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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 31, 1996
TOM BROWN, INC.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other
jurisdiction of incorporation)
0-3880 95-1949781
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(Commission file (IRS employer
number) identification
number)
508 West Wall, Suite 500, Midland, Texas 79701
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(Address of principal executive offices) (Zip code)
(915) 682-9715
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(Registrant's telephone number including area code)
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
General
On January 31, 1996, Tom Brown, Inc., a Delaware corporation (the
"Company"), and K N Energy, Inc., a Kansas corporation, closed the joint
transactions announced by them on December 14, 1995, and reported in the
Company's Form 8- K Report dated December 19, 1995. As a result of these
transactions, (i) the Company acquired all of the issued and outstanding stock
of K N Production Company, formerly a wholly owned subsidiary of K N Energy,
Inc. ("KNE"), and KNE acquired 1,000,000 shares of the Company's $1.75
Convertible Preferred Stock, Series A (the "Series A Preferred Stock"), and
918,367 shares of the Company's Common Stock, and (ii) a new limited liability
company, Wildhorse Energy Partners, LLC, was formed by the Company and KNE
under the laws of Delaware for the principal purpose of providing gas
gathering, processing, marketing, field and storage services.
The principal terms of the joint transactions were consummated
pursuant to (i) an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated January 31, 1996, by and among the Company and its wholly
owned subsidiary, TBI Acquisition, Inc. ("TBIA"), and KNE and its wholly owned
subsidiary, K N Production Company ("KNPC"), and (ii) a Limited Liability
Company Agreement of Wildhorse Energy Partners, LLC, a Delaware limited
liability company of which the Company and KNE are the sole members. See "The
Reorganization Agreement" and "The Limited Liability Company Agreement" below.
The Company believes that the transactions with KNE will improve the
Company's cash flow through the addition of producing properties, provide for
additional development drilling opportunities and further enhance the Company's
ability to provide gas services to a broader range of markets with the
utilization of expanded gathering, processing, marketing, field services and
storage capabilities. As a result of these transactions, the Company acquired
interests in 624 gross producing wells in Colorado and Wyoming, of which the
Company became operator of 308. The Company also acquired a natural gas
storage facility in western Colorado. Based on the December 31, 1995
estimates prepared by KNPC in accordance with guidelines of the Securities and
Exchange Commission, the gas and oil reserves attributable to the properties
acquired by the Company were 31.4 Bcf of natural gas and 519,000 barrels of
oil. The properties acquired by the Company include approximately 170,000
net undeveloped areas in Colorado, Wyoming, Kansas and Nebraska and 85,000 net
developed acres located in Colorado and Wyoming. The transaction will be
recorded under the purchase method of accounting.
The Reorganization Agreement
Under terms of the Reorganization Agreement, TBIA was merged into KNPC
(the "Merger"), with KNPC being the surviving corporation and becoming a wholly
owned subsidiary of the Company. The separate existence of TBIA ceased. KNPC,
a Delaware corporation, continues to be governed by the General Corporation
Laws of Delaware and its separate existence and all of its rights, privileges,
immunities and franchises and all of
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its duties and liabilities as a Delaware corporation continue unaffected by the
Merger, except that KNPC's name was changed to TBI Production Company. For
federal income tax purposes, the Merger is intended to qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended. The effective date of the Merger for economic purposes was December
31, 1995. Upon consummating the Merger, and pursuant to the terms of the
Reorganization Agreement, all of the issued and outstanding shares of common
stock of KNPC held by KNE were converted into and became 918,367 shares of the
Company's Common Stock, $.10 par value per share, and 1,000,000 shares of
Series A Preferred Stock. See "Description of the Series A Preferred Stock"
below. Simultaneously, all of the issued and outstanding shares of common stock
of TBIA held by the Company were converted into and became 100,000 shares of
common stock of KNPC.
After giving effect to the Merger and the assumed conversion of all of
the Series A Preferred Stock at the initial conversion rate of 1.6660 shares of
Common Stock for each share of Series A Preferred Stock, KNE is the beneficial
owner of 2,584,367 shares (approximately 11.34%) of the Company's outstanding
Common Stock. The purchase price of the transaction was negotiated by the
Company and KNE and was determined to be $36.25 million, of which $25 million
was paid in the form of 1,000,000 shares of the Company's Series A Preferred
Stock and the remaining $11,250,000 was paid in the form of 918,367 shares of
the Company's Common Stock, based on a price per share of $12.25. The last
sale price of the Company's Common Stock on January 31, 1996 on the Nasdaq
National Market System was $13.93 per share.
The shares of Common Stock and Series A Preferred Stock issued to KNE
are "restricted" securities within the meaning of the Securities Act of 1933,
as amended (the "Act"), and the rules promulgated thereunder. Accordingly, the
Reorganization Agreement provides that prior to any proposed sale, assignment,
transfer or pledge of the Series A Preferred Stock or the Common Stock issued
to KNE as a result of the Merger (other than transfers not involving a change
in beneficial ownership) unless there is in effect a registration statement
under the Act covering the proposed transfer, KNE is required to give written
notice to the Company of such proposed transfer, sale, assignment or pledge
describing the manner and circumstances of the proposed transfer and
accompanied, at KNE's expense, by either (i) an unqualified opinion of counsel
to the effect that the proposed transfer may be effected without registration
under the Act, or (ii) a "no action" letter from the Securities and Exchange
Commission (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, or (iii)
other evidence of compliance with the Act acceptable to the Company. See "The
Registration Rights Agreement" below.
The Reorganization Agreement also provides that for a period of three
years following the Merger, neither KNE nor any of its affiliates will:
(a) acquire or agree, offer, seek or propose to acquire ownership
of any assets or businesses or any additional securities issued by the Company,
or any rights or options to acquire such ownership (including from a third
party); or
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(b) contest any election of Directors by the stockholders of the
Company, provided that if all cumulative dividends on the Series A Preferred
Stock have not been declared and paid by the Company as they accumulate, then
KNE and its affiliates may contest any such election of Directors; or
(c) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing.
Other terms of the Reorganization Agreement require the Company to
indemnify and hold harmless KNE and each subsidiary and each of their
respective officers and directors, and their respective successors and assigns,
at all times from and after the Merger in respect of the following:
(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 the Company or TBIA under the Reorganization Agreement,
or from any misrepresentation in or omission from any certificate or other
instrument or document furnished by the Company or TBIA under the
Reorganization Agreement; and
(c) all claims, actions, suits, proceedings, demands, assessments,
judgments, costs, attorney's fees and expenses of any nature incident to any of
the foregoing.
No indemnification obligation arises, however, until the aggregate
value of indemnification obligations is equal to or greater than $2,000,000,
whereupon the Company's indemnity obligations include the full amount of such
liability or claim.
The Limited Liability Company Agreement
As an integral part of the Merger, the Company and KNE entered into a
Limited Liability Company Agreement creating Wildhorse Energy Partners, LLC, a
limited liability company (the "Joint Venture") organized under the laws of
Delaware.
The principal purpose of the Joint Venture is to provide for the
furnishing of services related to natural gas, natural gas liquids and other
natural gas products, including gathering, processing and storage services,
marketing services and field services. The Company granted to the Joint
Venture the right to initially perform certain field services on properties
located in Colorado which were acquired by the Company in the Merger,
including such services as pumper services and other related physical
operation and measurement services.
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The Company and KNE are the sole members ("Members") of the Joint
Venture and KNE serves as manager (the "Manager") of the Joint Venture. KNE
and its successors and assigns are the Class A Members and the Company and its
successors and assigns are the Class B Members. KNE owns a 55% interest in the
Joint Venture and the Company owns a 45% interest in the Joint Venture.
Members may not sell, transfer or otherwise dispose of all or any part of their
respective interests in the Joint Venture without the prior written consent of
all other Members, which consent may be withheld or denied in the sole
discretion of each such Member; provided, however, a Member may transfer all or
any part of its interest in the Joint Venture to a wholly owned subsidiary of
such Member without the consent of the other Members.
If the Joint Venture interest of a Member is acquired by any person
other than a wholly owned subsidiary of such Member, the non-transferring
Member has the option to purchase the interest acquired by the transferee at
fair market value, as determined by the parties or by appraisers selected by
them. If the non-transferring Member does not purchase the interest, the
transferee is deemed to be a nonvoting owner of such interest.
The day to day business and affairs of the Joint Venture will be
managed by KNE under the direction of an operating team (the "Operating
Team") consisting of two representatives appointed by the Company and two
representatives appointed by KNE.
The Joint Venture establishes an area of mutual interest ("AMI") in
which the initial activities of the Joint Venture will be conducted. The
initial AMI covers parts of Colorado, Utah, Wyoming, Montana, North Dakota and
South Dakota. The overall scope of business of the Joint Venture is
contemplated to eventually include some or all of the Company's and/or third
party current and future operated and non-operated gas and oil production from
other areas, including the Rocky Mountain, Mid-Continent, and Permian basin
areas. Initially, the Joint Venture will provide the gathering, processing,
storage, marketing and field services in connection with gas produced from
properties in the AMI and operated by the Company. The Joint Venture will also
make such services available to third party properties located within the AMI.
On an ongoing basis, but in any event by December 31 of each year, the
Operating Team will determine, in its sole discretion, whether the AMI will be
extended to include other areas, and whether and to what extent the services
provided by the Joint Venture will be modified and/or extended to additional
properties. The AMI specifically excludes certain assets, including
transmission assets, assets previously dedicated under or subject to third
party agreements, assets subject to federal rate regulation or state rate
regulation as an intrastate pipeline, assets subject to contracts which are not
assignable to third parties, and any other assets or opportunities specifically
excluded by the Operating Team. Although the Members are free to pursue other
opportunities in the same or similar business as the Joint Venture, if any
opportunity arises within the AMI which is related to, or developed from, the
Joint Venture's business, such opportunity must first be accepted or rejected
by the Joint Venture (a "Company Opportunity"). If the Joint Venture (acting
through the Operating Team) elects to reject a Company Opportunity, the
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Member whose representatives on the Operating Team have voted for the proposal
may pursue it for its own account.
The Company will initially contribute to the capital of the Joint
Venture the right to perform gathering, processing, marketing and storage
services related to the Company's natural gas production in the AMI.
KNE's initial contribution to the Joint Venture will include the current
marketing opportunities for the sale of natural gas to specific end use markets
located within the AMI. KNE will also grant to the Joint Venture the right to
sell at least 30% of the Company's currently owned gas, into K N Marketing,
Inc.'s ("KNM") specific end use markets located in the Heartland and Front
Range markets in Nebraska and Colorado, respectively, but only to the extent
such volumes do not exceed 20% or 9000 MMBtu/D of the K N Interstate (KNI)
pool, whichever is lesser, and 20% or 6000 MMBtu/D of the Colorado Interstate
Gas (CIG) pool, whichever is lesser. The Company will cause Retex Gathering
Company, Inc. (the Company's wholly owned subsidiary and marketing affiliate)
to dedicate to the Joint Venture its CIG-firm and KNI-firm transportation
capacity, unless otherwise currently committed, and KNE will cause KNM to
dedicate to the Joint Venture 6000 MMBtu/D of its KNI-firm transportation
capacity and will cause Northern Gas Company, a wholly owned subsidiary of KNE,
to agree to use reasonable efforts to purchase volumes of gas available from
the Company, subject to physical requirements and prudency requirements
established by applicable state commissions. In addition, both the Company and
KNE will make proportionate working capital contributions to the Joint Venture
as necessary and appropriate, pursuant to decisions of the Operating Team. The
initial contributions by the Company and KNE to the Joint Venture are required
to be made to the Joint Venture on or before March 1, 1996. The Company and
KNE have agreed that fifty-five percent (55%) of the aggregate value of the
items to be contributed to the Joint Venture is being contributed by KNE or its
subsidiaries and that forty-five percent (45%) of the aggregate value of
the items to be contributed is being contributed by the Company or its
subsidiaries.
As part of the formation of the Joint Venture, KNE contributed a
Colorado gathering system and certain gas contracts related to the properties
acquired in the Merger, and TBI Production Company contributed the natural gas
storage facility acquired in the Merger.
The Company granted to the Joint Venture, and if the Joint Venture
declines, then to KNE, an exclusive preferential right during the term of the
Joint Venture to purchase, on a competitive basis, any assets downstream of the
wellhead sales meter now owned by the Company in the AMI (including such assets
as gathering, processing and pipelines) and, to the extent it is legally able
to do so, to assets acquired by the Company in the future which are located in
the AMI, but in each case only to the extent such assets become available for
sale prior to dissolution of the Joint Venture. KNE granted to the Company an
exclusive preferential right during the term of the Joint Venture to purchase,
on a competitive basis, any upstream assets owned by KNE now or in the future,
to the extent such assets become available for sale prior to dissolution of the
Joint Venture.
The Company and KNE also each granted to the Joint Venture (i) an
exclusive preferential right to participate in any gathering, processing,
storage, or field services projects which are made available to either of the
Company or KNE by any other person and which projects are within the AMI and
(ii) an exclusive preferential right to marketing sales opportunities for sales
of gas to specific end use markets and customers located within the AMI.
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Either Member proposing to sell any of the assets or to engage in any
other activities subject to a preferential right in favor of the Joint Venture
or the other Member must notify the Joint Venture and/or the other Member, with
full information concerning the proposed transaction. The Joint Venture or the
non-selling Member has 15 days after the notice is delivered to exercise its
preferential right on the same terms and conditions as set forth in the notice
received from the other Member. If the holder of the preferential right does
not exercise such right, the Member proposing the transaction subject to the
preferential right may, during the following sixty-day period, proceed with the
transaction on terms and at a price no less favorable than that offered to the
party with the preferential right.
If at any time during their ownership of an interest in the Joint
Venture, either the Company or KNE undergo a change of control, defined as any
situation in which a new person, or group of persons becomes in control (as
such term is defined in Rule 405 promulgated by the Commission under the Act)
of either the Company or KNE, or a majority of the board of directors of either
of them shall change within any twelve month period of time, then the party not
undergoing the change of control ("Notifying Party") shall have the right at
any time within the ninety (90) days following receipt by the Notifying Party
of written notice of such change of control to trigger a buy-sell right. Such
right is triggered by the Notifying Party giving to the other (the "Receiving
Party") notice in writing that it wishes to exercise its buy-sell right, which
notice is required to specify the value the Notifying Party has assigned to a
1% interest in the Joint Venture (the "Specified 1% Value"). For a period of
thirty (30) days after receipt of such notice, the Receiving Party shall have
the right to elect to sell its interest in the Joint Venture to the Notifying
Party at the price of the Specified 1% Value times the number of 1% interests
in the Joint Venture held by the Notifying Party. Such election by the
Receiving Party shall be made by written notice given by the Receiving Party to
the Notifying Party during such thirty-day period. If no such notice is given,
the Receiving Party is deemed to have elected to sell its interest in the Joint
Venture to the Notifying Party at the price of the Specified 1% Value times the
number of 1% interests in the Joint Venture held by the Receiving Party.
Description of the Series A Preferred Stock
Dividends (a) The holder of the Series A Preferred Stock is
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available therefor, cumulative dividends at the annual rate of
$1.75 per share, payable in cash on March 15, 1996, and thereafter quarterly on
the fifteenth day of March, June, September and December in each year (the
"Dividend Payment Date"). Dividends in arrears may be declared and paid at any
time, without reference to any regular Dividend Payment Date. The amount of
dividends payable on shares of the Series A Preferred Stock for each full
quarterly dividend period is computed by dividing by four the annual rate of
$1.75 per share.
(b) Except as described 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 are outstanding, if
full cumulative dividends on the Series A Preferred Stock have not been
declared and paid or set apart for payment, the Company may not declare
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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 Company's Common Stock, or any other stock of the Company 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 Company (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 on 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 on the Series A Preferred Stock and any other preferred
stock ranking on a parity as to dividends with the Series A Preferred Stock
must be declared pro rata so that the amount of dividends declared per share on
the Series A Preferred Stock and such other preferred stock will in all cases
bear to each other the same ratio that accrued dividends per share on the
Series A Preferred Stock and such other preferred stock bear to each other.
Redemption (a) The Company has the option, at any time beginning on
or after March 15, 2001, to redeem all or any part of the outstanding shares of
Series A Preferred Stock at the redemption price of $25.00 per share, plus an
amount equal to all accrued and unpaid dividends on such shares of Series A
Preferred Stock to the date of redemption.
(b) The Company 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 the Series A Preferred
Stock must be given by the Company 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 Series A Preferred Stock to be redeemed at their respective
addresses appearing on the books of the Company. 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. If less than all the outstanding Series A
Preferred Stock is to be redeemed, the Company 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. From and after the date fixed in any such notice as the date of
redemption of the Series A Preferred Stock, unless default is made by the
Company 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 called for redemption 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 Company 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, cease and terminate.
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(d) Upon the occurrence of a "Change of Control" of the Company,
the holders of the Series A Preferred Stock have the right to cause the Series
A Preferred Stock to be redeemed by the Company, in whole or in part, at the
redemption price of $25.50 per share, plus an amount equal to all accrued and
unpaid dividends on such shares of Series A Preferred Stock to the date of
redemption. Within ten (10) days after the occurrence of a Change of Control,
the Company is required to send a notice thereof to each holder of shares of
Series A Preferred Stock setting forth: (i) a 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 may require the Company to redeem all or
any part of such holder's shares; (iv) the redemption date, which is 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 cease to accrue on and
after said date, unless the Company defaults 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.
For purposes of the Series A Preferred Stock, a "Change of Control" is
deemed to have occurred when any person or group of persons becomes in
"control" (as such term is defined in Rule 405 promulgated by the Commission
under the Act) of the Company, or a majority of the Board of Directors of the
Company changes within any twelve-month period of time.
Conversion (a) Each share of the Series A Preferred Stock is
convertible at the option of the holder thereof, at any time and from time to
time prior to the redemption of such share, into fully paid and nonassessable
shares of Common Stock of the Company at the initial conversion rate of 1.6660
shares of Common Stock for each share of Series A Preferred Stock, subject to
adjustment as described below.
If the Company consolidates into, or merges with or into, any other
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification,
change or conversion of outstanding shares of the Company's Common Stock), or
in case of any sale or transfer of all or substantially all of the assets of
the Company, or in case of any reclassification of the Company's Common Stock
(other than a change in 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
Company into which such share of Series A Preferred Stock might have been
converted immediately prior to such consolidation, merger, sale, transfer or
reclassification.
The conversion price is subject to adjustment upon certain events,
including: (i) the issuance of Common Stock as a dividend with respect to the
outstanding Common Stock, subdivisions, or combinations of Common Stock into a
smaller number of shares; (ii) the issuance to all holders of the Company's
Common Stock of rights or warrants to subscribe
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for or purchase Common Stock at a price per share less than the "Current Market
Price" per share of Common Stock; and (iii) the making of a distribution to all
holders of Common Stock of shares of capital stock of the Company (other than
Common Stock) or of evidences of its indebtedness, or of assets, or
subscription rights or warrants (excluding those rights, warrants, dividends
and distributions referred to above, and excluding dividends paid in, or
distributions of, cash from the retained earnings of the Company).
"Current Market Price" per share of Common Stock on any date is the
average of the daily "Closing Prices" for the thirty (30) consecutive business
days commencing forty-five (45) business days before such date. "Closing
Price" for each day is 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.
No adjustment in the conversion rate of the Series A Preferred Stock
is required to be made in any case until cumulative adjustments amount to 1% or
more of the conversion rate, but any such adjustment that would otherwise be
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
The Company may make such increases in the conversion rate, in
addition to those described above, as it determines 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, made by the Company to its stockholders shall not be taxable.
Exchange (a) The shares of Series A Preferred Stock are
exchangeable, in whole or in part, at the option of the Company on any Dividend
Payment Date at any time on or after 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 Company shall
have declared and paid or set apart for payment to the holders of Series A
Preferred Stock all accumulated and unpaid dividends to the date of exchange,
and (ii) the Current Market Price (as defined under "Conversion" above) of the
Common Stock is above $18.375 (the "Threshold Price"). The exchange rate is
subject to adjustment in the same manner and under the same circumstances as
the conversion rate is subject to adjustment as described under "Conversion"
above, and the Threshold Price is also subject to
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adjustment in the same manner and under the same circumstances, as the exchange
rate is subject to adjustment.
(b) From and after the date fixed by the Company as the date for
the exchange (unless default is made by the Company in issuing shares of Common
Stock in exchange for, or making the final dividend payment on, the Series A
Preferred Stock on the date fixed for exchange), dividends on the Series A
Preferred Stock cease to accrue, and such shares will not be deemed to be
issued and outstanding, and all rights of the holders of the Series A Preferred
Stock (except the right to receive from the Company the shares of Common Stock)
in respect of the Series A Preferred Stock shall cease and terminate.
(c) All shares of Series A Preferred Stock which have been
exchanged for shares of Common Stock of the Company will, after such exchange,
be restored to 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 of the Company.
Liquidation Rights Upon the dissolution, liquidation or winding up of
the Company, whether voluntary or involuntary, the holders of the Series A
Preferred Stock are entitled to receive out of the assets of the Company
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 may 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. The merger or
consolidation of the Company or the sale of all or substantially all of the
Company's assets is not deemed to be a liquidation, dissolution or winding up
of the Company. If the assets of the Company available for distribution to the
holders of the Series A Preferred Stock upon dissolution, liquidation or
winding up of the Company are insufficient to pay in full all amounts to which
such holders are entitled, no distributions may be made on account of any
shares of any other class of stock of the Company ranking on a parity with the
Series A Preferred Stock upon such dissolution, liquidation or winding up
unless proportionate distributive amounts are paid on account of the Series A
Preferred Stock, ratably, in proportion to the full distributable amounts to
which holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up. After payment to the holders of the
Series A Preferred Stock of the full preferential amounts, such holders will
not have any right or claim to any remaining assets of the Company.
Voting Rights The Series A Preferred Stock has the following voting
rights:
(a) As long as any shares of Series A Preferred Stock remain
outstanding, the Company may not, 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 (the "Certificate") or the Certificate of Incorporation of the
Company, or
-10-
<PAGE> 12
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 Company ranking,
either as to payment of dividends or upon liquidation, dissolution or winding
up of the Company, prior to the Preferred Stock.
(b) As long as any shares of Series A Preferred Stock remain
outstanding, the Company may not, 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 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 Company ranking on a parity with the
preferred stock either as to payment of dividends or upon liquidation,
dissolution or winding up of the Company.
(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 Company's Board of Directors will be limited to a
maximum of nine and the holders of the outstanding 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 Company (the
"Special Directors") at the next annual or special meeting of stockholders of
the Company irrespective of whether such meeting otherwise would involve the
election of directors, and the membership of the Board of Directors of the
Company 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 terminates, subject to re-vesting in the event
of a subsequent arrearage. Upon any termination of such 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 Company or
the Board of Directors of the Company.
(d) In exercising the right to designate Special Directors 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 described below.
(e) To the extent that the rights provided in the Certificate do
not prevent the continued listing for quotation on NASDAQ of the Common Stock
of the Company, then (i) for so long as KNE owns 80% or more of the voting
power of the securities of the Company issued pursuant to the Merger, KNE has
the right to elect a special class of two Directors to the Board of Directors
of the Company, and (ii) for so long as KNE owns securities of the Company
issued pursuant to the Merger possessing less than 80% of the voting power of
the securities of the Company issued pursuant to the Merger, 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 Company.
-11-
<PAGE> 13
(f) So long as any Series A Preferred Stock remains outstanding,
the holders of the Series A Preferred Stock are entitled to vote on all matters
upon which holders of the Company's Common Stock have the right to vote. In
such voting, each share of Series A Preferred Stock is 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 holders of the outstanding shares of the Company's Common Stock as if a
part of that class.
No consent of the holders of the Series A Preferred Stock is required
for (i) the creation of any indebtedness of any kind of the Company, or (ii)
the authorization or issuance of any class of capital stock of the Company
ranking junior to the Series A Preferred Stock in payment of dividends or upon
liquidation, dissolution or winding up of the Company.
The Registration Rights Agreement
Pursuant to the Reorganization Agreement, the Company and KNE also
entered into a Registration Rights Agreement, dated as of January 31, 1996,
which provides KNE with certain "demand" registration rights and "piggyback"
registration rights, as further described below.
Requested Registration. At any time during the period of ten years
following the date of consummation of the Merger (January 31, 1996), KNE or its
assignees may request that the Company prepare and file with the Commission a
registration statement effecting the registration of (i) the shares of the
Company's Common Stock issued to KNE as a result of the Merger and (ii) the
shares of Common Stock underlying the Series A Preferred Stock issued to KNE as
a result of the Merger (collectively, the "Registrable Common Stock"). Upon
its receipt of any request for registration of the Registrable Common Stock,
the Company is obligated to use its best efforts to effect any such requested
registration; provided that any requested registration must include not less
than 1,000,000 shares of Registrable Common Stock and that the Company is not
required to effect any requested registration of the Registrable Common Stock
on more than two occasions.
Company Registration. At any time during the period of ten years
following the date of consummation of the Merger, if the Company registers any
shares of Common Stock for its own account or for the account of other security
holders exercising their respective demand registration rights, the Company is
obligated to give notice thereof to KNE and, if KNE or its assignees so
request, include in any such registration all the Registrable Common Stock
specified by KNE; provided that the Company is not obligated to effect more
than two "piggyback" registrations for the account of KNE.
The Company is obligated to bear all expenses incurred in connection
with each demand or piggyback registration effected for the account of KNE
(excluding underwriter's commissions, fees and expenses allocable to the
Registrable Common Stock and KNE's fees of independent counsel and accountants,
if any, which commissions, fees and expenses and
-12-
<PAGE> 14
fees of counsel and accountants are to be borne pro rata (by share) by KNE and
any other offeror employing such counsel and accountants in such registration).
If shares of Registrable Common Stock are included in any registration
being effected by the Company, the Company has agreed to indemnify KNE and each
of its officers and directors, and each person controlling KNE, 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 to
reimburse each of the foregoing persons 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 is not
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 KNE or
underwriter specifically for use therein.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements.
It is impracticable to provide the financial statements
required by Item 7 of this Report on Form 8-K at the time of filing hereof.
Such financial statements will be filed not later than April 15, 1996.
(b) Exhibits.
Exhibit No. Description
10.1 Agreement and Plan of Reorganization, dated
January 31, 1996, By and Among Tom Brown,
Inc., TBI Acquisition, Inc., K N Production
Company and K N Energy, Inc.
10.2 Limited Liability Company Agreement, dated
January 31, 1996, of Wildhorse Energy
Partners, LLC, between Tom Brown, Inc. and
K N Energy, Inc.
10.3 Certificate of Designations, Powers,
Preferences and Rights of the $1.75
Convertible Preferred Stock, Series A, $.10
par value
10.4 Registration Rights Agreement, dated January
31, 1996, between Tom Brown, Inc. and K N
Energy, Inc.
-13-
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 13, 1996
TOM BROWN, INC.
By: /s/ R. Kim Harris
-----------------------------------
R. Kim Harris, Controller and
Principal Financial Officer
-14-
<PAGE> 16
INDEX TO EXHIBITS
Exhibit No. Description
10.1 Agreement and Plan of Reorganization, dated
January 31, 1996, By and Among Tom Brown
Inc., TBI Acquisition, Inc., K N Production
Company and K N Energy, Inc.
10.2 Limited Liability Company Agreement, dated
January 31, 1996, of Wildhorse Energy
Partners, LLC, between Tom Brown, Inc. and
K N Energy, Inc.
10.3 Certificate of Designations, Powers,
Preferences and Rights of the $1.75
Convertible Preferred Stock, Series A, $.10
par value
10.4 Registration Rights Agreement, dated January
31, 1996, between Tom Brown, Inc. and K N
Energy, Inc.
<PAGE> 1
EXHIBIT 10.1
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>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <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> <C> <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>
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<TABLE>
<S> <C> <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
KN 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 of the DGCL (the date and time of such filing, or such later date
and
1
<PAGE> 7
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
4
<PAGE> 10
1,610,350 shares of common stock 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
5
<PAGE> 11
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 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
6
<PAGE> 12
upon the financial condition, business or operations of TBI and its
subsidiaries, taken as a whole.
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
7
<PAGE> 13
("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, 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
8
<PAGE> 14
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
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.
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<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.
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.
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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
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
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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.
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
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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 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.
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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:
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
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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
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
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(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 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
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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 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.
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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 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
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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.
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.
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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
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
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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.
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.
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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
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
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(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.
(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.
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(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 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.
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(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 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.
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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, 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
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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.
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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 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.
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XII. BROKERS AND ADVISORS
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
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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.
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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
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Agreement shall inure to he 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.
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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: /s/ Peter R. Scherer
-----------------------------------------
Name: Peter R. Scherer
Title: Executive Vice President
TBI ACQUISITION, INC.
By: /s/ Peter R. Scherer
-----------------------------------------
Name: Peter R. Scherer
Title: Executive Vice President
K N PRODUCTION COMPANY
By: /s/ George M. Simmons
-----------------------------------------
Name: George M. Simmons
Title: President and Chief
Operating Officer
K N ENERGY, INC.
By: /s/ H. Rickey Wells
-----------------------------------------
Name: H. Rickey Wells
Title: Vice President - Operations
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EXHIBIT 10.2
LIMITED LIABILITY COMPANY AGREEMENT
OF
WILD HORSE, LLC
This Limited Liability Company Agreement (this "Agreement") is entered
into by and between K N Energy, Inc. ("KNE"), a Kansas corporation, and Tom
Brown, Inc. ("TBI"), a Delaware corporation, as the sole Members of Wild Horse,
LLC (the "Company"), a Delaware Limited Liability Company formed pursuant to
the Delaware Limited Liability Company Act. In consideration of the mutual
promises made herein, KNE and TBI agree as follows:
ARTICLE I
DEFINITIONS
Capitalized words and phrases used herein shall have the meanings set
forth below in this Article I unless defined elsewhere herein:
"Act" means the Delaware Limited Liability Company Act, as amended from
time to time.
"Agreed Value" means the fair market value of any contributed or
distributed Property net of any liability assumed or taken subject to, as fair
market value is determined by the Members using any reasonable method of
valuation.
"Assignee" means a Person to whom all or part of a Member's Interest
has been assigned and who has been admitted as a Member as a result of such
assignment..
"AMI" means the geographic area of mutual interest depicted on the
plat attached hereto as Exhibit A (as the same may be amended or supplemented
from time to time) in which the Company proposes to pursue opportunities to
provide the services described in Article VI hereof.
"Available Cash" means all cash funds of the Company from operations,
refinancings, asset sales, Capital Contributions, loans or any other source at
any particular time available for Distribution after reasonable provision has
been made for (i) payment of all operating expenses of the Company as of such
time and (ii) payment of all outstanding and unpaid current obligations of the
Company as of such time.
"Business" is defined in Section 3.1.
"Capital Account" means the account maintained for a Member or
Assignee in accordance with Section 8.2.
<PAGE> 2
"Capital Contribution" means, with respect to a Member, the amount of
cash and the Agreed Value of the property (other than cash) contributed to the
Company with respect to such Member's Interest.
"Certificate of Formation" means the Certificate of Formation of the
Company as amended or restated from time to time in accordance with the terms
of this Agreement and filed with the Delaware Secretary of State in the manner
provided by the Act.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Company" means Wild Horse, LLC, a Delaware limited liability company
formed under the Act.
"Company Opportunity" is defined in Section 3.5.
"Consent" means, with respect to a Member, (a) as a noun, either the
written consent of such Member or the affirmative vote of that Member at a
meeting, as the case may be, to do that for which the Consent of such Member is
given and (b) as a verb, giving Consent for any such action. To receive the
"Consent of the Members" requires the requisite level of Consent of the Members
provided in this Agreement or as otherwise expressly required by the
Certificate of Formation, the Act or other applicable law.
"Distribution" or "Distributions" means any cash or other Property
distributed to a Member by the Company on account of that Member's Interest as
provided in Article VIII, and does not include payments to a Member (i)
pursuant to a loan by such Member to the Company or other transactions in which
such Member is acting other than in its capacity as a Member within the meaning
of section 707(a) of the Code or (ii) which are made to reimburse a Member or
an Affiliate of a Member for amounts paid for or on behalf of the Company.
"Distribute" means to make one or more Distributions.
"Effective Date" means January 1, 1996.
"Fiscal Year" means the annual accounting period of the Company, which
shall be the calendar year or such portion of a calendar year during which the
Company is in existence.
"GAAP" means generally accepted accounting principles, conventions,
rules and procedures in the United States set forth in the opinions and
pronouncements of the accounting principles board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or any successor organization) that are applicable
to the circumstances as of the date of determination.
"Interest" of a Member at any time means the entire percentage
ownership interest of such Member in the Company at such time and all benefits
to which such Member is entitled
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under this Agreement and applicable law, together with all obligations of such
Member under this Agreement and applicable law.
"Manager" shall mean KNE, or such other party as may be designated as
the Manager by unanimous Consent of the Members.
"Members" means KNE and TBI and those Persons who subsequently are
admitted as Members. "Member" means any one of the Members.
"Net Income" means, for any period, the excess, if any, of the
Company's items of income and gain for such period over the Company's items of
loss and deduction for such period, including items described in Section
705(a)(1)(B) and 705(a)(2)(B) of the Code, as computed for book purposes.
"Net Loss" means, for any period, the excess, if any, of the Company's
items or loss and deduction for such period over the Company's items of income
and gain for such period, including items described in Section 705(a)(1)(B) and
705(a)(2)(B) of the Code, as computed for book purposes.
"Operating Team" shall mean a group consisting of two representatives
appointed by the Chief Executive Officer of KNE and two representatives
appointed by the Chief Executive Officer of TBI. Each Operating Team Member
shall have an equal vote on all issues pertaining to the Company. The two
initial representatives of the Operating Team appointed by KNE shall be H.
Rickey Wells and Geoff Solich and the two initial representatives of the
Operating Team appointed by TBI shall be Peter R. Scherer and William H. Munn,
II.
"Organization" means any corporation, partnership, joint venture,
limited liability company, unincorporated association, trust, estate,
governmental entity or other entity.
"Person" means any natural person or Organization.
"Property" means all (or such lesser amount as indicated by the
context used herein) property -- real, personal, tangible or intangible --
owned from time to time by the Company as a result of Capital Contributions,
acquisitions, operations or otherwise.
"Taxable Income" or "Taxable Loss" for a particular Fiscal Year means
an amount equal to the Company's taxable income or taxable loss for such Fiscal
Year determined in accordance with Code section 703(a).
"Tax Distribution Amount" means, with respect to a Member for any
calendar quarter, the combined amount computed pursuant to Sections 8.7(a)(i)
and 8.7(a)(ii) in reference to such calendar quarter.
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<PAGE> 4
"Transfer" means (a) as a noun, any voluntary or involuntary transfer,
sale, assignment, alienation, gift, donation, grant, conveyance, lease,
exchange, mortgage, pledge, encumbrance, hypothecation or other disposition of
any kind, including dispositions by operation of law or legal process and (b)
as a verb, the act of making any voluntary or involuntary Transfer.
"Treasury Regulations" means the final and temporary regulations of
the U.S. Department of the Treasury promulgated under the Code.
ARTICLE II
MEMBERS
2.1 Initial Members. Upon the formation of this Company, KNE and TBI
shall be its sole Members. After the formation of this Company, a Person may
become a Member (a) in the case of a Person acquiring a membership interest
directly from this Company, only by the written agreement of both Members; and
(b) in the case of an assignment of a Member's interest, only if such
assignment is to another Member or a Member's wholly owned subsidiary or such
assignment has been agreed to in writing by the non-assigning Member.
2.2 Classes of Members. The Company shall have two classes of
Members. KNE and its successors and assigns shall be the Class A Member, and
TBI and its successors and assigns shall be the Class B Member.
2.3 Place and Manner of Meeting. All meetings of the Members
shall be held at such time and place as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof. Members may
participate in such meetings by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting by a Member shall
constitute a waiver of notice of such meeting, except where a Member attends a
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
2.4 Meetings. An annual meeting of the Members for the
transaction of all business which may come before the meeting shall be held on
such day and at such time during the period within six months after the close
of each Fiscal Year of the Company as may be specified by the Manager in the
notice of the meeting. If the annual meeting of Members is not held within the
period above specified either Member may cause a special meeting of the Members
in lieu thereof to be held as soon thereafter as convenient, and any business
transacted or election held at such meeting shall be as valid as if held at the
annual meeting. Failure to hold the annual meeting at the designated time
shall not work a dissolution of the Company. Special meetings of the Members
may be called at any time by either Member.
2.5 Notice. Written or printed notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than ten nor more
than sixty days before the date of the meeting either
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personally or by mail, by the Person calling the meeting, to each Member
entitled to vote at the meeting, provided that such notice may be waived as
provided in this Agreement. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the Member at
its address as it appears on the records of the Company, with postage thereon
prepaid.
2.6 Quorum of Members. All Members, represented in person or by
proxy, shall be required for a quorum at a meeting of Members.
2.7 Majority Vote; Withdrawal of Quorum. The vote of the holders
of a majority of the membership interests of each class of Members entitled to
vote at a meeting at which a quorum is present shall be the act of the Members'
meeting, unless the vote of a greater number is required by law, the
Certificate of Formation or this Agreement. The Members present at a duly
organized meeting may not continue to transact business if the other Members
withdraw from the meeting.
2.8 Action Without Meeting. Subject to the requirements of the
first sentence of the fourth paragraph of Section 15.4 of this Agreement, any
action required by the Act, as amended, to be taken at any annual or special
meeting of the Members, or any action which may be taken at any annual or
special meeting of the Members, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall have been signed by each Member.
2.9 Right of Assignee to Become Member.
A. A valid assignment of part or all of a Member's Interest shall
cause the Assignee to become a Member. It is the intent of this Agreement that
the tax status of this Company be the same as for a partnership, and except as
allowed by the Code, and any corresponding rules and regulations, it is
intended that this Company shall not allow free transferability of Interests,
and to the extent possible, this Agreement shall be read and interpreted to
prohibit the free transferability of Interests of any Member.
B. To the extent a Member's Interest has been assigned, the
Assignee shall be subject to the restrictions and liabilities of a Member under
this Agreement and the Act, as amended from time to time.
2.10 Withdrawal, Bankruptcy or Dissolution of a Member. A Member
may not voluntarily withdraw during the first two (2) years of the term of this
Company, without the Consent of the other Members. Thereafter, a Member may
withdraw upon sixty (60) days prior written notice to the Company and the other
Member with such withdrawal to take effect at the time specified in such
notice, or if no time be specified, then at the time of its receipt by the non-
withdrawing Member. This Company shall be dissolved upon the withdrawal,
bankruptcy, liquidation or dissolution of a Member, or upon the occurrence of
any other event that terminates the continued membership of a Member in this
Company under the terms of
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this Agreement or the Act. For purposes of this Section 2.10, the term
"dissolution" does not include a merger, spin-off, consolidation,
reorganization or recapitalization of a Member. It is the intent of this
Agreement that the tax status of this Company be the same as for a partnership,
and except as allowed by the Code, and any corresponding rules and regulations,
it is intended that this Company shall not have continuity of life and shall be
read and interpreted so as to prohibit continuity of life.
ARTICLE III
ORGANIZATION AND TERM
3.1 Company Purpose. The purpose of the Company is to conduct any
and all lawful business, to promote any lawful purpose and to engage in any
lawful act or activities for which a limited liability company may be organized
under the Act, including, but not limited to, the furnishing of services
related to crude oil and natural gas, natural gas liquids ("NGLs"), and other
natural gas products such as gathering services, processing and storage
services, marketing services, field services and all business activities
related thereto (collectively, the "Business"); provided, however, all of the
foregoing shall be conducted or undertaken in accordance with all the terms and
conditions of, and subject to the limitations set forth in, this Agreement.
3.2 Place of Business. The principal place of business of the
Company shall be located at 370 Van Gordon, Lakewood, Colorado 80228. The
Operating Team at any time may establish and choose other offices and places of
business and change the principal place of business of the Company to any other
place.
3.3 Filings and Fees. The Manager shall execute and file, or
cause to be executed and filed, for recordation in the office of the
appropriate authorities such reports, disclosures, certificates and other
forms, schedules, instruments or documents as are required by applicable law or
regulation or which otherwise may be necessary or appropriate with respect to
the formation of, and conduct of business by, the Company. The Manager also
shall cause the Company to pay all fees, taxes and other charges, including
professional fees, incurred in connection with the preparation and filing of
such reports, certificates, disclosures, forms, schedules, instruments or other
documents.
3.4 Title to Property. The Property shall be owned by the Company
as an entity and no Member shall have any ownership interest in the Property in
that Member's individual name or right, and each Member's Interest shall be
personal property for all purposes. The Company shall hold the Property in the
name of the Company and not in the name of any Member.
3.5 Noncompetition: Conflicts of Interest. Subject to the express
provisions of this Agreement, each Member shall be free to pursue other
opportunities in industries engaged in the same or similar business as the
Company's Business, or otherwise; provided, however, that should any
opportunity arise within the AMI which is related to, or developed from, the
Business, such opportunity shall be accepted or rejected by the Company (a
"Company
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Opportunity"). If the Company (acting through the Operating Team) elects to
reject any Company Opportunity, the Member whose representatives on the
Operating Team have voted for the proposal may pursue it for its own account,
subject only to reimbursing the Company for its out of pocket expenses incurred
in connection with such Company Opportunity.
3.6 Limitation of Liability. Except as otherwise expressly
provided herein or required by applicable law, no Member, as such, shall be
bound by, or be personally liable for, the liabilities or obligations of the
Company or the other Member, or be required to lend any funds to (or provide
any guarantees on behalf of) the Company, without the prior written consent of
such Member. No Member shall have any obligation to make Capital Contributions
to the capital of the Company except those Capital Contributions agreed upon by
the Member or that may be required (a) to return the amount of any Distribution
received by such Member in violation of, and to the extent required by the Act;
or (b) under Section 8.2 with respect to the withholding by the Company of
income taxes.
3.7 Expenses. The Company shall pay all costs and expenses
arising from the organization and operation of the Company. The Company shall
reimburse the Members for their reasonable out-of-pocket expenses incurred by
them on behalf of the Company in accordance with this Agreement.
ARTICLES IV
MANAGER AND OPERATING TEAM
4.1 Manager and Operating Team. The day to day business and
affairs of the Company shall be managed by the Manager pursuant to written
guidelines adopted by the Operating Team. The Manager shall act at the
discretion of the Operating team in discharging all administration, staffing,
accounting, legal representation and day to day operations of the Company. The
Operating Team shall also have the authority to delegate authority to perform
functions for the Company to the Manager and to other parties from time to
time. The Manager and the Operating Team shall call upon the expertise and
resources of personnel from each of the Members to fulfill the business needs
of the Company.
4.2 Election; Term. The Manager shall not be changed, except by
agreement of all Members.
4.3 Removal; Filling of Vacancies. Any member of the Operating
Team appointed by KNE's Chief Executive Officer may be removed by KNE and any
member of the Operating Team appointed by TBI's Chief Executive Officer may be
removed by TBI. Any vacancy (whether as a result of resignation, removal or
death) occurring in the Operating Team with respect to KNE's representatives
may be filled by KNE's Chief Executive Officer, and any vacancy on the
Operating Team with respect to TBI's representatives may be filled by TBI's
Chief Executive Officer. Each Operating Team member shall serve at the
pleasure of the Chief Executive Officer appointing such Operating Team Member.
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4.5 Resignations. Any Operating Team member may resign at any
time.
4.5 Place and Manner of Meetings. Meetings of the Operating Team
shall be held quarterly or more frequently if necessary, to consider matters
concerning the Company, including such matters as budgets and general business
plans. Operating Team members may participate in such meetings by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
4.6 Meetings of the Operating Team. A regular meeting of the
Operating Team may be held at such time as shall be determined from time to
time by resolution of the Operating Team members.
Any member of the Operating Team may call a special meeting of the
Operating Team by giving at least five (5) days' written notice stating the
date, place and hour of meeting to each Operating Team member either personally
or by mail. Such special meeting shall be held at the time specified in the
notice of meeting. Except as otherwise expressly provided by statute, by the
Certificate of Formation or by this Agreement, neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in a
notice or waiver of notice. In any case where all of the Operating Team
members execute a waiver of notice of the time and place of meeting, no notice
thereof shall be required, and any such meeting shall be held at the time and
at the place specified in the waiver of notice. Attendance of Operating Team
members at any meeting shall constitute a waiver of notice of such meeting,
except where the Operating Team members attend a meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
4.7 Action Without Meeting. Any action which may be taken at a
meeting of the Operating Team may be taken without a meeting if a Consent,
setting forth the action so taken, shall be signed by at least three of the
four members of the Operating Team. Such Consent shall have the same force and
effect as a vote at a meeting.
4.8 Quorum; Majority Vote. At all meetings of the Operating Team
a majority of the number of members of the Operating Team fixed by this
Agreement shall constitute a quorum for the transaction of business. The act
of three of the four members of the Operating Team shall be the act of the
Operating Team.
4.9 Compensation. The Members may designate the duties of the
Operating Team and the duties of each Operating Team Member engaged in the
conduct of the Company's business. The Members shall also determine the
compensation payable to each Operating Team member for his services. No such
payment shall preclude any member of the Operating Team from serving the
Company in any other capacity and receiving compensation therefor.
4.10 Procedure. The Operating Team shall keep a record of the
actions of the Operating Team.
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4.11 Annual Reports. Within ninety (90) days after the end of each
Fiscal Year, the Operating Team shall cause to be prepared (and furnished to
each Member) financial statements, which shall be prepared in accordance with
GAAP, and which shall include the following:
(a) A copy of the balance sheet of the Company as of the
last day of such Fiscal Year;
(b) A statement of income or loss for the Company for such
Fiscal Year;
(c) A statement of each Member's Capital Account and
changes therein and changes in owner's equity with respect to the
Company's for such Fiscal Year; and
(d) A statement of cash flow of the Company for such
Fiscal Year.
4.12 Monthly Reports. Within forty-five (45) days after the end of
each month, the Operating Team shall cause each Member to be furnished with
financial statements prepared in accordance with the Company's methods of
accounting, of the type described in the preceding Section 4.11, as of the last
day of such month, which financial statements shall include a comparison to (a)
the applicable budget projections for such month and (b) the financial
statements for the corresponding month of the prior Fiscal Year.
4.13 Annual Budget. The Operating Team shall cause to be prepared
and delivered to each Member (a) no later than November 30 of each year (the
"budgeting year") a proposed operating budget for the Company for the following
Fiscal Year, and (b) no later than December 31 of the budgeting year a final
operating budget for the Company for the following Fiscal Year. Both said
proposed and final budgets shall set forth in reasonable detail the Company's
projected operating expenses, capital expenditures, cash flow and income
projections for the following Fiscal Year on projected monthly and year-to-date
bases. The Operating Team also shall cause to be prepared and delivered to
each of the Members, in conjunction with the preparation and delivery of the
Company's monthly and annual financial statements, a comparison of the actual
to budgeted financial results.
4.14 Tax Returns and Information. The Operating Team shall cause
all tax returns that the Company is required to file to be prepared and timely
filed (including extensions) with the appropriate authorities of each Fiscal
Year. On or before July 15 (commencing in 1997) the Operating Team shall also
cause to be delivered to each Member information pertaining to the Company and
its operations for the previous Fiscal Year that is necessary for the Members
to accurately prepare their respective federal and state income tax returns for
said Fiscal Year.
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ARTICLE V
SCOPE
5.1 Geographic/Operated and Non-Operated. Initially, the Company
shall provide the services described in Article VI hereof in connection with
the gas production from TBI operated properties in the AMI. The Company shall
also make such services available to third party properties located within the
AMI. On an ongoing basis, and in any event by December 31 of each year, the
Operating Team will evaluate the success of the Company in providing the
services to the properties in the AMI, and determine whether and to what extent
such services will be modified and/or extended to additional properties
described in the overall scope of business of the Company.
The overall scope of business of the Company is contemplated to
eventually include some or all of TBI's and/or third party current and future
operated and non-operated production from other areas, including, but not
limited to, the Rockies, Mid-Continent, and Permian basins, and any production
which TBI may acquire in its proposed acquisition of properties from Presidio
Oil Company ("the Presidio Properties"). This contemplated scope of business
shall, however, exclude any production which is at the date of this Agreement
already dedicated or subject to third party agreements until such time as any
such production is released from such agreement and is dedicated to the
Company, in the discretion of the Operating Team.
5.2 Area of Mutual Interests. The Company shall be bound by the
AMI. On an ongoing basis, but in any event by December 31 of each year, the
Operating Team will evaluate the success of the Company, and determine, in its
sole discretion, whether the AMI shall be extended to include other areas. The
AMI (as amended or supplemented from time to time) shall specifically exclude
transmission assets, assets previously dedicated under or subject to third
party agreements, assets subject to federal rate regulation or state rate
regulation as an intrastate pipeline, assets subject to contracts which are not
assignable to third parties, assets and property specifically set forth on
Exhibit B hereto and any other assets or opportunities specifically excluded by
the Operating Team. It is contemplated that the Operating Team shall endeavor,
on an ongoing basis, to identify additional opportunities to be available to
the Company
ARTICLE VI
SERVICES
TBI will grant to the Company the right to perform certain
services related to TBI's natural gas, NGL's and other gas byproducts produced
from the properties of TBI located within the AMI. All services shall be
provided at competitive rates, governed by contracts and rate schedules to be
agreed upon and administered by the Operating Team. Such services will include
the following:
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A. Gathering Services.
B. Processing Services.
C. Marketing Services.
D. Storage Services.
Further, TBI will grant to the Company the right to perform certain
field services, including such services as pumper services and other related
physical operation services, measurement, etc, on existing properties of TBI
located within the AMI, at TBI's discretion. However, the KNPC Properties
within the AMI which are currently utilizing KNE's field services shall be
included in the group of properties for which the Company shall perform field
services, and shall not be at TBI's discretion, provided that the costs payable
by TBI for such services shall be substantially equivalent to the costs charged
for such services prior to TBI's acquisition of the KNPC Properties.
The Members agree that the Operating Team, on an ongoing basis, but in
any event after one year of operation under any given rate schedule and service
agreement, shall review with TBI the rates for services provided, and the
quality of the services provided, and determine whether the rates and services
are satisfactory to each of the parties. To the extent corrections must be
made, the Operating Team shall determine the appropriate remedies necessary to
resolve the problems, and shall reevaluate the outcome of the remedies
employed within one year of their implementation. TBI shall not be required to
utilize such services if the quality of services being provided is not adequate
(in TBI's opinion) or if such services are not being provided at competitive
rates.
ARTICLE VII
OWNERSHIP INTERESTS
KNE shall have a fifty-five percent (55%) and TBI shall have a
forty-five percent (45%) Interest in the Company. Except as herein
specifically provided, neither KNE or TBI shall be obligated to transfer to the
Company any ownership, or title to their respective assets and properties for
which services under the Company are contemplated to be provided.
ARTICLE VIII
CAPITALIZATION
8.1 Capital Contributions. Initially, TBI will contribute to the
Company (by separate agreement and subject to any existing agreements) the
right to perform the services described in Article VI of this Agreement and
related to the natural gas, NGL's and natural gas byproducts from its owned and
operated production in the AMI. KNE will contribute to the Company the current
marketing opportunities for the sale of gas to specific end use markets located
within the AMI as set forth on Exhibit A attached hereto. In addition, KNE
will grant the Company the right to sell at least 30% of TBI's currently owned
gas, into K N Marketing, Inc.'s ("KNM") specific end use markets located in the
Heartland and Front Range markets described on Exhibit A to the extent such
volumes do not exceed 20% or 9000 MMBtu/D of
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the K N Interstate (KNI) pool, whichever is lesser, and 20% or 6000 MMBtu/D of
the Colorado Interstate Gas (CIG) pool, whichever is lesser. Sales of gas by
the Company to Heartland and Front Range markets will be at the weighted
average market price received by KNM from third party consumers in such
markets. TBI will cause Retex Gathering Company, Inc. (TBI's wholly owned
subsidiary and marketing affiliate) to dedicate to the Company its CIG-firm and
KNI-firm transportation capacity, unless otherwise currently committed, and K N
will cause KNM to dedicate to the Company 6000 MMBtu/D of its KNI-firm
transportation capacity and will cause Northern Gas Company, a wholly owned
subsidiary of KNE to agree to use reasonable efforts to purchase volumes
available from the Company, subject to physical requirements and prudency
requirements established by applicable state commissions. In addition, both
TBI and KNE shall make proportionate working capital contributions as necessary
and appropriate, pursuant to decisions of the Operating Team. The initial
contributions by KNE and TBI to the Company shall consist of those items
described on Exhibit C hereto, and all of which shall be contributed to the
Company within thirty days following the date of this Agreement. The Members
agree that fifty five percent (55%) of the aggregate value of the items listed
on Exhibit C and the items to be contributed as contemplated in Article XIII is
being contributed by KNE or K N Gathering Company and that forty five percent
(45%) of the aggregate value of the items listed on Exhibit C and the items to
be contributed as contemplated in Article XIII is being contributed by TBI or
TBI Production Company. The Operating Team shall determine the agreed values
of such contributions within thirty days following the date of this Agreement.
8.2 Capital Accounts. A Capital Account shall be established and
maintained for each Member. Each Member's Capital Account shall be increased
by (i) the amount of money contributed by that Member to the Company, (ii) the
fair market value of property contributed by that Member to the Company (net of
liabilities secured by such contributed property that the Company is considered
to assume or take subject to under Section 752 of the Code), and (iii)
allocations to that Member of Net Income and Net Loss (or items thereof),
including income and gain exempt from tax and income and gain described in
Treasury Regulation Section 1.704-1(b)(2)(iv)(g), but excluding income and
gain described in Treasury 1.704-1(b)(4)(i), and shall be decreased by (iv) the
amount of money distributed to that Member by the Company, (v) the fair market
value of property distributed property that such Member is considered to assume
or take subject to under Section 752 of the Code), (vi) allocations to that
Member of expenditures of the Company described in Section 1.704-1(b)(2)(iv)(f)
and as required by the other provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(f) and as required by the other provisions of Treasury
Regulation Section 1.704-1(b)(2)(iv) and 1.704-1(b)(4), including adjustments
to reflect the allocations to the Members of depreciation, depletion,
amortization, and gain or loss as computed for book purposes rather than the
allocation of the corresponding items as computed for tax purposes, as required
by Treasury Regulation Section 1.704-1(b)(2)(iv)(g). A Member who has more
than one interest in the Company shall have a single Capital Account that
reflects all such interests, regardless of the class of interests owned by such
Member and regardless of the time or manner in which such interests were
acquired. Upon the transfer of all or part of an interest in the Company, the
Capital Account of the transferor that is attributable to the transferred
interest in the Company
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shall carry over to the transferee Member in accordance with the provisions of
Treasury Regulation Section 1.704-1(b)(2)(iv)(l).
8.3 Allocations of Net Income or Net Loss.
(a) For purposes of maintaining the Members' Capital
Accounts, the Net Income or Net Loss of the Company for each year
shall be allocated among the Members in accordance with their
Interests.
(b) Except as otherwise provided in Section 8.3(c): for
federal and state tax purposes each item of income, gain, loss,
deduction and credit shall be allocated among the Members in the same
manner as each correlative item of Net Income or Net Loss is allocated
to the Members for purposes of maintaining their respective Capital
Accounts.
(c) Income, gain, loss and deduction with respect to
property contributed to the Company by a Member or revalued pursuant
to Treasury Regulation Section 1.704-1(b)(2)(iv)(f) shall be allocated
among the Members in a manner that takes into account the variation
between the adjusted tax basis of such property and its book value, as
required by Section 704(c) of the Code and Treasury Regulation Section
1.704-1(b)(4)(i), using the remedial allocation method permitted by
Treasury Regulation Section 1.704-3(d).
(d) All Net Income and Net Loss (and any item of income,
gain, loss, deduction or credit) shall be allocated, and all
distributions shall be made, to the Persons shown on the records of
the Company to have been Members as of the last day of the period for
which the allocation or distribution is to be made. Notwithstanding
the foregoing, if an Interest is transferred during a taxable year,
Net Income and Net Loss (and any item of income, gain, loss, deduction
or credit) for such taxable year allocable to the transferred Interest
shall be prorated between the transferor and the transferee based upon
that portion of such taxable year during which each was recognized as
owning such Interest, without regard to the results of Company
operations during particular portions of such taxable year and without
regard to distributions made to the transferor and the transferee
during such taxable year; provided, that such allocation must be in
accordance with a method permissible under Section 706 of the Code and
the Treasury Regulations thereunder.
8.4 Available Cash. Available Cash shall be Distributed in the
following order and priority:
(a) Tax Distributions. If at the end of a calendar
quarter of a Fiscal Year, the Company estimates that it will allocate,
to one or both Members with respect to such Fiscal Year, (i) Taxable
Income (or items thereof) excluding items allocated pursuant to
Section 8.3(c) and (ii) items of income, gain, loss and deduction
required to be
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separately stated and computed by the Members pursuant to section
613A(c)(7)(D) of the Code (the amounts described in Clauses (i) and
(ii) shall be referred to in this Section 8.4(a) as "Net Taxable
Income"), then not later than the twentieth (20th) day prior to the
date upon which estimated federal income tax payments are required to
be made by corporations for such calendar quarter, the Company shall
make a Distribution of Available Cash to each Member in an amount
equal to the following:
(i) Prior Income. First, that portion of any Tax
Distribution Amount for the calendar quarter immediately
preceding the calendar quarter to which Section 8.4(a)(ii)
refers for which a Distribution to such Member pursuant to
this Section 8.4(a) had not been made. The amount to be
Distributed pursuant to this Section 8.4(a) (i) shall be
determined by subtracting (A) the aggregate Distributions of
Available Cash made to such Member pursuant to this Section
8.4(a) as of the calendar quarter to which Section 8.4(a) (ii)
refers from (B) the aggregate of the amounts calculated
pursuant to Section 8.4(a) (ii), as adjusted, to be
Distributed to such Member for all such calendar quarters;
(ii) Current Income Tax Distribution. Second, the
product of (A) (I) such Member's distributive share of the
Company's estimated Net Taxable Income for such calendar
quarter, determined in accordance with the allocation
provisions of Article VIII, (II) plus or minus, as the case
may be, any increase or reduction in the estimates of Net
Taxable Income with respect to prior calendar quarters of such
Fiscal Year and (B) 38.25%; and
(b) Remainder. The Company, with the Consent of the Members,
may, thereafter, make Distributions of Available Cash to the Members
in accordance with their Interests.
8.5 Non-Cash Distributions. Except as otherwise provided in this
Agreement, each Member must look solely to the Property of the Company for the
return of such Member's Capital Contribution and shall have no right or power
to demand or receive Property other than cash.
8.6 Maintenance of Adequate Cash Reserves. The Company shall take
all reasonable and appropriate action necessary to ensure that it will have at
all times adequate cash reserves to make the Distributions prescribed by
Section 8.4(a) at the time provided therein, including refraining from making
any further capital or discretionary expenditures to the extent reasonably
necessary for the Company to have adequate Available Cash to do so.
ARTICLE IX
FINANCIAL SERVICES
KNE shall have the right, but not the obligation, to participate in
the bidding process to provide financing for any material capital projects
undertaken by the Company in the future,
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including debt offerings or other borrowings. The Company shall be under no
obligation to select KNE as the financing entity in any such project.
ARTICLE X
WIND RIVER GATHERING COMPANY JOINT VENTURE
AGREEMENT
It is the intent of the parties that all existing terms and conditions
of the Wind River Gathering Company Joint Venture Agreement (the "Wind River
JV") be incorporated into the Company's business or, in the alternative, that
the Wind River JV be operated or managed by the Company pursuant to an
operating or management agreement. The parties understand that the
incorporation of the Wind River JV into the Company or, in the alternative, the
assumption of operations or management of the Wind River JV by the Company may
not occur immediately, but the parties will endeavor to accomplish such
incorporation or assumption of operations or management no later than July 1,
1996. Terms regarding ownership of, and liability for, the jointly owned
gathering assets in the Wind River JV shall not be changed, and the accounting
for the Wind River JV properties and production shall remain separate from the
accounting of the Company.
ARTICLE XI
LIABILITY
The Company has been formed as a limited liability company, which
shall assume the obligation for all services to be performed pursuant to the
terms of this Agreement. Each Member hereby retains several liability
(including, without limitation, all environmental and tax liability) associated
with its respective ownership and operation of the assets and properties upon
which services are to be performed by the Company; provided, however, the
liability associated with the assets and properties which are currently owned
by KNE and TBI pursuant to the Wind River JV Agreement shall be joint and
several, including, but not be limited to, all environmental and tax
liabilities.
ARTICLE XII
PREFERENTIAL RIGHT TO PURCHASE
TBI hereby grants first to the Company, and if the Company declines,
then to KNE, an exclusive preferential right during the term of this Agreement
to purchase, on a competitive basis, any assets downstream of the wellhead
sales meter now owned by TBI in the AMI (including such assets as gathering,
processing and pipelines) and, to the extent it is legally able to do so, to
assets acquired by TBI in the future (including any such downstream assets to
be assigned to TBI from KNPC) which are located in the AMI, but in each case
only to the extent such assets become available for sale prior to dissolution
of the Company. KNE hereby grants to TBI an exclusive preferential right
during the term of this Agreement to purchase, on a competitive basis, any
upstream assets owned by KNE now or in the future to the extent such assets
become available for sale prior to dissolution of the Company.
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KNE and TBI each hereby grant to the Company an exclusive preferential
right to participate in any gathering, processing, storage, or field services
projects which are made available to either of KNE or TBI by another Person and
which fall within the AMI.
KNE and TBI hereby each grant to the Company an exclusive preferential
right to marketing sales opportunities for sales of gas to specific end use
markets and customers located within the AMI.
The Member proposing to sell any of the assets or to engage in any
other activities subject to a preferential right in favor of the Company or the
other Member shall promptly give written notice to the Company and/or the other
Member, with full information concerning the proposed transaction, which shall
include the name and address of any Party involved in the proposed transaction
(who must be ready, willing and able to proceed with the transaction), a full
explanation of the consideration involved, a full description of the assets to
be sold or activities to be engaged in and all other terms of any such proposed
transaction. The Company or the non-selling Member shall have a period of
fifteen (15) days after the notice is delivered, to exercise its preferential
right granted hereunder on the same terms and conditions as are set forth in
the notice received from the other Member. If the notice does not set forth a
specific price to be paid by a bonafide third party purchaser to the party
proposing the sale and the parties are unable to agree on such a price, each
party shall appoint one appraiser and the two appraisers shall appoint a third
appraiser. The three appraisers shall, by majority vote, determine the
appropriate price. Each party appointing an appraiser shall be responsible for
the appraiser appointed by such party and the cost of the third appraiser shall
be borne equally by the parties appointing the first two appraisers. If the
holder of the preferential right fails to exercise such right, the Member
proposing the transaction subject to the preferential right may proceed with
the transaction on terms and at a price no less favorable than that offered to
the party with the preferential right, provided, if such transaction is not
concluded within Sixty (60) days following the expiration of the first right of
refusal, the Member proposing the transaction must again offer the transaction
to the parties with the preferential right in accordance with the foregoing
before proceeding with the transaction.
ARTICLE XIII
WOLF CREEK STORAGE FACILITY
Within seven (7) days following the formation of the Company KNE shall
cause K N Gathering Company (a wholly owned subsidiary of KNE) to convey all of
its interest in the Bonanza Gathering Systems to the Company for a Class A
membership Interest in the Company and TBI will cause TBI Production Company
(formerly named K N Production Company) to convey the Wolf Creek Storage
Facility to the Company for a Class B membership Interest in the Company. The
Wolf Creek Storage Facility shall, however, be subject to an operating lease
between KNE and the Company acceptable to KNE and appropriate regulatory
authorities as necessary. Any costs associated with such operating lease shall
be allocated to and be the sole responsibility of KNE. All Net Income and Net
Losses associated with KNE's operation of the
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Wolf Creek Storage Facility shall be shared in the proportion of 55% by the
Class A Members and 45% by the Class B Members.
ARTICLE XIV
INDEMNIFICATION
14.1 Indemnification. The Members, acting by and through the
Operating Team, may adopt such provisions pertaining to indemnification of
Members, Managers, Operating Team members and others as may be permitted under
the Delaware Limited Liability Company Act; provided, however, no Person may be
indemnified under any section of this Article XIV in respect of a proceeding:
(A) in which the Person is found liable on the basis that personal
benefit was improperly received by or it, whether or not the benefit resulted
from an action taken in the Person's official capacity; or
(B) in which the Person is found liable to the Company.
14.2 Liability Insurance. The Company may purchase and maintain
insurance or another arrangement on behalf of any Person who is or was a
Manager, Operating Team member, officer, employee, or agent of the Company or
who is or was serving at the request of the Company as a Manager, Operating
Team member, director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic limited
liability company, corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, against any
liability asserted against him or it and incurred by him or it in such a
capacity or arising out of his or its status as such a person, whether or not
the Company would have the power to indemnify him against that liability under
this Article XIV.
ARTICLE XV
CERTIFICATES AND MEMBERS
15.1 Certificates. Each Member shall receive a certificate (in
the form determined by the Operating Team) representing all membership
interests to which such Member is entitled. Such certificates shall be
consecutively numbered and shall be entered in the books of the Company as they
are issued. Each certificate shall state on the face thereof the holder's
name, the class of membership, the membership interest, and such other matters
as may be required by the laws of the State of Delaware. They shall be signed
by a representative of the Company.
15.2 Registered Members. The Company shall be entitled to treat
the holder of record of any certificate of membership interest of the Company
as the owner thereof for all purposes and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such membership
interest or any rights deriving from such membership interest on
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the part of any other Person, including (but without limitation) a purchaser,
assignee or transferee, unless and until such other Person becomes the holder
of record of such membership interest, whether or not the Company shall have
either actual or constructive notice of the interest of such person, except as
otherwise provided by law.
15.3 Liability for Contribution Obligations.
A. A promise by a Member to make a contribution to, or otherwise
pay cash or transfer Property to, the Company shall be in writing and signed by
the Member.
B. If a Member does not make a contribution or payment of cash or
transfer of property required by the enforceable promise, whether as a
contribution or with respect to a contribution previously made, that Member is
obligated, at the option of the Company, to pay to the Company an amount of
cash equal to that portion of the agreed value, as stated in this Agreement or
in the Company's records required to be kept under the Act, of the contribution
represented by the amount of cash that has not been paid or the value of the
property that has not been transferred.
C. Unless otherwise provided by this Agreement, the obligation of
a Member to make a contribution or otherwise pay cash or transfer property to
the Company may be compromised or released only with the written agreement of
the other Member.
D. The Company, by and through the Operating Team, will have the
authority to request (but not require) the Members to contribute additional
capital when additional capital is reasonably needed to pay existing or
anticipated expenses of operation and administration, debt service for any
amounts borrowed by the Company, insurance and tax payments on the cost of
acquiring, maintaining and selling property of the Company.
15.4 Restriction upon Ownership and Transfer of Ownership Interest.
This Company is formed by a closely-held group who know and trust one another,
and who will have surrendered certain management rights (in exchange for
limited liability) based upon their relationship and trust. Capital is also
material to the business and investment objectives of the Company and its
federal tax status. An unauthorized transfer of a Member's Interest could
create a substantial hardship to the Company, jeopardize its capital base, and
adversely affect its tax structure. These restrictions upon ownership and
transfer are not intended as a penalty, but as a method to protect and preserve
existing relationships based upon trust and the Company's capital and its
financial ability to continue.
The ownership and transfer of a membership Interest is subject to the
following disclosure and condition:
THE MEMBERSHIP INTEREST OF THE COMPANY HAS NOT BEEN NOR WILL BE
REGISTERED OR QUALIFIED UNDER FEDERAL OR STATE SECURITIES LAWS. THE
MEMBERSHIP INTEREST OF THE LIMITED LIABILITY COMPANY MAY NOT
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BE OFFERED FOR SALE, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED UNLESS SO
REGISTERED OR QUALIFIED, OR UNLESS AN EXEMPTION FROM REGISTRATION OR
QUALIFICATION EXISTS AND THEN ONLY WITH THE CONSENT OF ALL MEMBERS. THE
AVAILABILITY OF ANY EXEMPTION FROM REGISTRATION OR QUALIFICATION MUST BE
ESTABLISHED BY AN OPINION OF COUNSEL FOR THE OWNER THEREOF, WHICH OPINION OF
COUNSEL MUST BE REASONABLY SATISFACTORY TO THE COMPANY.
No Member may sell, transfer or otherwise dispose of all or any part
of its Interest without the prior written consent of all other Members, which
consent may be withheld or denied in the sole discretion of each such Member.
Notwithstanding the foregoing, a Member may transfer any part or all of its
Interest to a wholly owned subsidiary of the Member without the consent of the
other Members. If the ownership of an Interest is in doubt, or if there is
reasonable doubt as to who is entitled to a distribution of the income realized
from an Interest, the Company may accumulate the income until such issue is
finally determined and resolved. Accumulated income will be credited to the
capital account of the Member whose Interest is in question.
15.5 Option to Purchase. If the Interest of a Member (the
"Transferring Member") is acquired by any Person or agency other than a wholly
owned subsidiary of the Transferring Member, the Interest of the transferee may
then be acquired by the Non-Transferring Member upon the following terms and
conditions:
(a) The Non-Transferring Member will have the option to
acquire the Interest by giving written notice to the transferee of its
intent to purchase within 90 days from the date it receives notice of
such transfer or proposed transfer.
(b) The Non-Transferring Member will have 180 days from
the first day of the month following the month in which it delivers
notice exercising its option to purchase the Interest. The valuation
date for the Interest will be the first day of the month following the
month in which such notice is delivered.
(c) Unless the Non-Transferring Member and the transferee
agree otherwise, the fair market value of a Member's Interest is to be
determined by qualified appraisers appointed by the Members in
accordance with the procedure set out in Article XII above.
(d) Closing of the sale will occur at the registered
office of the Non-Transferring Member at 10 o'clock A.M. on the first
Tuesday of the month following the month in which the value of the
Interest is determined. Until Closing, or if the Non-Transferring
Member does not elect to purchase any part of the Interest in
question, the transferee will be considered a nonvoting owner of such
membership interest, and entitled to all items of income, deduction,
gain or loss from the membership interest,
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plus any additions or subtractions therefore, but shall not be
considered a Member for any other purposes.
(e) In order to reduce the burden upon the resources of
the Non-Transferring Member, the Non-Transferring Member will have
the option, to be exercised in writing delivered at closing, to pay
its purchase money obligation in not more than three equal annual
installments with interest thereon at then existing market rates.
The first installment of principal will be due and payable on the day
of the closing, and subsequent annual installments, with interest due
thereon, will be due and payable, in order, on the same day of each
subsequent calendar year until the entire amount of the obligation,
principal and interest, is fully paid. The Non-Transferring Member
will have the right to prepay all or any part of the purchase money
obligation at any time without premium or penalty.
(f) Neither the transferee of an unauthorized transfer or
the Member causing the transfer will have the right to vote during the
prescribed option period, or if the option to purchase is timely
exercised, until the sale is actually closed.
15.6 Buy-Sell Rights After Change of Control. Notwithstanding any
preferential rights to purchase or any other provisions in this Agreement, if
at any time during their ownership of an Interest (directly or through a wholly
owned subsidiary) either KNE or TBI should undergo a change of control, defined
as any situation in which a new Person, or group of Persons becomes in control
(as such term is defined in Rule 405 promulgated by the Securities and Exchange
Commission under the Securities Act of 1933) of either KNE or TBI, or a
majority of the board of directors of either of them shall change within any
twelve month period of time, then the party not undergoing the change of
control ("Notifying Party") shall have the right at any time within the ninety
(90) days following receipt by the Notifying Party of written notice of such
change of control to trigger the Buy-Sell Rights After Change of Control
provided for in this Section 15.6. Such rights shall be triggered by the
Notifying Party giving to the other (the "Receiving Party") notice in writing
that it wishes to exercise its rights under this Section 15.6, which notice
shall specify the value the Notifying Party has assigned to a 1% Interest in
the Company (the "Specified 1% Value"). For a period of thirty (30) days after
receipt of such notice, the Receiving Party shall have the right to elect to
sell its Interest in the Company to the Notifying Party at the price of the
Specified 1% Value times the number of 1% Interests in the Company held by the
Notifying Party. Such election by the Receiving Party shall be made by written
notice given by the Receiving Party to the Notifying Party during such
thirty-day period. If no such notice shall be given, it shall be deemed that
the Receiving Party elected to sell its Interest in the Company to the
Notifying Party at the price of the Specified 1% Value times the number of 1%
Interests in the Company held by the Receiving Party. After the expiration of
such thirty-day period, the sale and purchase of the Interest in the Company
being bought and sold as aforesaid shall proceed without avoidable delay by
delivery to the selling party of the consideration of its Interest in the
Company in exchange for the assignment to the buying party for the Interest in
the Company being bought, free and clear of all liens and encumbrances, except
those to which the Interest was previously subject. The provisions of this
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Section 15.6 shall survive for a period of 180 days following any termination
of the Company pursuant to Section 16.1(f) hereof.
ARTICLE XVI
DISSOLUTION
16.1 Dissolution. This Company shall be dissolved on the first of
the following to occur:
(a) when the period fixed for the duration of this
Company expires;
(b) upon the occurrence of events specified in the
Certificate of Formation or this Agreement to cause dissolution;
(c) the written Consent of all members;
(d) except as otherwise provided in this Agreement, upon
the withdrawal, expulsion, bankruptcy, or dissolution of a Member or
the occurrence of any other event which terminates the continued
membership of a Member in this Company;
(e) Entry of a decree of judicial dissolution under the
Act; or
(f) Upon sixty (60) days written notice by one Member to
the other at any time after the first two (2) years from the Effective
Date.
For purposes of this Section 16.1, the term "dissolution" does not
include a merger, spin-off, consolidation, reorganization or recapitalization
of a Member.
16.2 Judicial Dissolution. On application by or for a Member, a
court of competent jurisdiction may decree dissolution of this Company if it is
not reasonably practicable to carry on the business of this Company in
conformity with its Certificate of Formation and this Agreement.
16.3 Winding Up. On the dissolution of this Company, its affairs
shall be wound up as soon as reasonably practicable. The winding up shall be
accomplished by the Operating Team or by a party or parties appointed by the
Members. In addition, a court of competent jurisdiction, on cause shown, may
wind up the Company's affairs on application of any Member or the Member's
legal representative or assignee and, in connection with the winding up, may
appoint a Person to carry out the liquidation and may make all other orders,
directions, and inquiries that the circumstances require.
16.4 Transfer of Assets. On the winding up of the Company, its
assets shall be paid or transferred as follows:
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(a) To the extent otherwise permitted by law, to
creditors, including Members who are creditors in satisfaction of liabilities
(other than for Distributions) of the Company, whether by payment or by
establishment of reserves;
(b) To Members and former Members in satisfaction of the
Company's liability for Distributions; and
(c) To Members in the manner provided in this Agreement.
16.5 Distributions Upon Termination and Dissolution of this
Company. Upon termination and dissolution of the Company, the Operating Team
or other Person designated by the Members will proceed to wind up the affairs
of the Company. The liabilities and obligations to creditors and all expenses
incurred in its liquidation and dissolution will be paid and will have first
priority in winding up as otherwise provided in this Agreement. The Operating
Team or other Person appointed by the Members may retain from available cash
and other assets of the Company sufficient reserves for anticipated and
contingent liabilities. Undistributed cash, and other property valued at its
fair market value on the date of Distribution, will be Distributed to the
Members in the following order:
(a) Distributions will first be made to repay any loans
to the Company by a Member, including the amount of any deferred payment
obligation to a Member or a Member's personal representative.
(b) Distributions will then be made to the Members in an
amount equal to the credit balances in their capital accounts so that the
capital account of each Member shall be brought to zero. For the purpose of
determining Distributions in liquidation, a negative capital account balance
will be considered to be a loan from the Company to a Member.
(c) The balance, if any, will be made to the Members in
an amount equal to each Member's percentage interest in the Company as
determined immediately prior to the Distribution of the credit balances of the
Member's capital accounts.
The Operating Team or other Person appointed by the Members,
in making or preparing to make a partial or final distribution will have the
authority to: (1) partition any asset or class of assets and deliver divided
and segregated interests to Members; (2) sell any asset or class of assets
(whether or not susceptible to partition in kind), and deliver to the Members a
divided interest in the proceeds of sale and/or divided or undivided interests
in any note and security arrangement taken as part of the purchase price;
and/or (3) deliver undivided interests in an asset or class of assets to the
Members subject to any indebtedness which may be secured by the property. To
the extent possible, any properties contributed to the Company (except the Wolf
Creek Storage properties) shall be returned to the Member contributing the same
upon any Dissolution of the Company. Ownership of the Wolf Creek Storage
properties and the Bonanza Gas Gathering System properties upon Dissolution of
the Company shall be shared by the Members in the ratio of 55% to KNE and 45%
to TBI.
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The Company may continue beyond its scheduled termination date
for a time reasonably necessary to conclude the administration of the Company,
pay expenses of termination and distribute all of the Property to those
entitled thereto.
ARTICLE XVII
MISCELLANEOUS
17.1 Books and Records.
A. The Company shall maintain such books and records as are
required by statute and as it may deem necessary or desirable. All books and
records of the Company shall be open to inspection and copying by the Members
from time to time The Company shall keep and maintain the following records in
its principal office and make them available in such office within five days
after the date of receipt of a written request:
(1) a current record that includes:
(a) the name and mailing address of each Member;
(b) the percentage interest in the Company owned
by each Member; and
(c) if more than one class of Members is
established under the Certificate of Formation or this Agreement, the
names of the Members who are members of each specified class;
(2) copies of the federal, state, and local information
or income tax returns for the Company's seven most recent tax years.
(3) a copy of the Certificate of Formation and this
Agreement, all amendments or restatements thereof, executed copies of any
powers of attorney, and copies of any document that creates, in the manner
provided by the Certificate of Formation or this Agreement, classes of members;
(4) The minutes of proceedings of the Operating Team or
this Agreement shall set forth:
(a) the amount of the cash contribution and a
description and statement of the Agreed Value of any other
contribution made by each Member, and the amount of the cash
contribution and a description and statement of the Agreed Value of
any other contribution that the Member has agreed to make in the
future as an additional contribution;
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(b) the times at which additional contributions
are to be made or events requiring additional contributions to be
made;
(c) events requiring the Company to be dissolved
and its affairs wound up;
(d) the date on which each Member in the Company
became a Member;
(5) correct and complete books and records of account of
the Company.
B. The Company shall maintain its records in written form or in
another form capable of conversion into written form within a reasonable time.
C. A Member, on written request stating the purpose, may examine
and copy, in person or by the Member's authorized representative, at any
reasonable time, for any proper purpose, and at the Member's expense, records
required to be kept under this Section 17.1 and other information regarding the
business, affairs, and financial condition of the Company as is just and
reasonable for the person to examine and copy.
D. A Member, upon notice to the Company, shall have the right to
audit the books and records of the Company for any period, at the cost of the
Member conducting such audit unless otherwise agreed by the Members.
E. On the written request by any Member of a membership interest,
the Company shall provide to the requesting Member without charge true copies
of:
(1) the Certificate of Formation and this Agreement and
all amendments or restatements; and
(2) any tax returns of the Company.
17.2 Method. Whenever by statue or the Certificate of Formation or
this Agreement, notice is required to be given to any Member or the Company,
and no provision is made as to how the notice shall be given, it shall not be
construed to mean personal notice, but any such notice may be given in writing
postage prepaid, addressed to the Company, the Operating Team or Member at the
address appearing on the books of the Company, or by any other method permitted
by law. Any notice required or permitted to be given by mail shall be deemed
given at the time when the same is deposited in the United States mails.
17.3 Tax Matters.
(a) Tax Matters Member. KNE is hereby designated as the
"Tax Matters Member" of the Company in accordance with Section
6231(a)(7) of the Code and shall
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serve in such capacity until the Members determine otherwise. Should
the unified audit rules of subchapter C of Chapter 63 of Subtitle F of
the Code be applicable, the Tax Matters Member shall: (i) take such
action as may be necessary to cause each of the other Members to
become a notice partner within the meaning of Section 6223 of the
Code, (ii) keep each of the other Members fully advised of the
progress of any audit, (iii) promptly notify each of the other Members
of any audit adjustments proposed by the Internal Revenue Service or
other taxing authority and furnish any supporting information
requested by a Member in connection therewith, (iv) prior to
submitting any materials to the Internal Revenue Service, or other
taxing authority, provide a copy of such materials to each of the
other Members, and (v) not enter into a settlement agreement pursuant
to Section 6224 of the Code without obtaining the prior Consent of all
Members. The Tax Matters Member shall be reimbursed by the Company
for any reasonable expenses incurred by the Tax Matters Member, or on
that Member's behalf, in such Member's capacity as the Tax Matters
Member.
(b) Elections. The Member shall make all elections and
other determinations for federal, state, local and foreign tax
purposes, on behalf of the Company.
17.4 Seal. The Company shall have no seal.
17.5 Amendments. This Agreement may be altered or repealed only
by unanimous Consent of the Members.
17.6 Headings. The headings used in this Agreement have been
inserted for convenience only and do not constitute matter to be construed in
interpretation.
17.7 Construction. Whenever the context so requires, the
masculine shall include the feminine and neuter, and the singular shall include
the plural, and conversely. If any portion of this Agreement shall be invalid
or inoperative, then, so far as is reasonable and possible:
(A) the remainder of this Agreement shall be considered valid and
operative; and
(B) effect shall be given to the intent manifested by the portion
held invalid or inoperative.
17.8 Taxable as a Partnership. The Company will constitute a
partnership for federal income tax purposes. The Company shall prepare or
cause to be prepared all necessary tax reports and other information required
by the Internal Revenue Service and a report for income tax purposes to each
member of its distributive share of items of income, gain, Loss, deduction and
credit.
25
<PAGE> 26
The undersigned, being all of the Members of the Company, hereby
certify that the foregoing Agreement has been unanimously adopted, this 31st
day of January, 1996.
K N ENERGY, INC.
By: /s/ H. Rickey Wells
------------------------------------
Name: H. Rickey Wells
Title: Vice President - Operations
TOM BROWN, INC.
By: /s/ Peter R. Scherer
------------------------------------
Name: Peter R. Scherer
Title: Executive Vice President
26
<PAGE> 1
EXHIBIT 10.3
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,
<PAGE> 2
cumulative dividends at 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.
2
<PAGE> 3
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 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
3
<PAGE> 4
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 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).
4
<PAGE> 5
(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 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.
5
<PAGE> 6
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 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
6
<PAGE> 7
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 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.
7
<PAGE> 8
(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.
(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
8
<PAGE> 9
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 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
9
<PAGE> 10
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 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
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<PAGE> 11
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.
(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
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<PAGE> 12
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
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<PAGE> 13
be paid on account of the shares of the Series A Preferred Stock, ratably, in
proportion to the 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
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<PAGE> 14
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.
(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.
/s/ Cliff Drescher
---------------------------------------
Cliff Drescher, Vice President
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EXHIBIT 10.4
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
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<PAGE> 3
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 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.
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<PAGE> 4
Except as provided in the preceding 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
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<PAGE> 5
such underwriting, the Stockholder may elect to withdraw therefrom by
written notice to the 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:
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<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
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<PAGE> 7
in such registration, each of its officers 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.
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<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 to the capital stock of the Company created as a
result of such stock split,
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<PAGE> 9
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: /s/ H. Rickey Wells
------------------------------------
Name: H. Rickey Wells
----------------------------------
Title: Vice President - Operations
---------------------------------
COMPANY: TOM BROWN, INC.
By: /s/ Peter R. Scherer
------------------------------------
Name: Peter R. Scherer
----------------------------------
Title: Executive Vice President
---------------------------------
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