with the Secretary of State of the State of Delaware, in such
form as required by, and executed in accordance with, the relevant provisions
of, the DGCL.
7.11 Delivery of Stock Certificates. The certificates representing
all of the outstanding KNPC Common Stock shall be delivered to TBI in proper
form for transfer to TBI and the certificates registered in the name of KNE
representing all of the TBI Preferred Stock and the TBI Common Stock shall be
delivered to KNE.
VIII. CONDITIONS TO KNPC'S AND KNE'S OBLIGATIONS
Unless waived by KNPC and KNE in writing in their sole discretion, all
obligations of KNPC and KNE under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
8.1 Representations, Warranties and Covenants. The
representations and warranties of TBI and TBI ACQUISITION contained in Article
II of this Agreement shall be true at and as of the Closing Date, and shall be
deemed made again at and as of such date and be true as so made again; TBI and
TBI ACQUISITION shall have performed all obligations and complied with all
covenants required by this Agreement to be performed or complied with by them
on or prior to the Closing.
8.2 Opinion of Counsel. TBI and TBI ACQUISITION shall have
delivered to KNE a favorable opinion of their counsel, Lynch, Chappell & Alsup,
dated the Closing Date, in form and substance satisfactory to KNE and its
counsel, to the effect that: (a) each of TBI and TBI ACQUISITION is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has full corporate power to carry on its
business as it is now being conducted and to own or hold under lease the
properties and assets it now owns or holds under lease; (b) TBI is duly
qualified to do business in all jurisdictions where the character of its
properties or the nature of its activities makes such qualification necessary
and where the failure to qualify would be materially adverse to TBI and its
subsidiaries, taken as a whole; (c) the authorized, issued and outstanding
capital stock of TBI is as set forth in Section 2.7 of this Agreement, and
each of the issued and outstanding shares of common stock of TBI has been duly
authorized and issued and is fully paid and nonassessable; (d) The execution,
delivery and performance of this Agreement and all other documents to be
executed by TBI and TBI ACQUISITION in connection with this Agreement (the "TBI
Documents") have been duly authorized and approved by all requisite action of
the Boards of Directors of TBI and TBI ACQUISITION and this Agreement and all
other TBI
20
<PAGE> 26
Documents have been duly executed and delivered by TBI and TBI ACQUISITION and
constitute valid and legally binding obligations of TBI and TBI ACQUISITION;
(e) the shares of TBI Preferred Stock and the shares of TBI Common Stock
referred to in Section 1.6 of this Agreement have been duly authorized and,
when issued and delivered in accordance with and pursuant to the Merger, will
have been legally and validly issued and will be fully paid and nonassessable
and no stockholder of TBI will have any preemptive right of subscription or
purchase in respect thereof; (f) the shares of TBI Common Stock issuable upon
conversion of the TBI Preferred Stock are duly authorized and reserved for
issuance and, when issued in accordance with the terms of the TBI Preferred
Stock, will be validly issued, fully paid, nonassessable and free of preemptive
rights; (g) the execution and delivery of this Agreement and the other TBI
Documents did not, and the consummation of the transactions contemplated hereby
and thereby will not, violate any provision of any agreement, instrument,
order, judgment or decree, of which such counsel has knowledge, to which TBI or
TBI ACQUISITION may be a party or by which either of them is bound; (h) except
as may be specified by such counsel, such counsel does not know of any material
suit or proceeding, pending or threatened against or affecting TBI or TBI
ACQUISITION or any of their respective businesses or properties or the
consummation of the transactions contemplated hereunder, (i) all regulatory and
governmental approvals, consents and filings required of TBI or TBI ACQUISITION
for the consummation of the transactions contemplated by this Agreement or any
of the other TBI Documents have been obtained or made, and, to the best
knowledge of such counsel, all such approvals, consents or filings remain in
full effect as of the date of such opinion; and (j) to such further effect
regarding the validity and sufficiency of legal proceedings and matters
relative to the transactions contemplated by this Agreement as KNE may
reasonably request.
8.3 Approval of Governmental Authorities. All governmental
approvals necessary or advisable in the opinion of KNE's counsel to consummate
the transactions contemplated by this Agreement shall have been received and
shall not contain any provision which, in the judgment of KNE, is unduly
burdensome.
8.4 No Adverse Proceedings or Events. No suit, action or other
proceeding against TBI, TBI ACQUISITION, KNPC or KNE, or their respective
officers or directors, shall have been instituted and resulted in entry of a
court order (which has not subsequently been dismissed, terminated or vacated)
enjoining, either temporarily or permanently, the consummation of the
transactions contemplated by this Agreement. No suit, action or other
proceeding against TBI, TBI ACQUISITION, KNPC or KNE, or their respective
officers or directors, shall be threatened or pending before any court of
governmental agency in which it will be, or it is, sought to restrain or
prohibit or to obtain damages or other relief in connection with this Agreement
or the transactions contemplated hereby.
8.5 Consents and Actions. All requisite consents of any third
parties and other actions which TBI and TBI ACQUISITION have covenanted to use
their best efforts to obtain and take under Section 4.1 of this Agreement shall
have been obtained and completed or any waiting period required in connection
therewith shall have expired.
21
<PAGE> 27
8.6 Certificates. TBI and TBI ACQUISITION shall have delivered to
KNPC and KNE a Certificate or Certificates dated the Closing Date, in form and
substance satisfactory to KNPC and KNE and their counsel, certifying that the
representations and warranties of TBI and TBI ACQUISITION contained in this
Agreement are true and correct on and as of the Closing Date.
8.7 Other Evidence. KNPC and KNE shall have received from TBI and
TBI ACQUISITION such further certificates and documents evidencing due action
in accordance with this Agreement, including certified copies of proceedings of
the Board of Directors of TBI and TBI ACQUISITION, as KNPC and KNE reasonably
shall request.
8.8 Execution of Limited Liability Company Agreement. The Limited
Liability Company Agreement attached hereto as Exhibit B shall be executed and
delivered on behalf of both KNE and TBI.
8.9 Execution of Registration Rights Agreement. The Registration
Rights Agreement attached hereto as Exhibit C shall be executed and delivered
on behalf of KNE and TBI.
8.10 Filing of Certificate of Merger. The Certificate of Merger
shall be filed with the Secretary of State of the State of Delaware, in such
form as required by , and executed in accordance with, the relevant provisions
of, the DGCL.
8.11 Delivery of Stock Certificates. The certificates
representing all of the outstanding KNPC Common Stock shall be delivered to TBI
in proper form for transfer to TBI and the certificates registered in the name
of KNE representing all of the TBI Preferred Stock and the TBI Common Stock
shall be delivered to KNE.
IX. COVENANTS TO BE PERFORMED AFTER CLOSING
9.1 Agreements to Survive Closing. The Limited Liability Company
Agreement between TBI and KNE in the form of Exhibit B attached hereto and the
Registration Rights Agreement in the form of Exhibit C attached hereto shall
each survive the Closing. Notwithstanding the provisions of Article XI hereof.
The representations, warranties and agreements made by the parties to this
Agreement in this Article IX shall all survive the Closing.
9.2 Option to Purchase Properties. TBI hereby grants to KNE the
right to purchase any KNPC properties or interests, the production from which
qualifies for the production tax credit granted under Section 29 of the Code,
at a price to be determined based on the calculations set forth on Exhibit D
attached hereto, reflecting future estimated production and cash flows from
such KNPC properties or interests. Such right shall be exercised by notice in
writing given by KNE to TBI on or before June 30, 1996 and shall be consummated
as soon after the giving of such notice as is practicable
22
<PAGE> 28
9.3 Standstill. Unless waived in writing by TBI, during the
period commencing on the Effective Date and ending on the third anniversary
thereof, neither KNE nor any of its affiliates (as defined in Rule 12b-2 under
the Exchange Act) shall:
(a) acquire or agree, offer, seek or propose to acquire (or
request permission to do so), ownership (including, but not limited to
beneficial ownership as defined in Rule 13d-3 under the Exchange Act) of any
assets (except as contemplated by Section 9.2 of this Agreement and by the
Limited Liability Company Agreement executed pursuant to Sections 7.8 and 8.8
of this Agreement) or businesses or any additional securities issued by TBI, or
any rights or options to acquire such ownership (including from a third party);
or
(b) contest any election of directors by the stockholders of TBI
(except as otherwise provided by the Certificate of Designations, Powers,
Preferences and Rights of the TBI Preferred Stock), provided that if all
cumulative dividends on the TBI Preferred Stock have not been declared and paid
by TBI as they accumulate, then KNE and its affiliates may contest any election
of directors by the shareholders of TBI; or
(c) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing.
Such restrictions shall not prevent the sale of the common stock of
TBI underlying the TBI Preferred Stock or the sale of the TBI Common Stock held
by KNE pursuant to Rule 144 under the Securities Act or any registration
statement under the Securities Act in which such securities are included
pursuant to the registration rights granted to KNE by TBI pursuant to the
Registration Rights Agreement referred to in Sections 7.9 and 8.9 of this
Agreement.
9.4 Reorganization Covenants and Representations:
(a) Following the Merger, the Surviving Entity will hold at least
90 percent of the fair market value of its net assets and at least 70 percent
of the fair market value of its gross assets and at least 90 percent of the
fair market value of TBI ACQUISITION's net assets and at least 70 percent of
the fair market value of TBI ACQUISITION'S gross assets held immediately prior
to the Merger. For purposes of this representation, amounts used by KNPC or
TBI ACQUISITION to pay Merger expenses and all redemptions and distributions
(except for regular, normal dividends) made by KNPC will be included as assets
of KNPC or TBI ACQUISITION, respectively, immediately prior to the Merger.
(b) The Surviving Entity has no plan or intention to issue
additional shares of its stock that would result in TBI's losing control of the
Surviving Entity within the meaning of Section 368(c) of the Code.
(c) TBI has no plan or intention to reacquire any of the TBI
Common Stock or TBI Preferred Stock issued in the Merger.
23
<PAGE> 29
(d) TBI has no plan or intention to liquidate the Surviving
Entity, to merge the Surviving Entity with or into another corporation, to sell
or otherwise dispose of the stock of the Surviving Entity, or to cause the
Surviving Entity to sell or otherwise dispose of any of its assets or of any of
the assets acquired from TBI ACQUISITION except for dispositions made in the
ordinary course of business.
(e) TBI ACQUISITION will have no liabilities assumed by the
Surviving Entity and will not transfer to the Surviving Entity any assets
subject to liabilities in the Merger.
(f) Following the Merger, the Surviving Entity will continue its
historic business or use a significant portion of its historic business assets
in a business.
9.5 Preparation of Tax Returns; Responsibility for Taxes.
(a) KNE shall cause to be included in the consolidated federal
income tax returns (and the state income tax returns of any state that permits
consolidated, combined or unitary income tax returns, if any) of the KNE
affiliated group for all periods ending on or before the Effective Date, all
items of income, gain, loss, deduction and credit and other tax items ("Tax
Items") of KNPC which are required to be included therein, shall file timely
all such tax returns with the appropriate taxing authorities, and shall be
responsible for the timely payment (and entitled to any refund) of all taxes
due with respect to the periods covered by such tax returns. At or prior to
the Closing, KNE shall cause KNPC to distribute to KNE the amount reflected as
a liability for such taxes on the financial statements of KNPC as of and for
the period ended December 31, 1995, to the extent not previously distributed to
KNE.
(b) With respect to any state income tax return covering a taxable
period ending on or before the Effective Date that is required to be filed
after the Closing Date with respect to KNPC that is not described in paragraph
(a) above, KNE shall cause such tax return to be prepared, shall cause to be
included in such tax return all Tax Items required to be included therein,
shall timely submit to TBI for filing such tax return with the appropriate
taxing authority, and shall be responsible for the timely payment (and entitled
to any refund) of all taxes due with respect to the period covered by such tax
return. At or prior to the Closing, KNE shall cause KNPC to distribute to KNE
the amount reflected as a liability for such taxes on the financial statements
of KNPC as of and for the period ended December 31, 1995, to the extent not
previously distributed to KNE.
(c) With respect to any tax return of KNPC not described in
paragraph (a) or (b) above, TBI shall cause such tax return to be prepared,
shall cause to be included in such tax return all Tax Items required to be
included therein, shall file timely such tax return with the appropriate taxing
authority, and shall be responsible for the timely payment (and entitled to any
refund) of all taxes due with respect to the period covered by such tax return.
KNE shall determine (by an interim closing of the books as of the Effective
Date except for ad valorem taxes which shall be prorated on a daily basis) the
portion of the tax due with respect to the period covered by such Tax Return
which is attributable to the portion of such taxable period ending the
Effective Date. If the amount of tax so
24
<PAGE> 30
determined to be attributable to the portion of such taxable period ending on
December 31, 1995 exceeds the amount reflected as a liability for such tax on
the financial statements of KNPC as of and for the period ended December 31,
1995, KNE shall pay to TBI the amount of such excess tax not less than 5 days
prior to the due date of such Tax Return.
(d) Notwithstanding anything to the contrary herein, any franchise
tax paid or payable with respect to KNPC shall be allocated to the taxable
period during which the right to do business obtained by the payment of such
franchise tax relates, regardless of whether such franchise tax is measured by
income, operations, assets or capital relating to another taxable period. With
respect to any franchise tax so allocated to the taxable period ended December
31, 1995: (i) the amount of such franchise tax shall be prorated on a daily
basis between the portion of such taxable period ending on December 31, 1995
and the remaining portion of such taxable period, and (ii) if the amount of
such franchise tax paid or provided for as of December 31, 1995 exceeds the
amount so prorated to the portion of such taxable period ending as of December
31, 1995, the excess amount shall be paid by KNPC to KNE.
(e) Any tax return to be prepared pursuant to the provisions of
this Section 9.5 shall be prepared in a manner consistent with practices
followed in prior years with respect to similar tax returns, except for changes
required by changes in law or fact.
(f) KNE shall grant to TBI (or its designees) access at all
reasonable times to all of the information, books and records relating to KNPC
within the possession of KNE (including workpapers and correspondence with
taxing authorities), and shall afford TBI (or its designees) the right (at
TBI's expense) to take extracts therefrom and to make copies thereof, to the
extent reasonably necessary to permit TBI (or its designees) to prepare tax
returns and to conduct negotiations with tax authorities.
(g) TBI shall grant or cause KNPC to grant to KNE (or its
designees) access at all reasonable times to all of the information, books,
records relating to KNPC within the possession of TBI and KNPC (including
workpapers and correspondence with taxing authorities), and shall afford KNE
(or its designees) the right (at KNE's expense) to take extracts therefrom and
to make copies thereof, to the extent reasonably necessary to permit KNE (or
its designees) to prepare tax returns and to conduct negotiations with taxing
authorities.
(h) TBI shall be responsible for the payment of all state and
local transfer, sales, use or other similar taxes, if any, resulting from the
transactions contemplated by this Agreement.
9.6 Closing and Post-Closing Adjustments. As soon as practicable
after the Closing, TBI shall pay to KNE an amount in cash sufficient to (i)
compensate KNE for one-half of the direct salary cost paid by KNE for employees
and independent contractors performing services for KNPC during the month of
January, 1996, and (ii) compensate KNE for any other costs incurred by it in
the ordinary course of KNPC's business for the month of January, 1996. Within
fourteen (14) days following the Closing, KNE shall calculate and furnish to
TBI the amount that will need to be paid
25
<PAGE> 31
by it or received by it to cause KNPC's working capital, deferred credits and
deferred charges as of December 31, 1995 to have a zero balance. If a payment
to KNPC by KNE is needed to cause such items to have a zero balance, KNE shall
make such payment when it delivers such calculation to TBI. If a payment by
KNPC to KNE is needed to cause such items to have a zero balance, KNPC shall
make such payment to KNE. On or before April 1, 1996, TBI shall provide KNE
with a schedule (the "Adjustment Schedule") of post-closing adjustments (with
appropriate supporting documentation) which shall, in TBI's opinion be
necessary to correct for any discrepancy made by KNE in determining KNPC's
working capital, deferred credits and deferred charges as of December 31, 1995
and bringing the balance of such items to zero. KNE shall have fifteen (15)
days following receipt of the Adjustment Schedule from TBI in which to question
the adjustments proposed by TBI. To the extent such proposed adjustments are
not questioned by KNE, they shall be paid by the party owing the same within
five (5) days following the expiration of such fifteen (15) day period. To the
extent KNE questions any adjustment proposed by TBI, representatives of the
parties shall make a good faith effort to agree on such proposed adjustments
within fifteen (15) days of receipt by TBI of KNE's written objections to the
adjustments proposed by TBI (with appropriate supporting documentation). If
the parties do not agree on any of the proposed adjustments within such fifteen
(15) day period, either party may seek resolution of their dispute through
binding arbitration to be conducted in Denver, Colorado in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. Upon
written demand of either party, the parties shall meet and attempt to appoint a
single arbitrator. If the parties fail to name an arbitrator within ten (10)
days from such demand, then the arbitrator shall be selected by the American
Arbitration Association from the panels of arbitrators of the American
Arbitration Association. The arbitrator selected to act hereunder shall be
qualified by education and training to pass upon the particular question in
dispute and shall make a decision on the dispute within thirty (30) days after
his appointment, subject to any reasonable delay due to unforseen
circumstances. The compensation and expenses of the single arbitrator shall be
borne equally by the parties. Arbitration may proceed in the absence of any
party if notice of the proceedings has been given to such party. The parties
agree to abide by all awards rendered in such proceedings. Notwithstanding
the foregoing, no post-closing adjustments shall be made unless the aggregate
of all such adjustments to correct for any discrepancy made by KNE in
determining KNPC's working capital, deferred credits and deferred charges as of
December 31, 1995 and bringing the balance of such items to zero exceed
$200,000, whereupon the adjustments shall be inclusive of such $200,000 amount.
X. INDEMNIFICATION
10.1 Indemnification of TBI. KNE hereby covenants and agrees to
indemnify and hold harmless TBI and each subsidiary and each of their
respective officers and directors (the "TBI Affiliates"), and their respective
successors and assigns, at all times from and after the date of Closing against
and in respect of the following (collectively the "Claims"):
(a) all liabilities of KNPC of any nature, whether
accrued, absolute, contingent or otherwise, which existed as of December 31,
1995, or arose out of the conduct of any business, the ownership or use of any
property, or the existence or occurrence of any events, condition or set of
facts, at or prior to December 31, 1995, and which were not adequately provided
for or reflected in the October 31, 1995 financial statements delivered
pursuant to Section 3.3 of this Agreement,
26
<PAGE> 32
or incurred in the ordinary course of business subsequent to October 31, 1995
or otherwise disclosed to TBI pursuant to this Agreement, including, but not
limited to, any liabilities for federal, state or local taxes for any year or
period and including, specifically, any damage or loss resulting to KNPC as a
result of the fire that occurred on or about January 6, 1996 in connection with
KNPC's Wolf Creek Property (the "Wolf Creek Fire");
(b) any damage or loss resulting from any
misrepresentation, breach of representation or warranty or non-fulfillment of
any agreement or covenant on the part of KNPC or KNE under this Agreement, or
from any misrepresentation in or omission from any certificate or other
instrument or documents furnished or to be furnished by KNPC or KNE hereunder;
and
(c) all claims, actions, suits, proceedings, demands,
assessments, judgments, costs, attorney's fees and expenses of any nature
incident to any of the matters indemnified against pursuant to this Section
10.1.
10.2 Indemnification of KNE. TBI hereby covenants and agrees to
indemnify and hold harmless KNE and each subsidiary and each of their
respective officers and directors (the "KNE Affiliates"), and their respective
successors and assigns, at all times from and after the date of Closing against
and in respect of the following (collectively the "Claims"):
(a) all liabilities of KNPC of any nature, whether accrued,
absolute, contingent or otherwise, which arise out of the conduct of any
business, the ownership or use of any property, or the existence or occurrence
of any events, condition or set of facts, on or after January 1, 1996,
including, but not limited to, any liabilities for federal, state or local
taxes for any year or period;
(b) any damage or loss resulting from any misrepresentation,
breach of representation or warranty or non-fulfillment of any agreement or
covenant on the part of TBI or TBI ACQUISITION under this Agreement, or from
any misrepresentation in or omission from any certificate or other instrument
or documents furnished or to be furnished by TBI or TBI ACQUISITION hereunder;
and
(c) all claims, actions, suits, proceedings, demands, assessments,
judgments, costs, attorney's fees and expenses of any nature incident to any of
the matters indemnified against pursuant to this Section 10.2.
10.3 Threshold Amounts. Notwithstanding anything to the contrary
herein, the parties agree that no indemnification obligation (other than that
arising as a result of the Wolf Creek Fire) shall arise under the terms of this
Agreement unless and until the aggregate value of all such indemnification
obligations is equal to or greater than $2,000,000, whereupon the obligation to
indemnify shall include the full amount of such liability or claim. The full
amount of any liability or loss to KNPC arising out of the Wolf Creek Fire
shall be borne by KNE.
10.4 Survival of Indemnity. The agreements to indemnify set forth
in Section 10.1 and 10.2 above shall survive the Closing and shall be fully
enforceable in law or in equity against the
27
<PAGE> 33
party responsible for indemnification (the "Indemnifying Party") if written
notice of the amount for which the indemnification is sought is given to the
Indemnifying Party within fifteen (15) months following the Closing Date,
except for losses involving tax matters which shall survive for the applicable
period of limitations (the "Indemnity Period").
10.5 Notice and Defense. The party (KNE or TBI) seeking
indemnification under the terms of this Article X (the "Indemnified Party")
shall notify the Indemnifying Party of any Claim whether or not resulting from
action by a third party or parties, which gives rise to indemnification
hereunder. Notice of such Claim must be given during the Indemnity Period.
Upon receipt of a notice of Claim, with respect to third party actions, the
Indemnifying Party shall have, at its election, the right, but not the
obligation, to compromise or defend any such matter at its sole cost and
expense through counsel chosen by the Indemnifying Party and approved by the
Indemnified Party; provided, however, that any such compromise or defense shall
be conducted in a manner which is reasonable and not contrary to the
Indemnified Party's interests and the Indemnified Party shall in all events
have a right to veto any such compromise or defense which is unreasonable or
which would jeopardize in any material respect any assets or business of the
Indemnified Party or any Affiliates of the Indemnified Party or increase the
potential liability of, or create a new liability for, the Indemnified Party or
any Affiliates of the Indemnified Party and, provided further that the
Indemnifying Party shall in all events indemnify the Indemnified Party and its
Affiliates against any damage resulting from the manner in which such matter is
compromised or defended, including any failure to pay any Claim while such
litigation is pending. If the Indemnifying Party does undertake to compromise
or defend, the Indemnifying Party shall notify the Indemnified Party of its
intention to do so. Each party agrees in all cases to cooperate with the party
assuming the primary defense of any Claim and its or his counsel in the
compromise of or defense of any Claim. In addition, the non-defending party
shall at all times be entitled to monitor such defense through the appointment,
at its or his own cost and expense, of advisory counsel of its or his own
choosing.
10.6 Limitation on Indemnity Obligation. KNE's obligation to
indemnify TBI under this Article X shall not exceed $20,000,000.00, in the
aggregate.
XI. SURVIVAL
Except for the matters expressly provided to survive the Closing in
Article IX of this Agreement, the representations, warranties and agreements
made by the parties in this Agreement and in any other certificates and
documents delivered in connection herewith, including the indemnification
obligations of KNE and TBI set forth in Article X hereof, shall survive the
Closing under this Agreement only for a period of fifteen (15) months following
Closing, without limitation regardless of any investigation made by the party
seeking indemnification under Article X.
XII. BROKERS AND ADVISORS
28
<PAGE> 34
Except with respect to the engagement of Petrie, Parkman & Co., who is
acting as financial advisor for KNE in connection with the transactions
contemplated by this Agreement, whose fees and expenses KNE hereby agrees to be
fully responsible for, and except with respect to the engagement of Schroder
Wertheim & Co., who is acting as financial advisor for TBI in connection with
the transactions contemplated by this Agreement, whose fees and expenses TBI
hereby agrees to be fully responsible for. KNPC and KNE on the one hand, and
TBI and TBI ACQUISITION, on the other hand, represent and warrant to each other
that the transactions contemplated by this Agreement have been negotiated
directly between them and their respective counsel, without the intervention of
any person as a result of any action by them in such a manner as to give rise
to a valid claim against any party hereto for a brokerage commission, finder's
fee, counseling or advisory fee, or like payment, and each agree to indemnify
the other against any such liability arising from or through it.
XIII. FEES AND EXPENSES
Each party to this Agreement shall bear its own expenses relating
hereto, including fees and disbursements of its counsel and accountants, except
that KNE shall pay all such fees and expenses of KNPC incurred prior to
Closing.
XIV. NOTICE
All notices, requests, demands and other communications under or in
connection with this Agreement shall be in writing, and,
(a) if to TBI or TBI ACQUISITION, shall be addressed to:
Tom Brown, Inc.
P. O. Box 2608
Midland, Texas 79702
Attention: Mr. Donald L. Evans,
Chairman of the Board
Telephone: (915) 682-9715
Telecopy: (915) 682-9171
29
<PAGE> 35
with a copy to:
Lynch, Chappell & Alsup
300 N. Marienfeld, Suite 700
Midland, Texas 79701
Attn: Mr. James M. Alsup
Telephone: (915) 683-3351
Telecopy: (915) 683-2587
(b) if to KNPC, shall be addressed to:
K N Production Company
P. O. Box 281304
Lakewood, Colorado 80228-8304
Attention: Mr. Geoff Solich
Telephone: (303) 980-9340
Telecopy: (303) 989-0823
and if to KNE, shall be addressed to:
K N Energy, Inc.
P. O. Box 281304
Lakewood, Colorado 80228-8304
Attention: Mr. Geoff Solich
Telephone: (303) 989-1740
Telecopy: (303) 763-3115
with a copy to:
Vinson & Elkins
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Attention: Mr. William G. Lee
Telephone: (713) 758-2180
Telecopy: (713) 758-2346
All such notices, requests, demands or communications shall be mailed
postage prepaid, certified mail, return receipt requested, or delivered
personally or by telecopy and shall be sufficient and effective when delivered
to or received at the address so specified. Any party may change the address
at which it is to receive notice by like written notice to the others.
30
<PAGE> 36
XV. TERMINATION
This Agreement may be terminated and the transactions contemplated
hereby abandoned as provided in this Article XV, by notice given by the
terminating party to the non-terminating parties containing the certificate of
the terminating party's Secretary to the effect that the Board of Directors of
the terminating party has authorized the giving of such notice, under any of
the following circumstances:
(a) Mutual Agreement. By mutual agreement of KNE and TBI;
(b) Lapse of Time. At the option of KNE or TBI if the
Closing has not occurred on or before February 29, 1996 (the "Outside Date")
unless that date has been extended by mutual agreement of TBI and KNE in which
case the date to which the Outside Date has been extended shall be the Outside
Date;
(c) KNPC or KNE's Failure to Perform. At the option of TBI,
prior to the Closing pursuant to this Agreement, if (i) there shall have been a
breach of any representation or warranty on the part of KNPC, or (ii) there
shall have been a breach of any covenant or agreement on the part of KNPC or
KNE, which shall not have been cured prior to the earlier of (a) ten days
following notice of such breach, and (b) two business days prior to the Outside
Date;
(d) TBI's Failure to Perform. At the option of KNE, prior to
the Closing pursuant to this Agreement, if (i) there shall have been a breach
of any representation or warranty on the part of TBI or (ii) there shall have
been a breach of any covenant or agreement on the part of TBI which shall not
have been cured prior to the earlier of (a) ten days following notice of such
breach, and (b) two business days prior to the Outside Date.
XVI. ENTIRE AGREEMENT
This Agreement (including the exhibits hereto and the lists, schedules
and documents delivered pursuant hereto, which are a part hereof) is intended
by the parties to and does constitute the entire agreement of the parties with
respect to the transactions contemplated by this Agreement. This Agreement
supersedes any and all prior understandings, written or oral, between the
parties, and this Agreement may be amended, modified, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of the amendment, modification, waiver, discharge or termination is
sought.
XVII. GENERAL
The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement shall
inure
31
<PAGE> 37
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns, but nothing herein, express or implied, is intended to
or shall confer any rights, remedies or benefits upon any person other than the
parties hereto. This Agreement may not be assigned by any party hereto. This
Agreement shall be construed in accordance with and governed by the laws of the
State of Delaware.
32
<PAGE> 38
IN WITNESS WHEREOF, TBI, TBI ACQUISITION, KNPC and KNE have caused
this Agreement to be duly executed as of the date first above written.
TOM BROWN, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
TBI ACQUISITION, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
K N PRODUCTION COMPANY
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
K N ENERGY, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
33
<PAGE> 39
SCHEDULES
---------
3.4
3.5
3.9
3.11
3.12
3.15
3.16
3.18
3.20
3.21
3.23
3.24
3.25
5.1
34
<PAGE> 40
EXHIBITS
--------
EXHIBIT A - Convertible Preferred Stock
EXHIBIT B - Limited Liability Company Agreement
EXHIBIT C - Registration Rights Agreement
EXHIBIT D - Future Estimated Production and Cash Flows from KNPC Properties
35
<PAGE> 1
EXHIBIT 2
TOM BROWN, INC.
Certificate of Designations, Powers, Preferences
and Rights of the $1.75 Convertible Preferred Stock,
Series A
($0.10 Par Value)
Liquidation Value $25.00 Per Share
______________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
______________________________
The undersigned, a Vice President of Tom Brown, Inc., a Delaware
corporation (hereinafter called the "Corporation"), DOES HEREBY CERTIFY that
the following resolution has been duly adopted by the Board of Directors of the
Corporation:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board of Directors")
by the provisions of Paragraph FOURTH of the Certificate of Incorporation of
the Corporation, there hereby is created, out of the two million five hundred
thousand (2,500,000) shares of Preferred Stock of the par value of Ten Cents
($0.10) per share of the Corporation authorized in Paragraph FOURTH of its
Certificate of Incorporation (the "Preferred Stock"), a series of Preferred
Stock of the Corporation consisting of One Million (1,000,000) shares, which
series shall have the following designations, powers, preferences, rights,
qualifications, limitations and restrictions (in addition to the designations,
powers, preferences, rights, qualifications, limitations and restrictions set
forth in the Certificate of Incorporation of the Corporation which are
applicable to the Preferred Stock):
1. Designation; Number of Shares.
The designation of said series of the Preferred Stock shall be
"$1.75 Convertible Preferred Stock, Series A" (the "Series A Preferred Stock").
The number of shares of Series A Preferred Stock shall be limited to One
Million (1,000,000).
2. Dividends.
(a) The shares of Series A Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors or a duly
authorized committee thereof (an "Authorized Board Committee"), out of funds
legally available for the payment of dividends, cumulative dividends at
<PAGE> 2
the annual rate of $1.75 per share, and no more, payable in cash on March 15,
1996, with respect to the period commencing on the date of original issue
thereof and ending March 14, 1996, and thereafter quarterly on the fifteenth
day of March, June, September and December in each year, except that if any
such date is a Saturday, Sunday or legal holiday, then such dividend shall be
payable on the next succeeding day which is not a Saturday, Sunday or legal
holiday (the "Dividend Payment Date" or "Dividend Payment Dates"), with respect
to the quarterly period ending on the fourteenth day of March, June, September
or December next preceding such Dividend Payment Date, to stockholders of
record on the record date, not exceeding sixty (60) days preceding such
Dividend Payment Date, fixed for such purpose by the Board of Directors or an
Authorized Board Committee in advance of each particular Dividend Payment Date.
Dividends in arrears may be declared and paid at any time, without reference to
any regular Dividend Payment Date, to holders of record on such date, not more
than sixty (60) nor less than ten (10) days preceding the payment date thereof,
as may be fixed by the Board of Directors or an Authorized Board Committee.
The amount of dividends payable on shares of Series A Preferred Stock for each
full quarterly dividend period shall be computed by dividing by four the annual
rate per share set forth in this paragraph 2. Dividends payable on the Series
A Preferred Stock for the initial dividend period and for any period less than
a full quarterly period thereafter shall be computed on the basis of a 360-day
year of twelve 30-day months.
(b) Except as provided below with regard to any class of
stock ranking on a parity with the Series A Preferred Stock as to payment of
dividends, so long as shares of Series A Preferred Stock shall remain
outstanding, if full cumulative dividends on the Series A Preferred Stock have
not been declared and paid or set apart for payment, the Corporation shall not
declare or pay or set apart for payment any dividends or make any other
distributions on, or make any payment on account of the purchase, redemption or
retirement of, the Common Stock of the Corporation, or any other stock of the
Corporation ranking on a parity with or junior to the Series A Preferred Stock
as to payment of dividends or distribution of assets on liquidation,
dissolution or winding up of the Corporation (other than, in the case of
dividends or distributions, dividends or distributions paid in shares of Common
Stock or such other junior ranking stock), until full cumulative dividends on
the Series A Preferred Stock are declared and paid or set apart for payment.
When dividends are not paid in full upon the shares of the Series A Preferred
Stock and any other Preferred Stock ranking on a parity as to payment of
dividends with the Series A Preferred Stock, all dividends declared upon shares
of the Series A Preferred Stock and any other Preferred Stock ranking on a
parity as to dividends with the Series A Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share on the Series A
Preferred Stock and such other Preferred Stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of the
Series A Preferred Stock and such other Preferred Stock bear to each other.
3. Optional Redemptions.
(a) The Corporation may, at its option, at any time
beginning on or after March 15, 2001, redeem all, or any number less than all,
of the outstanding shares of Series A Preferred Stock. The Series A Preferred
Stock may not be redeemed, in whole or in part prior to March 15, 2001. All
redemptions of shares of Series A Preferred Stock at the option of the
Corporation shall be effected at the redemption price of $25.00 per share plus,
in each case, an amount equal to all
-2-
<PAGE> 3
dividends (whether or not earned or declared) accrued and unpaid on such share
of Series A Preferred Stock to the date of redemption.
(b) The Corporation may not purchase, redeem or otherwise
acquire for value any shares of Series A Preferred Stock or shares of any other
series of Preferred Stock then outstanding ranking on a parity with the Series
A Preferred Stock unless all accumulated dividends on all shares of Series A
Preferred Stock then outstanding shall have been paid or declared and a sum
sufficient for the payment thereof set apart.
(c) Notice of any proposed redemption of shares of Series
A Preferred Stock at the option of the Corporation shall be given by the
Corporation by mailing a copy of such notice no less than thirty (30) days nor
more than sixty (60) days prior to the date fixed for such redemption to
holders of record of the shares of Series A Preferred Stock to be redeemed at
their respective addresses appearing on the books of the Corporation. Said
notice shall specify the shares called for redemption, the redemption price and
the place at which and the date on which the shares called for redemption will,
upon presentation and surrender of the certificates of stock evidencing such
shares, be redeemed and the redemption price therefor paid. In the case of the
redemption of less than all the outstanding shares of Series A Preferred Stock,
the Corporation will select the shares to be redeemed by lot or pro rata (as
nearly as may be) among all then outstanding Series A Preferred Stock or by any
other means permitted or required by the rules of any securities exchange on
which the Series A Preferred Stock is then listed, in each case as may be
prescribed by the Board of Directors or an Authorized Board Committee. From
and after the date fixed in any such notice as the date of redemption of shares
of Series A Preferred Stock, unless default shall be made by the Corporation in
providing monies at the time and place specified for the payment of the
redemption price pursuant to such notice, all dividends on the Series A
Preferred Stock thereby called for redemption shall cease to accrue, such
shares of Series A Preferred Stock shall no longer be deemed to be outstanding
and all rights of the holders thereof as stockholders of the Corporation with
respect to shares of Series A Preferred Stock, except the right to receive the
redemption price plus accrued dividends to the date of redemption, shall cease
and terminate.
(d) Upon the occurrence of a change of control of the
Corporation, the holders of the shares of Series A Preferred Stock not
previously called for redemption shall have the right to cause the Series A
Preferred Stock to be redeemed by the Corporation, as a whole or in part,
within the time period specified in and subject to the procedures set forth
hereinafter, at the redemption price of $25.50 per share plus, in each case, an
amount equal to all dividends (whether or not earned or declared) accrued and
unpaid on such shares of Series A Preferred Stock to the date of redemption. A
change of control of the Corporation shall be deemed to have occurred if and
when a change of control of the Corporation shall occur pursuant to the
provisions of the Joint Venture Agreement between the Corporation and K N
Energy, Inc., a Kansas corporation ("KNE"), as the same may be amended from
time to time. Unless the Corporation shall have elected to redeem all of the
shares of Series A Preferred Stock pursuant to paragraph 3(a) above, not more
than ten (10) days after the occurrence of a change of control of the
Corporation, the Corporation shall mail a notice thereof to each holder of
record of shares of Series A Preferred Stock at its address appearing on the
books of the Corporation. Said notice shall set forth: (i) a summary
description of such change of control; (ii) the date such change of control
occurred; (iii) that each holder of record of Series A Preferred Stock not
previously called for redemption by the Corporation may require the
-3-
<PAGE> 4
Corporation to redeem all or any part of such holder's shares by surrendering
the certificates representing such shares no later than the redemption date;
(iv) the redemption date, which shall be the first business day next succeeding
ten (10) days after the giving of such notice; (v) the redemption price; (vi)
that on the redemption date, the redemption price will become due and payable
with respect to each share of Series A Preferred Stock elected to be redeemed
and that dividends thereon shall cease to accrue on and after said date, unless
the Corporation shall default in redeeming such shares; and (vii) the place or
places where certificates representing shares of Series A Preferred Stock are
to be surrendered for payment of the redemption price. In order for any shares
of Series A Preferred Stock to be redeemed at the election of the holder
thereof, the Corporation must receive a certificate representing such shares at
the place or places where such shares are to be surrendered for payment of the
redemption price, on or before the redemption date, accompanied by written
notice to the Corporation instructing the Corporation to redeem such shares.
Such notice duly received shall be irrevocable. If the Corporation shall fail
to give any notice of the occurrence of a change of control as required by this
paragraph 3(d), then the holders of the Series A Preferred Stock not previously
called for redemption shall have the continuing right to require the
Corporation to redeem their shares at the redemption price specified herein,
until the Corporation shall have given such notice as aforesaid, whereupon such
rights shall be subject to the limitations and procedures set forth in this
paragraph 3(d).
(e) All shares of Series A Preferred Stock which shall at
any time have been redeemed, whether at the option of the Corporation or the
holder thereof, shall, after such redemption, have the status of authorized but
unissued shares of Preferred Stock, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors or an Authorized Board Committee.
4. Conversion Rights.
(a) Each share of the Series A Preferred Stock shall be
convertible at the option of the holder thereof, at any time prior to the
redemption of such share as hereinabove provided, into fully paid and
nonassessable shares of Common Stock at the initial conversion rate of 1.6660
shares of Common Stock for each share of Series A Preferred Stock, subject to
adjustment as provided in paragraph 4(e).
(b) The Common Stock deliverable upon conversion of
Series A Preferred Stock shall be Common Stock of the Corporation of the par
value of $.10 per share, as constituted at the date of this certificate, except
as otherwise provided in subdivisions (i), (vii) and (ix) of paragraph 4(e).
(c) In order for any holder of Series A Preferred Stock
to convert the same into Common Stock, such holder shall surrender the
certificate or certificates for such Series A Preferred Stock at the principal
office of the Corporation, which certificate or certificates, if the
Corporation shall so request, shall be duly endorsed to the Corporation or in
blank, or accompanied by proper instruments of transfer to the Corporation or
in blank, and, subject to the provisions of paragraph 4(g), shall be
accompanied by payment of any applicable stock transfer or other taxes, and
such holder shall give written notice to the Corporation at such office that
such holder elects so to convert such Series A Preferred Stock, and state in
writing therein the name or names in which such holder
-4-
<PAGE> 5
wishes the certificate or certificates for Common Stock to be issued. Every
such notice of election to convert shall constitute a contract between the
holder of such Series A Preferred Stock and the Corporation, whereby the holder
of such Series A Preferred Stock shall be deemed to subscribe for the amount of
Common Stock which such holder shall be entitled to receive upon such
conversion, and, in satisfaction of such subscription, to deposit the Series A
Preferred Stock to be converted and to release the Corporation from all
liability thereunder (except to deliver the shares deliverable upon conversion
thereof), and thereby the Corporation shall be deemed to agree that the amount
paid to it for such Series A Preferred Stock, together with the surrender of
the certificate or certificates therefor and the extinguishment of liability
thereon (except as aforesaid), shall constitute full payment of such
subscription for Common Stock to be delivered upon such conversion.
(d) The Corporation will, as soon as practicable after
such deposit of certificates for Series A Preferred Stock accompanied by the
written notice and the statement above prescribed, deliver at said office to
the person for whose account such Series A Preferred Stock was so surrendered,
or to such person's nominee or nominees, certificates for the number of shares
of Common Stock to which such person shall be entitled as aforesaid, together
with any cash adjustment of any fraction of a share as hereinafter provided.
Subject to the following provisions of this paragraph, such conversion shall be
deemed to have been made as of the date of such surrender of the Series A
Preferred Stock to be converted; and the person or persons entitled to receive
the Common Stock deliverable upon conversion of such Series A Preferred Stock
shall be treated for all purposes as the record holder or holders of such
Common Stock on such date. The Corporation shall not be required to convert
any shares of Series A Preferred Stock while the stock transfer books of the
Corporation are closed for any purpose; but the surrender of Series A Preferred
Stock for conversion during any period while such books are so closed shall
become effective for conversion immediately upon reopening of such books, as if
the surrender had been made on the date of such reopening, and conversion shall
be at the conversion rate in effect at such date.
No adjustments in respect of, or payments of dividends on,
shares surrendered for conversion or any dividend on the Common Stock issued
upon conversion, shall be made upon the conversion of any shares of Series A
Preferred Stock. Without limiting the generality of the foregoing, if any
shares shall be converted subsequent to the close of business on the record
date next preceding a Dividend Payment Date but on or prior to the opening of
business on such Dividend Payment Date, the registered holder of such shares at
the close of business on such record date shall not be entitled to receive the
dividend otherwise payable on such shares on such Dividend Payment Date.
(e) The conversion rate shall be subject to adjustment as
follows:
(i) In case the Corporation shall (A) pay a
dividend on its Common Stock in shares of its Common Stock, (B)
subdivide its outstanding shares of Common Stock, or (C) combine its
outstanding shares of Common Stock into a smaller number of shares,
the conversion rate in effect at the time of the record date of such
dividend, subdivision, or combination shall be proportionately
adjusted so that the holder of any Series A Preferred Stock
surrendered for conversion after such time shall be entitled to
receive the number and kind of shares which he would have owned or
have been entitled to receive had such Series
-5-
<PAGE> 6
A Preferred Stock been converted immediately prior to such time. Such
adjustment shall be made successively whenever any event listed above
shall occur.
(ii) In case the Corporation shall issue rights or
warrants to all holders of its Common Stock entitling them (for a
period expiring within 45 days after the record date for the
determination of stockholders entitled to receive such rights or
warrants) to subscribe for or purchase shares of Common Stock at a
price per share less than the Current Market Price (as defined below)
per share of Common Stock on such record date, the number of shares of
Common Stock into which each share of Series A Preferred Stock shall
be convertible thereafter shall be determined by multiplying the
number of shares of Common Stock into which such shares of Series A
Preferred Stock were convertible immediately prior to such record date
by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding on such record date plus the number of
additional shares of Common Stock offered for subscription or purchase
and of which the denominator shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of
Common Stock which the aggregate offering price of the total number of
shares so offered would purchase at such Current Market Price. Such
adjustment shall be made successively whenever such rights or warrants
are issued, and shall become effective retroactively immediately after
the record date for the determination of stockholders entitled to
receive such rights or warrants; provided, however, if all the shares
of Common Stock offered for subscription or purchase are not delivered
upon the exercise of such rights or warrants, upon the expiration of
such rights or warrants the conversion rate shall be readjusted to the
conversion rate which would have been in effect had the numerator and
the denominator of the foregoing fraction and the resulting adjustment
been made based upon the number of shares of Common Stock actually
delivered upon the exercise of such rights or warrants rather than
upon the number of shares of Common Stock offered for subscription or
purchase. For the purposes of this subdivision (ii), the number of
shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include shares
issuable in respect of scrip certificates issued in lieu of fractions
of shares of Common Stock.
(iii) In case the Corporation shall distribute to
all holders of its Common Stock shares of its capital stock (other
than Common Stock), evidences of indebtedness or assets of the
Corporation (excluding dividends paid in, or distributions of, cash
from the retained earnings of the Corporation) or subscription rights
or warrants (excluding those referred to in subdivision (ii) above),
the number of shares of Common Stock into which each share of Series A
Preferred Stock shall be convertible thereafter shall be determined by
multiplying the number of shares of Common Stock into which such share
of Series A Preferred Stock was convertible immediately prior to such
record date by a fraction of which the numerator shall be the Current
Market Price per share of the Common Stock on the record date for the
determination of stockholders entitled to receive such distribution
and of which the denominator shall be such Current Market Price per
share of Common Stock less the fair market value (as determined by the
Board of Directors or an Authorized Board Committee thereof, whose
determination shall be conclusive) of the portion of the capital
stock, evidences of indebtedness, assets or subscription rights or
warrants distributed applicable to one share of Common Stock. Such
adjustment shall be made successively
-6-
<PAGE> 7
whenever any such distribution is made, and shall become effective
retroactively after such record date.
(iv) For the purpose of any computation under
subdivisions (ii) and (iii) above, the "Current Market Price" per
share of Common Stock on any date shall be deemed to be the average of
the daily Closing Prices for the thirty (30) consecutive business days
commencing forty-five (45) business days before such date. Where used
herein, the "Closing Price" for each day shall be the reported last
sale price regular way or, in case no such reported sale takes place
on such day, the average of the reported closing bid and asked prices
regular way, in either case as reported on the New York Stock Exchange
Composite Transactions reporting system or, if not so quoted, on the
New York Stock Exchange, or, if at any time the Common Stock is not
listed or admitted to trading on such Exchange, on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading, or if the Common Stock is not listed or admitted
to trading on any national securities exchange, on the National
Association of Securities Dealers Automated Quotation National Market
("NASDAQ"), or, if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on NASDAQ, the
average of the closing bid and asked prices in the over-the-counter
market as furnished by any New York Stock Exchange member firm
selected from time to time by the Board of Directors or an Authorized
Board Committee for such purposes.
(v) In any case in which this paragraph 4(e)
shall require that an upward adjustment of the conversion rate as a
result of any event that becomes effective after a record date or
effective date for such event, the Corporation may elect to defer
until after the occurrence of such event (A) issuing to the holder of
any shares of Series A Preferred Stock converted after such record
date and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion over and above the shares
of Common Stock issuable upon such conversion on the basis of the
conversion rate prior to adjustment and (B) paying to such holder any
amount in cash in lieu of a fractional share of Common Stock pursuant
to subdivision (viii) below; and, in lieu of the shares the issuance
of which is so deferred, the Corporation shall issue or cause its
Transfer Agent to issue due bills or other appropriate evidence of the
right to receive such shares.
(vi) No adjustment in the conversion rate
applicable to a share of Series A Preferred Stock shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such rate; provided, however, that the Corporation may
make any such adjustment at its election; and provided, further,
however, that any adjustments which by reason of this subdivision (vi)
are not made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this paragraph 4(e)
shall be made to the nearest one-hundredth of a share. Anything in
this paragraph 4(e) notwithstanding, the Corporation shall be entitled
to make such increases in the conversion rate, in addition to those
required by this paragraph 4(e), as it in its discretion shall
determine to be advisable in order that any dividend of capital stock,
subdivision or combination of shares, distribution of rights or
warrants to purchase capital stock or other securities, or
distribution of securities convertible into or exchangeable for
capital stock, hereafter made by the Corporation to its stockholders
shall not be taxable.
-7-
<PAGE> 8
(vii) In case of any consolidation of the
Corporation into, or merger of the Corporation with or into, any other
corporation (other than a consolidation or merger in which the
Corporation is the continuing corporation and which does not result in
any reclassification, change or conversion of outstanding shares of
Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Corporation, or in case of any
reclassification of its shares of Common Stock (other than a change in
par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), the holder
of each share of Series A Preferred Stock then outstanding shall have
the right thereafter to convert such share into the kind and amount of
shares of capital stock and other securities, cash and other property
receivable upon such consolidation, merger, sale, transfer or
reclassification by a holder of the number of shares of Common Stock
of the Corporation into which such share of Series A Preferred Stock
might have been converted immediately prior to such consolidation,
merger, sale, transfer or reclassification. In any such event,
effective provision shall be made, in the articles or certificate of
incorporation of the resulting or surviving corporation or other
corporation issuing or delivering such shares of capital stock, other
securities, cash or other property or otherwise, so that the
provisions set forth herein for the protection of the conversion
rights of the Series A Preferred Stock shall thereafter be applicable,
as nearly as reasonably may be, to any such other shares of capital
stock and other securities, cash and other property deliverable upon
conversion of the Series A Preferred Stock remaining outstanding or
other convertible stock or securities received by the holders in place
thereof; and any such resulting or surviving corporation or other
corporation issuing or delivering such shares of capital stock, other
securities, cash or other property shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege,
such shares of capital stock, securities, cash or other property as
the holders of the Series A Preferred Stock remaining outstanding, or
other convertible stock or securities received by the holders in place
thereof, shall be entitled to receive, pursuant to the provisions
hereof, and to make provision for the protection of the conversion
right as above provided. In case shares of capital stock, securities,
cash or other property other than Common Stock shall be issuable or
deliverable upon conversion as aforesaid, then all references to
Common Stock in this paragraph 4(e) shall be deemed to apply, so far
as provided and as nearly as is reasonable, to any such shares of
capital stock, other securities, cash or other property.
(viii) No fractional interests in Common Stock shall
be issued upon conversion of shares of Series A Preferred Stock.
Instead of any fractional share of Common Stock which would otherwise
be issuable upon conversion of any share of Series A Preferred Stock,
the Corporation will pay a cash adjustment in respect of such
fractional interest in an amount equal to the same fraction of the
Closing Price per share of Common Stock determined as of the business
day preceding the date of conversion.
(ix) In the event that at any time, as a result of
any adjustment made pursuant to this paragraph 4(e), the holder of any
share of Series A Preferred Stock thereafter surrendered for
conversion shall become entitled to receive any shares of the
Corporation other than shares of its Common Stock, the number of such
other shares so receivable upon conversion of any share of Series A
Preferred Stock shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provision with
-8-
<PAGE> 9
respect to the Common Stock contained in subdivisions (i) to (viii),
inclusive, above, with respect to the Common Stock.
(x) Whenever any adjustment is required in the
number of shares into which each share of Series A Preferred Stock is
convertible, the Corporation shall forthwith mail to the holders of
record of the Series A Preferred Stock a statement describing in
reasonable detail the adjustment and the method of calculation used.
(f) Upon any conversion of shares of Series A Preferred
Stock, the shares so converted shall have the status of authorized and unissued
shares of Preferred Stock, unclassified as to series, and the number of shares
of Preferred Stock which the Corporation shall have authority to issue shall
not be decreased by the conversion of shares of Series A Preferred Stock. The
Corporation shall at all times reserve and keep available, out of its
authorized and unissued stock or stock held as treasury stock, solely for the
purpose of effecting the conversion of the Series A Preferred Stock, such
number of shares of its Common Stock as shall from time to time be sufficient
to effect the conversion of all shares of Series A Preferred Stock from time to
time outstanding. For the purpose of this paragraph 4(f), the full number of
shares of Common Stock issuable upon the conversion of all outstanding shares
of Series A Preferred Stock shall be computed as if at the time of computation
of such number of shares of Common Stock all outstanding shares of Series A
Preferred Stock were held by a single holder. The Corporation shall use all
reasonable efforts from time to time, in accordance with the laws of the State
of Delaware, to cause its shareholders to approve an increase in the authorized
number of shares of its Common Stock if at any time the number of shares of its
Common Stock not outstanding shall not be sufficient to permit the conversion
of all the then outstanding Series A Preferred Stock.
(g) The Corporation will pay any and all issue or other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series A Preferred Stock pursuant thereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue or delivery of Common Stock in
a name other than that in which the certificate representing the Series A
Preferred Stock so converted was registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
Corporation the amount of such tax, or has established, to the satisfaction of
the Corporation, that such tax has been paid.
(h) Before taking any action which would cause an
adjustment reducing the conversion rate such that the conversion price (for
purposes of this paragraph, an amount equal to $25.00 divided by the conversion
rate applicable to a share of Series A Preferred Stock as in effect from time
to time) would be below the then par value of the Common Stock, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of Common Stock at the conversion rate as so
adjusted.
5. Exchange.
(a) The shares of Series A Preferred Stock shall be
exchangeable, in whole or in part, at the option of the Corporation on any
Dividend Payment Date at any time on or after
-9-
<PAGE> 10
March 15, 1999, and prior to March 15, 2001, for fully paid and nonassessable
shares of Common Stock at the exchange rate of 1.6660 shares of Common Stock
for each share of Series A Preferred Stock; provided that (i) on or prior to
the date of exchange the Corporation shall have declared and paid or set apart
for payment to the holders of outstanding shares of Series A Preferred Stock
all accumulated and unpaid dividends to the date of exchange, and (ii) the
Current Market Price (as defined in subdivision (iv) of paragraph 4(e) above)
of the Common Stock is above $18.375 (the "Threshold Price"). The Common Stock
deliverable upon exchange of Series A Preferred Stock shall be Common Stock of
the Corporation of the par value of $.10 per share, as constituted at the date
of this certificate, except as otherwise provided in subdivisions (i), (vii)
and (ix) of paragraph 4(e) which shall be applicable as provided in the next
sentence. The exchange rate shall be subject to adjustment in the same manner
and under the same circumstances as the conversion rate is subject to
adjustment as provided in paragraph 4(e), and the Threshold Price shall be
subject to adjustment in the same manner and under the same circumstances,
mutatis mutandis, as the exchange rate is subject to adjustment. The
Corporation will mail to each holder of record of shares of Series A Preferred
Stock at his address appearing on the books of the Corporation written notice
of any change in the exchange rate or the Threshold Price and a summary
description of the basis of such change. The Corporation will mail to each
holder of record of the shares of Series A Preferred Stock at his address
appearing on the books of the Corporation written notice of its intention to
exchange no less than thirty (30) nor more than sixty (60) days prior to the
date fixed for the exchange (the "Exchange Date"). Each such notice shall
state: (i) the Exchange Date, (ii) the place or places where certificates for
such shares of Series A Preferred Stock are to be surrendered for exchange into
shares of Common Stock, and (iii) that dividends on the shares of Series A
Preferred Stock to be exchanged will cease to accrue on such Exchange Date.
(b) If notice has been mailed as aforesaid, from and
after the Exchange Date (unless default shall be made by the Corporation in
issuing shares of Common Stock in exchange for, or making the final dividend
payment on, the outstanding shares of Series A Preferred Stock on the Exchange
Date), dividends on the shares of Series A Preferred Stock shall cease to
accrue, and said shares shall no longer be deemed to be issued and outstanding,
and all rights of the holders thereof as holders of shares of Series A
Preferred Stock of the Corporation (except the right to receive from the
Corporation the shares of Common Stock) in respect of such shares of Series A
Preferred Stock shall cease and terminate. Upon surrender in accordance with
said notice of the certificates for any shares of Series A Preferred Stock so
exchanged (properly endorsed or assigned for transfer, if the Corporation shall
so require and the notice shall so state), such shares shall be exchanged by
the Corporation for shares of Common Stock as aforesaid.
(c) All shares of Series A preferred Stock which shall at
any time have been exchanged for shares of Common Stock of the Corporation
shall, after such exchange, have the status of authorized but unissued shares
of Preferred Stock, without designation as to series, until such shares are
once more designated as part of a particular series by the Board of Directors.
(d) The Corporation will, as soon as practicable after
the surrender for exchange of certificates representing shares of Series A
Preferred Stock, deliver at said place for surrender to the person for whose
account such Series A Preferred Stock was so surrendered, or to his nominee or
nominees, certificates for the number of shares of Common Stock to which he
shall be entitled as aforesaid, together with any cash adjustment of any
fraction of a share as hereinafter provided.
-10-
<PAGE> 11
(e) The Corporation will pay any and all issue or other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on exchange of Series A Preferred Stock pursuant to this paragraph
5. The Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue or delivery of Common
Stock in a name other than that in which the certificate representing the
Series A Preferred Stock so exchanged was registered, and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(f) Before taking any action which would cause an
adjustment reducing the exchange rate such that the exchange price (for
purposes of this paragraph, an amount equal to $25.00 divided by the exchange
rate applicable to a share of Series A Preferred Stock as in effect from time
to time) would be below the then par value of the Common Stock, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of Common Stock at the exchange rate as so
adjusted.
6. Number of Shares.
The Board of Directors of the Corporation reserves the right
by subsequent amendment of this resolution from time to time to decrease the
number of shares which constitute the Series A Preferred Stock (but not below
the number of shares thereof then outstanding) and, subject to anything to the
contrary set forth in the Certificate of Incorporation of the Corporation
applicable to the Preferred Stock, to subdivide the number of shares, the
stated value per share and the liquidation value per share of the Series A
Preferred Stock and in other respect to amend, within the limitations provided
by law, this resolution and the Certificate of Incorporation of the
Corporation.
7. Liquidation Rights.
Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders, the amount of $25.00
per share plus an amount equal to all dividends on such shares (whether or not
earned or declared) accrued and unpaid thereon to the date of final
distribution, before any payment or distribution shall be made on the Common
Stock or on any other class of stock ranking junior to the Series A Preferred
Stock with respect to distributions upon dissolution, liquidation or winding
up. For purposes of this paragraph 7, the merger or consolidation of the
Corporation or the sale of all or substantially all of the Corporation's
assets, shall not be deemed to be a liquidation, dissolution or winding up of
the Corporation. In the event the assets of the Corporation available for
distribution to the holders of shares of the Series A Preferred Stock upon any
dissolution, liquidation or winding up of the Corporation shall be insufficient
to pay in full all amounts to which such holders are entitled pursuant to this
paragraph 7, no such distributions shall be made upon account of any shares of
any other class of stock of the Corporation ranking on a parity with the shares
of the Series A Preferred Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of the Series A Preferred Stock, ratably, in proportion to the
-11-
<PAGE> 12
full distributable amounts to which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up. After
the payment to the holders of the shares of the Series A Preferred Stock of the
full preferential amounts provided for in this paragraph 7, the holders of the
Series A Preferred Stock as such shall have no right or claim to any of the
remaining assets of the Corporation.
8. Voting Rights.
The shares of Series A Preferred Stock shall have the
following voting rights:
(a) So long as any shares of the Series A Preferred Stock
remain outstanding, the Corporation will not, either directly or indirectly,
without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of at least 66 2/3% of the shares of Series A
Preferred Stock then outstanding, amend, alter or repeal any of the provisions
of the Certificate of the Designations, Powers, Preferences and Rights of the
Series A Preferred Stock or the Certificate of Incorporation of the
Corporation, or authorize any reclassification of the Series A Preferred Stock,
so as in any such case to affect adversely the preferences, special rights or
powers of the Series A Preferred Stock or authorize any capital stock of the
Corporation ranking, either as to payment of dividends or upon liquidation,
dissolution or winding up of the Corporation, prior to the Preferred Stock.
(b) So long as any shares of the Series A Preferred Stock
remain outstanding, the Corporation will not, either directly or indirectly,
without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of at least a majority in voting power of
shares of the Series A Preferred Stock then outstanding, increase the
authorized number of shares of Preferred Stock or create, or increase the
authorized number of shares of, any other class of capital stock of the
Corporation ranking on a parity with the Preferred Stock either as to payment
of dividends or upon liquidation, dissolution or winding up of the Corporation.
(c) If at any time dividends payable on the Series A
Preferred Stock are in arrears and unpaid in an amount equal to or exceeding
the amount of dividends payable thereon for four quarterly dividend periods,
the total number of directors on the Corporation's Board of Directors shall be
limited to a maximum of nine and the holders of the outstanding shares of
Series A Preferred Stock will have the exclusive right, voting separately as a
class without regard to series, to designate a special class of two directors
of the Corporation (the "Special Directors") at the next annual or special
meeting of stockholders of the Corporation irrespective of whether such meeting
otherwise would involve the election of directors, and the membership of the
Board of Directors of the Corporation shall be increased by the number of the
Special Directors so designated. Such right of the holders of Series A
Preferred Stock to designate Special Directors will continue until all
dividends accumulated and payable on the Series A Preferred Stock have been
paid in full, at which time such right to designate Special Directors will
terminate, subject to re-vesting in the event of a subsequent arrearage. Upon
any termination of the aforesaid right of designation, the term of office of
all the Special Directors designated by holders of Series A Preferred Stock
will immediately terminate without action by the Corporation or the Board of
Directors thereof.
-12-
<PAGE> 13
(d) In exercising the right to designate Special
Directors set forth in this paragraph 8 or when otherwise granted voting rights
by operation of law, each share of Series A Preferred Stock shall be entitled
to one vote except as otherwise provided in this certificate.
(e) To the extent that the rights provided in this
paragraph 8(e) do not prevent the continued listing for quotation on NASDAQ, of
the Common Stock of the Corporation, then (i) for so long as KNE owns 80% or
more of the voting power of the securities of the Corporation issued pursuant
to the merger of a subsidiary of the Corporation with and into K N Production
Company (the "Merger") (such voting power being determined in accordance with
paragraph 8(f) below), KNE shall have the right to elect a special class of two
directors to the Board of Directors of the Corporation, and (ii) for so long as
KNE owns securities of the Corporation issued pursuant to the Merger possessing
less than 80% of the voting power of the securities of the Corporation issued
pursuant to the merger (such voting power being determined in accordance with
paragraph 8(f) below), but more than 30% of such voting power, KNE shall have
the right to elect a special class of one director to the Board of Directors of
the Corporation.
(f) So long as any shares of the Series A Preferred Stock
remain outstanding, the holders of shares of the Series A Preferred Stock shall
be entitled to vote on all matters upon which holders of the Corporation's
Common Stock have the right to vote. In such voting, each share of Series A
Preferred Stock shall be entitled to a number of votes per share equivalent to
the number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock and shall vote together with the holder of the outstanding
shares of the Corporation's Common Stock as if a part of that class.
Without limiting the generality of actions with respect to
which the Series A Preferred Stock has no voting rights except as set forth in
this paragraph 8, no consent of holders of the Series A Preferred Stock shall
be required for (i) the creation of any indebtedness of any kind of the
Corporation, or (ii) the authorization or issuance of any class of capital
stock of the Corporation ranking junior to the Series A Preferred Stock in
payment of dividends or upon liquidation, dissolution or winding up of the
Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed on its behalf by its undersigned Vice President this 29th day of
December, 1995.
----------------------------------
--------------, Vice President
-13-
<PAGE> 1
EXHIBIT 3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is entered into by
and between Tom Brown, Inc., a Delaware corporation (the "Company"), and K N
Energy, Inc., a Kansas corporation ("Stockholder"), pursuant to Sections 7.9
and 8.9 of that certain Agreement and Plan of Reorganization dated as of
January 31, 1996 (the "Merger Agreement") by and among the Company, TBI
Acquisition, Inc., a Delaware corporation, K N Production Company, a Delaware
corporation and Stockholder. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Merger Agreement.
WITNESSETH:
WHEREAS, pursuant to the Merger Agreement Stockholder is acquiring
beneficial ownership of 1,000,000 shares of the $1.75 Convertible Preferred
Stock, Series A, par value $.10 ("Convertible Preferred Stock"), of the Company
and 918,367 shares of Common Stock, par value $.10 ("Common Stock"), of the
Company;
WHEREAS, the Company has been advised that Stockholder, after
acquiring such Convertible Preferred Stock and Common Stock of the Company, is
an "affiliate" of the Company, as that term is defined for purposes of
paragraphs (c) and (d) of Rule 145 promulgated by the Commission (hereinafter
defined);
WHEREAS, upon consummation of the Merger, due to Stockholder's status
as an affiliate, Stockholder will be restricted under Rule 145 promulgated by
the Commission from effecting public sales and transfers of shares of
Convertible Preferred Stock (and the Common Stock underlying the same) and
Common Stock of the Company received by Stockholder as a result of the Merger;
and
WHEREAS, the Company desires to grant Stockholder certain rights to
registration under the Act (hereinafter defined) so as to permit Stockholder
the opportunity to dispose of shares of Common Stock underlying the shares of
Convertible Preferred Stock and Common Stock of the Company received by
Stockholder as a result of the Merger without constraint by the restrictions
imposed by Rule 145 promulgated by the Commission;
NOW, THEREFORE, for and in consideration of the premises and the
mutual agreements contained herein, the parties hereto agree as follows:
1.01 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute enacted hereafter, and the
rules and regulations of the Commission thereunder all as the same
shall be in effect from time to time.
(b) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the
Act.
<PAGE> 2
(c) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a
registration statement in compliance with the Act, and the declaration
or ordering of the effectiveness of such registration statement.
(d) "Registrable Common Stock" shall mean (i) the shares
of Common Stock of the Company issued to Stockholder as a result of
the Merger and (ii) the shares of Common Stock of the Company
underlying the shares of Convertible Preferred Stock of the Company
issued to Stockholder pursuant to the Merger.
1.02 Required Registration. At any time during a period of ten
years following the date of consummation of the Merger, Stockholder may request
that the Company effect a registration with respect to the Registrable Common
Stock, as follows:
(a) Request for Registration of Common Stock. If the
Company shall receive from Stockholder a written request that the
Company effect any registration with respect to 1,000,000 or more
shares of the Registrable Common Stock, the Company will, as soon as
practicable, use its diligent best efforts to effect all such
registration, qualification and compliance (including, without
limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or
other state securities laws and appropriate compliance with applicable
regulations issued under the Act) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion
of such Registrable Common Stock as is specified in such request.
(b) Underwriting. If the Stockholder intends to
distribute the Registrable Common Stock covered by its request by
means of an underwriting, the Stockholder shall so advise the Company
as a part of its request made pursuant to this Section 1.02.
The Company shall (together with the Stockholder proposing to
distribute its Registrable Common Stock through such underwriting)
enter into an underwriting agreement in customary form and containing
representations, warranties and agreements not substantially different
from those customarily included by an issuer in underwriting
agreements with respect to secondary distributions with the
representative of the lead managing underwriter selected for such
underwriting by the Stockholder and approved by the Company, which
approval shall not be unreasonably withheld, and any co-managing
underwriters mutually selected for such underwriting by the
Stockholder and the Company, the approval of which selection shall not
be unreasonably withheld by either party. Notwithstanding any other
provision of this Section 1.02, if the lead managing underwriter
determines, in good faith that marketing factors require a limitation
of the number of shares to be underwritten, the underwriter may limit
the number of shares of Registrable Common Stock to be included in the
registration and underwriting to the extent such underwriter deems
necessary. The Company shall so advise the Stockholder, and the
number of shares of Registrable Common Stock that may be included in
the registration and underwriting shall
-2-
<PAGE> 3
be reduced to the number which the underwriter is willing to include
in the registration. If the Stockholder disapproves of the terms of
the underwriting, the Stockholder may elect to withdraw therefrom by
written notice to the Company and the underwriter and the Registrable
Common Stock so withdrawn shall also be withdrawn from registration
but shall be entitled to such registration rights granted to such
Registrable Common Stock pursuant to this Section 1.02 as may
thereafter remain in effect.
The Company and the holders of the Common Stock and of any
other security of the Company to whom the Company has granted
registration rights substantially identical to those granted to the
Stockholder may include their respective securities for their own
accounts in such requested registration if the underwriter so agrees
and if the number of shares of Registrable Common Stock and other
securities which would otherwise have been included in such
registration and underwriting will not thereby be limited and if such
inclusion will not otherwise adversely impact the offering.
(c) Expenses of Requested Registration. The Company
shall bear all expenses incurred in connection with each registration,
qualification or compliance pursuant to Section 1.02(a), including,
without limitation, all registration, filing and qualification fees,
printing expenses, audit fees and fees and disbursements of counsel
for the Company and counsel for the underwriters, if any (unless any
such underwriter pays such counsel fees) (but excluding underwriter's
commissions, fees and expenses allocable to the Registrable Common
Stock of the Stockholder and fees of independent counsel and
accountants, if any, for the Stockholder, which commissions, fees and
expenses and fees of counsel and accountants shall be borne pro rata
(by share) by the Stockholder and any other offeror employing such
counsel and accountants in such registration).
(d) Limitations on Registration. Notwithstanding any
provision to the contrary in this Section 1.02, the Company shall not
be obligated to take any action to effect any such registration,
qualification or compliance pursuant to Section 1.02(a) if (i)
reputable counsel designated by the Company delivers an opinion to the
Stockholder, in form and substance satisfactory to the Stockholder, to
the effect that the Registrable Common Stock specified in the request
for registration may be sold or distributed as planned by the
Stockholder without registration or (ii) the Company has effected an
aggregate of two previous registrations pursuant to this Section
1.02(a).
(e) Assignability and Assumption. The registration
rights granted to Stockholder in this Section 1.02 may be assigned in
whole or in part by Stockholder to any affiliate of the Stockholder in
connection with a transfer of Registrable Common Stock to such
affiliate provided that (i) Stockholder shall remain liable for its
obligations hereunder, (ii) Stockholder provides the Company with
written notice of such assignment, (iii) the assignee of such rights
agrees in writing to be bound by the terms and conditions of this
Agreement, and (iv) if such assignment is in part, Stockholder shall
be agent for assignee for the purpose of exercising assignee's rights
hereunder. Except as provided in the preceding
-3-
<PAGE> 4
sentence the registration rights granted to Stockholder in this
Section 1.02 shall not be assignable
1.03 Registration Rights; Company Registration.
(a) Registration Initiated by the Company. If the
Company shall determine to register any shares of Common Stock of the
Company, either for its own account or for the account of a security
holder or holders exercising their respective demand registration
rights (other than a registration relating to stock options or
employee benefit plans, any dividend reinvestment plan of the Company,
or the acquisition or purchase by or combination by merger or
otherwise of the Company of or with another company or business entity
or partnership or a registration pursuant to Section 1.02) the Company
will:
(i) promptly give to the Stockholder written
notice thereof (which shall include (to the extent known) a
list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable Common
Stock specified in a written request or requests, made within
20 days after receipt of such written notice from the Company,
by the Stockholder, except as set forth in Section 1.03(b)
below.
(b) Underwriting. If the registration of which the
Company gives notice to the Stockholder is for a registered public
offering involving an underwriting, the Company shall so advise the
Stockholder as a part of the written notice given pursuant to Section
1.03(a)(i). In such event, the right of the Stockholder to
registration pursuant to this Section 1.03 shall be conditioned upon
the Stockholder's participation in such underwriting and the inclusion
of the Stockholder's Registrable Common Stock in the underwriting to
the extent provided herein. The Stockholder proposing to distribute
shares of its Registrable Common Stock through such underwriting
(together with the Company and the other holders (if any) distributing
their securities through such underwriting) shall enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 1.03, if the lead
managing underwriter determines, in good faith, that marketing factors
require a limitation of the number of shares to be underwritten, the
underwriter may limit the number of shares of Registrable Common Stock
to be included in the registration and underwriting to the extent such
underwriter deems necessary. The Company shall so advise the
Stockholder, and the number of shares of Registrable Common Stock that
may be included in the registration and underwriting shall be reduced
to the number which the underwriter is willing to include in the
registration. If the Stockholder disapproves of the terms of any
such underwriting, the Stockholder may elect to withdraw therefrom by
written notice to the
-4-
<PAGE> 5
Company and the underwriter. Any Registrable Common Stock excluded or
withdrawn from such underwriting shall be withdrawn from such
registration but shall be entitled to such registration rights granted
to such Registrable Common Stock pursuant to this Section 1.03 as may
thereafter remain in effect.
(c) Expenses of Registration by the Company. The Company
shall bear all expenses incurred in connection with each registration,
qualification or compliance pursuant to this Section 1.03, including,
without limitation, all registration, filing and qualification fees,
printing expenses, audit fees and fees and disbursements of counsel
for the Company and counsel for the underwriters, if any (unless any
such underwriter pays such counsel fees) (but excluding underwriter's
commissions, fees and expenses allocable to the Registrable Common
Stock of the Stockholder and fees of independent counsel and
accountants, if any, for the Stockholder, which commissions, fees and
expenses and fees of counsel and accountants shall be borne pro rata
(by share) by the Stockholder and any other offeror employing such
counsel and accountants in such requested registration).
(d) Limitations on Registration. The Company's
obligation to effect a registration under Section 1.03(a) shall expire
ten years from the date of consummation of the Merger.
Notwithstanding any provision to the contrary in this Section 1.03,
the Company shall not be obligated to take any action to effect any
such registration, qualification or compliance pursuant to Section
1.03 if the Company has effected an aggregate of two previous
registrations in which shares of Registrable Common Stock of the
Stockholder were included pursuant to this Section 1.03.
(e) Assignability and Assumption. The registration
rights granted to Stockholder in this Section 1.03 may be assigned in
whole or in part by the holder thereof in connection with any transfer
of Convertible Preferred Stock or Common Stock of the Company provided
that (i) the assignor provides the Company with written notice of such
assignment, and (ii) the assignee of such rights agrees in writing to
be bound by the terms and conditions of this Agreement. In the event
of a partial assignment, the holders of Registrable Common Stock shall
possess the rights granted in this Section 1.03 pro rata in accordance
with the number of shares of Registrable Common Stock beneficially
owned by each of them and each such holder shall be entitled to
receive a copy of all notices provided for in this Agreement and to
exercise such part of the rights so granted.
1.04 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement
pursuant to which Registrable Common Stock of the Stockholder is included
therein, the Company will keep the Stockholder advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense, the Company will:
-5-
<PAGE> 6
(a) keep such registration, qualification or compliance
effective for a period of at least 120 days or until the Stockholder
has completed the distribution described in the registration statement
relating thereto, whichever first occurs;
(b) furnish such number of prospectuses and other
documents incident thereto as the Stockholder from time to time may
reasonably request; and
(c) list such Registrable Common Stock on each securities
exchange (if any) on which the Common Stock of the Company is listed.
1.05 Indemnification.
(a) The Company shall, if Registrable Common Stock held
by the Stockholder is included in the securities as to which such
registration, qualification or compliance is being effected, indemnify
the Stockholder, each of its officers and directors, and each person
controlling the Stockholder, with respect to each registration,
qualification or compliance which has been effected pursuant to
Section 1.02 or 1.03, and each underwriter, if any, and each person
who controls any underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the
like) incident to any such registration, qualification or compliance,
or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements not misleading, and will reimburse the Stockholder, each of
its officers and directors, and each person controlling the
Stockholder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability or action, provided that the Company will not
be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the
Company by the Stockholder or underwriter specifically for use
therein. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such party and
shall survive the subsequent transfer of shares of Common Stock of the
Company by the seller thereof and the transfer of any shares of Common
Stock of the Company which were the subject of such registration,
qualification or listing.
(b) The Stockholder will, if Registrable Common Stock
held by the Stockholder is included in the securities as to which
such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors and officers, each legal
counsel and independent accountant of the Company, each underwriter,
if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter
within the meaning of the Act, and each other holder of Common Stock
of the Company registering securities of the Company in such
registration, each of its officers
-6-
<PAGE> 7
and directors and each person controlling such holder, against all
claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company,
such holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information
furnished to the Company by the Stockholder specifically for use
therein; provided; however, that (i) the obligations of the
Stockholder hereunder shall be limited to an amount equal to the
proceeds to the Stockholder of Registrable Common Stock sold as
contemplated herein and (ii) the indemnity for untrue statements or
omissions described above shall not apply if the Stockholder providing
such written information provides the Company with such additional
written information prior to the effectiveness of the registration as
is required to make the previously supplied written information true
and complete, together with a description in reasonable detail of the
information previously supplied which was untrue or incomplete.
(c) Each party entitled to indemnification under this
Section 1.05 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided
further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of any
obligations it may have otherwise than on account of this Section
1.05. After notice from the Indemnifying Party to the Indemnified
Party of its election to assume the defense of such claim or
litigation, the Indemnifying Party will not be liable to such
Indemnified Party for any legal or other expenses subsequently
incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless the
Indemnifying Party abandons the defense of such claim or litigation.
No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
-7-
<PAGE> 8
1.06 Information by Stockholder. The Stockholder of Registrable
Common Stock included in any registration shall furnish to the Company such
information regarding the Stockholder and the distribution proposed by the
Stockholder as the Company may reasonably request in writing, and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
1.07 Postponement of Requested Registration. If, within five days
of the Company's receipt of a registration request from the Stockholder, the
Company notifies the Stockholder in writing that (a) effecting the requested
registration would materially and adversely affect a material transaction then
under current consideration by the Company, as determined by the Board of
Directors, and such determination is confirmed by an independent investment
banker satisfactory to the Stockholder, or (b) such registration will require
preparation of audited financial information for the Company as of a date or
for a period for which preparation will not otherwise be required, then the
Company may postpone its performance of its obligations hereunder for a period
not to exceed 90 days.
1.08 Amendments. This Agreement may not be modified, amended,
altered or supplemented except by way of a written agreement executed by each
of the parties hereto. However, either party may waive any condition to the
obligations of the other party hereunder.
1.09 Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly give if delivered by hand or facsimile transmission:
(a) If to the Company, to:
Tom Brown, Inc.
500 Empire Plaza Building
P. O. Box 2608
Midland, TX 79701
Attention: Controller
(b) If to Stockholder, to:
K N Energy, Inc.
370 Van Gordon Street
Lakewood, Colorado 80228
Attention: General Counsel
1.10 Recapitalization and Successors. In the event of any stock
split, stock dividend, stock combination or other recapitalization or
reclassification of the Convertible Preferred Stock or the Common Stock of the
Company, the terms and provisions of this Agreement shall be appropriately
adjusted so that the terms and provisions of this Agreement shall apply
thereafter in the same manner
-8-
<PAGE> 9
to the capital stock of the Company created as a result of such stock split,
stock dividend, stock combination or other recapitalization or reclassification
as they originally applied to the Convertible Preferred Stock and Common Stock
of the Company. The Company agrees that any successor to the Company by merger
or operation of law shall be bound by the terms of this Agreement and the terms
of this Agreement shall apply to any securities of the Company or such
successor received in exchange for Registrable Common Stock.
IN WITNESS WHEREOF, the parties have executed this Agreement
this 31st day of January, 1996.
STOCKHOLDER: K N ENERGY, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
COMPANY: TOM BROWN, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-9-
